UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

Commission File Number: 001-32751

Grupo Aeroportuario del Pacífico, S.A.B. de C.V.

(Exact name of registrant as specified in its charter)

Pacific Airport Group	United Mexican States
(Translation of registrant’s name into English)	(Jurisdiction of incorporation or organization)

Avenida Mariano Otero No. 1249-B

Torre Pacífico, Piso 6

Col. Rinconada del Bosque

44530 Guadalajara, Jalisco

Mexico

(Address of principal executive offices)

Saúl Villarreal García

Chief Financial Officer

Grupo Aeroportuario del Pacífico, S.A.B. de C.V.

Avenida Mariano Otero No. 1249-B

Torre Pacífico, Piso 6

Col. Rinconada del Bosque

44530 Guadalajara, Jalisco

Mexico

Telephone: + 52 (33) 38801100 ext. 20151

svillarreal@aeropuertosgap.com.mx

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Series B Shares	GAP B	New York Stock Exchange, Inc.*
American Depositary Shares (ADSs), each representing ten Series B Shares	PAC	New York Stock Exchange, Inc.

*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Title of each class:	Number of Shares
Series B Shares	476,850,000
Series BB Shares	84,150,000

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   ☒             No   ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes   ☐             No   ☒

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes   ☒             No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). N/A

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
				Emerging growth company	☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange Act.  ☐

*The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP     ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐                  No ☒

EXPLANATORY NOTE

As previously reported by Grupo Aeroportuario del Pacifico, S.A.B de C.V. in its current report on Form 6-K as filed with the U.S. Securities and Exchange Commission on April 24, 2020, the filing of this annual report on Form 20-F for the period ended December 31, 2019 was delayed due to circumstances related to COVID-19. As a result of the COVID-19 pandemic, has caused severe disruptions in travel and transportation, as well as limited access to the Company’s facilities, resulting in limited support from its staff. This has, in turn, delayed the Company’s ability to complete the 2019 Annual Report and the 20-F Report, as a result, the Company included the risk factors section in the report.

The Company is relying on the U.S. Securities and Exchange Commission Order Under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder (SEC Release No. 34-88318) dated March 4, 2020, as amended, on March 25, 2020 (SEC Release No. 34-88465) to file this annual report on the date hereof.

TABLE OF CONTENTS

	Forward-Looking Statements	1
Item 1.	Identity of Directors, Senior Management and Advisers	2
Item 2.	Offer Statistics and Expected Timetable	2
Item 3.	Key Information	2
	Selected Financial and Other Data	2
	Risk Factors	5
Item 4.	Information on the Company	25
	History and Development of the Company	25
	Business Overview	32
	Regulatory Framework	62
	Organizational Structure	80
	Property, Plant And Equipment	80
Item 4A.	Unresolved Staff Comments	81
Item 5.	Operating and Financial Review and Prospects	81
Item 6.	Directors, Senior Management and Employees	114
Item 7.	Major Shareholders and Related Party Transactions	122
	Major Shareholders	122
	Related Party Transactions	123
Item 8.	Financial Information	125
	Legal Proceedings	125
	Dividends	128
Item 9.	The Offer and Listing	129
	Trading Markets	129
Item 10.	Additional Information	130
	Corporate Governance	130
	Material Contracts	137
	Taxation	137
	Documents On Display	140
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	140
Item 12.	Description of Securities Other Than Equity Securities	142
Item 12A.	Debt Securities	142
Item 12B.	Warrants and Rights	143
Item 12C.	Other Securities	143
Item 12D.	American Depositary Shares	144
Item 13.	Defaults, Dividend Arrearages and Delinquencies	145
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	145
Item 15.	Controls and Procedures	145

i

Item 16.	Reserved	147
Item 16A.	Audit Committee Financial Expert	147
Item 16B.	Code of Ethics	147
Item 16C.	Principal Accountant Fees and Services	147
Item 16D.	Exemptions from the Listing Standards for Audit Committees	147
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	147
Item 16F.	Change in Registrant’s Certifying Accountant.	148
Item 16G.	Corporate Governance	148
Item 17.	Financial Statements	151
Item 18.	Financial Statements	151
Item 19.	Exhibits	152

ii

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements. We may from time to time make forward-looking statements in our reports to the Securities and Exchange Commission, or the SEC, on Forms 20-F and 6-K, in our annual reports to shareholders, in offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees to financial analysts, institutional investors, representatives of the media and others. Examples of such forward-looking statements include:

• projections of revenues, income from operations, net income (loss), net income (loss) per share, capital expenditures, dividends, capital structure or other financial items or ratios;

• statements of our plans or objectives;

• changes in our regulatory environment;

• statements about our future economic performance or that of the countries in which we operate or the countries to and from which the passengers who use our airports arrive and depart; and

• statements of assumptions underlying such statements.

Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the projections, plans, objectives, expectations, estimates and intentions expressed in forward-looking statements. These factors, some of which are discussed below under “Risk Factors,” include material changes in the performance or terms of our concessions, developments in legal proceedings, economic and political conditions and government policies in Mexico, Jamaica or elsewhere, inflation rates, exchange rates, regulatory developments, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that eventualities related to other risks and uncertainties, including the duration and severity of the recent coronavirus (“COVID-19”) outbreak and its impacts on our business; may cause actual results to differ materially from those expressed in forward-looking statements.

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments.

1

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

SELECTED FINANCIAL AND OTHER DATA

The following tables present selected financial and other data for each of the periods indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements referred to in Item 18 hereof and included elsewhere in this document, including the notes thereto. Our audited consolidated financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

References in this annual report on Form 20-F to “U.S. dollars” or “U.S.$” are to the lawful currency of the United States of America. References in this annual report on Form 20-F to “pesos,” “Mexican pesos” or “Ps.” are to the lawful currency of Mexico. References in this annual report on Form 20-F to “Jamaican dollars” or “J$” are to the lawful currency of Jamaica. We publish our audited consolidated financial statements in Mexican pesos.

This annual report on Form 20-F contains translations of certain peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps.18.8600 to U.S.$1.00, the noon buying rate for pesos on December 31, 2019, as published by the U.S. Federal Reserve Board. On May 22, 2020, the exchange rate for pesos as published by the U.S. Federal Reserve Board was Ps.22.7380 to U.S.$1.00.

This annual report on Form 20-F contains references to “workload units,” which are units measuring an airport’s passenger traffic volume and cargo volume. A workload unit currently is equivalent to one terminal passenger or 100 kilograms (220 pounds) of cargo. When we refer to “terminal passengers,” we mean the sum of all arriving and departing passengers on commercial and general aviation flights, other than transit passengers. “Transit passengers” are those who are generally not required to change aircraft while on a multiple-stop itinerary and who generally do not disembark from their aircraft to enter the terminal building. When we refer to “total passengers,” we mean the sum of terminal passengers and transit passengers. When we refer to “commercial aviation passengers,” we mean the sum of terminal and transit passengers, excluding general aviation passengers, such as those on private, non-commercial aircraft. This annual report on Form 20-F contains references to “air traffic movements,” which represent the sum of all aircraft arrivals and departures of any kind at an airport.

In reviewing this annual report, you should take into account the fact that certain margin and ratio calculations that utilize “total revenues” or “total operating costs” will reflect the effects of International Financial Reporting Interpretation Committee 12 Service Concession Arrangements (“IFRIC 12”), which provides the accounting treatment to be followed for service concession contracts for services considered to be public in nature. We recognize revenues and the associated costs of improvements to concession assets that we are obligated to perform at the airports as established by our Master Development Programs for our Mexican airports and by our Capital Development Programs for our Jamaican airports. The amount of revenues for these services are equal to the amount of costs incurred, as we do not obtain any profit margin for these construction services. The amounts paid are set at market value. As a result, revenues from improvements to concession assets do not have a cash impact on our results and do not represent a cash inflow. Furthermore, they are not directly related to our passenger traffic, which is the main driver of our revenues.

Consequently, changes in total revenues, total operating costs, operating margin, total revenues per terminal passenger and other ratios included in this annual report, as well as other ratios potentially useful to investors, may not be comparable between periods. In such instances we have included a parenthetical notation with comparable amounts or measures. Nominal results for amounts used in calculating certain margins, such as income from operations, are not affected by the adoption of IFRIC 12 and are therefore comparable. See “Item 5, Operating and Financial Review and Prospects – Critical Accounting Policies.”

As a result of our acquisition of Desarrollo de Concesiones Aeroportuarias, S.L. (“DCA”) in April 2015, our selected consolidated financial and operating data for the fiscal year ended December 31, 2015 includes the consolidation of DCA’s financial and operating data from April 1, 2015. Therefore, financial and operating data for the fiscal year ended December 31, 2015 may not be directly comparable with financial and operating data for prior or subsequent fiscal years. DCA has a 74.5% stake in MBJ Airports Limited (“MBJA”), the entity that holds the concession to operate the Sangster International Airport in Montego Bay, Jamaica (the “Montego Bay International Airport” or “Montego Bay airport”). MBJA uses the U.S. dollar as its functional currency, and its financial statements are prepared in accordance with IFRS. As a result, consolidation of MBJA’s financial statements with GAP’s financial statements do not require any substantial accounting changes.

2

On October 10, 2019, we took control of the operation, management and administration of the Norman Manley International Airport (“NMIA”) located in Kingston, Jamaica, pursuant to a concession agreement that we signed with the Government of Jamaica on October 10, 2018 (the “NMIA Concession Agreement”). PAC Kingston Airport Limited (“PACKAL”), our wholly owned Jamaican subsidiary incorporated in September 2018, holds the concession for the operation of NMIA. As a result of taking over the operation and management of NMIA in October 2019, our selected consolidated financial and operating data for the fiscal year ended December 31, 2019 includes the consolidation of PACKAL’s financial and operating data from October 10, 2019. Therefore, financial and operating data for the fiscal year ended December 31, 2019 may not be directly comparable with financial and operating data for prior fiscal years. PACKAL uses the U.S. dollar as its functional currency, and its financial statements are prepared in accordance with IFRS. As a result, consolidation of PACKAL’s financial statements with GAP’s financial statements do not require any substantial accounting changes.

		Year ended December 31,
	2015				2016				2017				2018				2019 (1) (13)				2019 (1)
		(thousands of pesos, except per share and per ADS data)																			(thousands of U.S. dollars; except per share and per ADS data) (1)
Profit or loss and other comprehensive income data:
Revenues:
Aeronautical services (2)	Ps.		5,419,022		Ps.		7,037,920		Ps.		8,280,522		Ps.		9,499,154		Ps.		10,547,720		U.S.$	559,264
Non-aeronautical services (3)			1,849,252				2,393,604				2,772,905				3,183,532				3,771,500			199,973
Improvements to concession assets (4)			838,635				1,676,037				1,312,491				1,440,204				1,906,801			101,103
Total revenues			8,106,909				11,107,561				12,365,918				14,122,890				16,226,021			860,340
Operating costs:
Costs of services:
Employee costs			502,794				584,560				663,360				773,630				877,068			46,504
Maintenance			302,203				346,805				505,352				528,929				578,510			30,674
Safety, security & insurance			249,752				282,310				317,023				386,079				428,208			22,705
Utilities			192,158				222,891				278,895				334,994				380,370			20,168
Other			311,351				345,805				345,777				430,090				480,708			25,488
Total costs of services			1,558,258				1,782,371				2,110,407				2,453,722				2,744,864			145,539
Technical assistance fees (5)			236,507				301,820				357,451				411,477				461,549			24,472
Concession taxes (6)			483,086				764,349				944,197				1,076,350				1,318,220			69,895
Depreciation and amortization:
Depreciation (7)			206,724				300,880				324,460				400,205				446,517			23,675
Amortization (8)			949,711				1,047,507				1,119,102				1,169,432				1,329,620			70,499
Total depreciation and amortization			1,156,435				1,348,387				1,443,562				1,569,637				1,776,137			94,175
Other (income) expense			(254,612	)			(295	)			(83,921	)			(73,152	)			1,212			64
Cost of improvements to concession assets (4)			838,635				1,676,037				1,312,491				1,440,204				1,906,801			101,103
Total operating costs			4,018,309				5,872,669				6,084,187				6,878,238				8,208,783			435,248
Income from operations			4,088,600				5,234,892				6,281,731				7,244,652				8,017,238			425,092
Finance cost - net			(456,810	)			(603,032	)			(99,389	)			(236,033	)			(671,132	)		(35,585	)
Share of loss of associates			(13,704	)			(11,728	)			(10,620	)			(947	)			79			4
Income before income taxes			3,618,086				4,620,132				6,171,722				7,007,672				7,346,185			389,511
Income tax expense			847,309				1,266,573				1,440,641				1,869,041				1,891,443			100,289
Profit for the year			2,770,777				3,353,559				4,731,081				5,138,631				5,454,742			289,223
Other comprehensive income
Exchange differences on translating foreign operations		482394					773,453				(226,494	)			(103,569	)			(269,440	)		(14,286	)
Remeasurements of employee benefit – net of income taxes		n/a				10773					(2,602	)			(161	)			(1,404	)		(74	)
Cash flow hedges, effective portion of changes in fair value, net of income tax		n/a				n/a				n/a				n/a					(172,094	)		(9,125	)
Total comprehensive income for the year			3,253,171				4,137,785				4,501,985				5,034,901				5,011,804			265,737
Profit for the year attributable to:
Controlling interest			2,726,020				3,281,884				4,649,120				5,037,368				5,360,152			284,207
Non-controlling interest		44757					71,675				81,961				101,263				94,590			5,015
Profit for the year			2,770,777				3,353,559				4,731,081				5,138,631				5,454,742			289,223
Total comprehensive income for the year
Controlling interest			3,141,513				3,948,323				4,451,659				4,936,526				4,937,027			261,772
Non-controlling interest		111658					189,462				50,326				98,375				74,777			3,965
Total comprehensive income for the year			3,253,171				4,137,785				4,501,985				5,034,901				5,011,804			265,737
Basic and diluted earnings per share (9)	Ps.	5.1867			Ps.	6.2443			Ps.	8.8457			Ps.	9.5845			Ps.	10.1986			U.S.$	0.5408
Dividends per share (10)	Ps.	3.32			Ps.		4.0700		Ps.		5.7200		Ps.		7.6200		Ps.		8.4200		U.S.$	5.4075
Basic and diluted earnings per ADS (9)	Ps.	51.867			Ps.		62.4430		Ps.		88.4577		Ps.		95.8448		Ps.	101.9863			U.S.$	0.4464
Dividends per ADS (10)	Ps.		33.2000		Ps.		40.7000		Ps.		57.2000		Ps.		76.2000		Ps.		84.1954		U.S.$	4.4642
Other operating data:
Total terminal passengers (thousands of passengers) (11)			30,319				36,549				40,709				44,948				48,709
Total air traffic movements (thousands of movements)			462				513				527				552				557
Total revenues per terminal passenger (12)	Ps.		267		Ps.		304		Ps.		304		Ps.		314		Ps.		333		U.S.$	18
Aeronautical and non-aeronautical services per terminal passenger	Ps.		240		Ps.		258		Ps.		272		Ps.		282		Ps.		294		U.S.$	16
Statement of financial position data:
Cash and cash equivalents	Ps.		2,996,499		Ps.		5,188,138		Ps.		7,730,143		Ps.		6,151,457		Ps.		7,500,193		U.S.$	397,677
Total current assets			3,386,683				5,998,574				8,980,159				7,840,207				9,367,484			496,685
Airport concessions, net			12,240,167				12,384,923				11,754,661				11,412,118				10,821,596			573,786
Rights to use airport facilities, net			1,100,394				1,043,695				986,995				930,296				873,598			46,320
Total assets			31,473,399				36,051,462				39,517,532				39,550,502				41,577,804			2,204,549
Current liabilities			4,658,310				1,941,299				2,295,147				2,172,523				4,676,566			247,962
Total liabilities			9,317,356				13,646,893				17,440,763				17,778,353				20,908,361			1,108,609
Total equity attributable to controlling interest			21,273,951				21,333,015				21,028,215				20,708,985				19,628,172			1,040,730
Common stock			12,528,780				10,778,613				9,028,446				7,777,576				6,185,082			327,947
Non-controlling interest		882092					1,071,554				1,048,554				1,063,165				1,041,271			55,211
Statement of cash flows data:
Net cash flows provided by operating activities	Ps.		4,904,753		Ps.		5,641,203		Ps.		6,168,702		Ps.		7,235,619		Ps.		8,164,057		U.S.$	432,877
Net cash flows used in investing activities			(3,669,927	)			(1,816,557	)			(1,938,575	)			(2,550,411	)			(2,586,095	)		(137,121	)
Net cash flows (used in) provided by financing activities			166,171				(1,771,185	)			(1,687,316	)			(6,166,694	)			(4,231,529	)		(224,399	)
Effects of exchange rate changes on cash held:		n/a				138178					(806	)			(97,200	)			2,303			122
(Decrease) increase in cash and cash equivalents			1,400,997				2,191,639				2,542,005				(1,578,686	)			1,348,736			71,513

3

(1) Translated into U.S. dollars at the rate of Ps.18.8600per U.S.$1.00, the noon buying rate on December 31, 2019, as published by the U.S. Federal Reserve Board. The U.S. dollar information should not be construed to imply that the peso amounts represent, or could have been or could be converted into, U.S. dollars at such rate or at any other rate. Per-share dollar amounts are expressed in U.S. dollars (not thousands of U.S. dollars). Operating data are expressed in the units indicated.

(2) Revenues from aeronautical services principally consist of a fee for each departing passenger, aircraft landing fees, aircraft parking fees, fees for the transport of passengers from an aircraft to a terminal building, security charges for each departing passenger and other sources of revenues subject to regulation under our maximum rates. See “Item 4, Information on the Company – Regulatory Framework” for a description of our regulatory framework, including our maximum rates, and “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Aeronautical Services – Passenger Charges” for certain exclusions to these fees in each of Mexico and Jamaica.

(3) Revenues from non-aeronautical services consist of revenues not subject to regulation under our maximum rates, which are primarily revenues from leasing of commercial space to tenants, advertisers, certain ground transportation providers and other miscellaneous sources of revenues, as well as the revenues derived from business lines operated directly by us, which include car parking charges, advertising, VIP lounges and convenience stores. Pursuant to our operating concessions and the Mexican Airport Law (Ley de Aeropuertos) and the regulations thereunder, car parking services are currently regulated under the Mexican Airport Law but are excluded from regulated services under our maximum rates, although the Ministry of Communication and Transportation (Secretaría de Comunicaciones y Transportes), or “SCT,” could decide to regulate such rates.

(4) Revenues from improvements to concession assets represent revenues generated from improvements made to concession assets and the related costs stemming from capital expenditures made as agreed with the Mexican government under our Master Development Programs for each fiscal year and with the Jamaican government in relation to our Capital Development Programs. These amounts did not result in actual cash inflows, nor did they have an effect on our consolidated net income as revenues earned were equal to the costs incurred. See “Item 4, Information on the Company – Business Overview.”

(5) We pay Aeropuertos Mexicanos del Pacífico, S.A.P.I. de C.V., or “AMP,” a technical assistance fee under the technical assistance agreement entered into in connection with AMP’s purchase of our Series BB shares. This fee is described in Item 7 hereof.

(6) Each of our subsidiary concession holders in Mexico is required to pay a concession tax to the Mexican government under the Mexican Federal Duties Law (Ley Federal de Derechos) for the use of public domain assets pursuant to the terms of its concession. The concession tax is currently 5.0% of each concession holder’s gross annual revenues (excluding revenues from improvements to concession assets). Gross annual revenue from the concession tax at the Montego Bay Airport (excluding revenues from improvements to concession assets) was 27.0%, 27.6% and31.6% during 2017, 2018 and 2019, respectively. In the case of the Kingston airport the concession tax is of 62.01% over the gross annual aeronautical and commercial revenues. For more information, see “Item 5, Operating and Financial Review and prospects – Mexican Concession Tax and Jamaican Concession Fee.”  

(7) Reflects depreciation of machinery, equipment and improvements on leased buildings.

(8) Reflects amortization of concessions, improvements to concession assets, rights to use airport facilities, recovered long-term leases and parking lots.

(9) Based on a weighted average of 525,575,547 common shares outstanding (excluding treasury shares) for the years ended December 31, 2015, 2016, 2017, 2018 and 2019, due to our stock repurchase program. Earnings per ADS are based on the ratio of 10 Series B shares per ADS.

(10) Dollar amounts per share were U.S.$0.1931 in 2015, U.S.$0.1744 in 2016, U.S.$0.2912 in 2017, U.S.$0.3880 in 2018 and U.S.$0.4464 in 2019 and per ADS were U.S.$1.9308 in 2015, U.S.$1.7436 in 2016, U.S.$2.9125 in 2017, U.S.$3.8808 in 2018 and U.S.$4.4642 in 2019 Per-share dollar amounts are expressed in U.S. dollars (not thousands of U.S. dollars).

(11) Includes arriving and departing passengers as well as transfer passengers (passengers who arrive at our airports on one aircraft and depart on a different aircraft). Excludes transit passengers (passengers who arrive at our airports but generally depart without changing aircraft).

(12) Total revenues for the period divided by terminal passengers for the period, expressed in pesos (not thousands of pesos).

(13) Includes information for the Kingston airport for the period from October 10 to December 31, 2019.

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RISK FACTORS

Risks Related to Our Operations

Developments relating to the outbreak of the COVID-19 may have a material adverse impact on our financial condition or results of operations.

In December 2019, a novel strain of coronavirus, known as COVID-19, was reported to have surfaced in Wuhan, Hubei Province, China. In January 2020, COVID-19 spread to other countries, including the United States, and efforts to contain the spread of this COVID-19 intensified. On March 11, 2020, the World Health Organization (the “WHO”) declared the COVID-19 outbreak a pandemic. On March 19, 2020, the United States issued a travel advisory recommending that travelers avoid all international travel. The following day, on March 20, 2020, the United States closed its border with Mexico, except to essential travel and trade and commerce. On March 31, 2020, Mexico’s Ministry of Health issued a release suspending all non-essential activities in the country through April 30. On April 21, such suspension was extended through May 30, 2020. The Mexican government has implemented various measures to control the spread of COVID-19, including extraordinary actions, such as school closures and the suspension of non-essential activities, in the regions most affected.  For purposes of these measures, airports are considered essential and our airports remain operational. Regarding our operations in our airports in Jamaica, the Government suspended all incoming international flights for a period of 14 days, starting March 25, 2020, excluding transportation of cargo and merchandise, and only allowed the departure of commercial flights, extending the suspension until May 31, 2020.

In 2003, an outbreak of a coronavirus known as severe acute respiratory syndrome (SARS) originating in China became an epidemic and resulted in a slowdown of passenger air traffic due contagion fears. COVID-19 is negatively affecting global economic conditions, including materially reducing demand for, and availability of, worldwide air travel and therefore may have a material adverse effect on our business and results of operations. For the month of April 2020, passenger traffic decreased 91.5% compared to passenger traffic during the same period the previous year. 

The COVID-19 outbreak,  and measures taken to contain or mitigate it, have had adverse consequences for the global economy, including on demand, operations, supply chains and financial markets. COVID-19 has led to travel restrictions imposed by governments, flight cancellations, and a marked decline in passenger demand for air travel, domestically and worldwide. The potential for a period of significantly reduced demand for travel has and will likely continue to result in significant lost revenue. See “Item 5, Recent Developments – Developments related to the outbreak of COVID-19.” As a result of these or other conditions beyond our control, our results of operations could be volatile and subject to rapid and unexpected change. In addition, if the spread of COVID-19 were to continue unabated, our operations could also be negatively affected if employees are quarantined as the result of exposure to the contagious illness.

The extent to which COVID-19 could adversely impact our results will depend on future developments that are highly uncertain and hard to predict, including new information which may emerge concerning the severity of COVID-19, the actions taken to contain COVID-19 or treat its impact and other developments which may impact public perception of the virus, among others. Further spread of the virus or additional travel warnings and restrictions may adversely impact the frequency and pattern of our domestic and international passenger traffic, which may adversely affect our business, financial condition or results of operations. The ultimate severity of the COVID-19 outbreak is uncertain at this time and therefore we cannot predict the impact it may have on passenger traffic and our customer airlines. We cannot currently fully predict the impact that the COVID-19 outbreak will have on global air travel and the extent to which it may impact the demand for air travel in the regions in which we operate. Continued travel restrictions or operational issues resulting from the rapid spread of COVID-19 could have a material adverse effect on our business and results of operations.

Furthermore, we could incur in additional operating expenses and significant investments related to new regulatory procedures in order to preserve the health of the passengers and the airport community, which could not be recovered through our maximum tariffs, as a result of this pandemic.

Our revenues are highly dependent on levels of passenger and cargo traffic volumes and air traffic, which depend in part on factors beyond our control.

Our revenues are closely linked to passenger and cargo traffic volumes and the number of air traffic movements at our airports. These factors directly determine our revenues from aeronautical services and indirectly determine our revenues from non-aeronautical services. Our principal source of aeronautical service revenues is passenger charges. Passenger charges are payable for each passenger departing from the airport terminals we operate (except certain exclusions in each of Mexico and Jamaica, described below under “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Aeronautical Services – Passenger Charges”) and are collected by the airlines and paid to us. In 2017, 2018 and 2019, passenger charges represented 54.6%, 54.9% and 52.9% respectively, of our total revenues (in 2017, 2018 and 2019 passenger charges represented 61.1%, 61.1% and60.0% respectively, of the sum of our aeronautical and non-aeronautical revenues).

Passenger and cargo traffic volumes and air traffic movements depend in part on many factors beyond our control, including economic conditions in Mexico, Jamaica, the United States, Canada and Europe, the political situation in Mexico, Jamaica and elsewhere in the world, public health crises, the attractiveness of the destinations that our airports serve relative to those of other competing airports, fluctuations in petroleum prices, disruptions of global debt markets and changes in regulatory policies applicable to the aviation industry.  See “Item 5, Recent Developments – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or

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results of operations.” Any decreases in air traffic to or from our airports as a result of factors such as these could adversely affect our business, results of operations, prospects and financial condition.

A global economic and financial crisis may affect our business.

A global economic and financial crisis may lead to high volatility and lack of liquidity in the global credit and other financial markets. Such a downturn in the global economy may lead to increased commercial and consumer delinquencies, lack of consumer confidence, decreased market valuations, increased market volatility, high financial risk premiums and a widespread reduction of business activity generally. These conditions may also limit the availability of credit and increased financial costs for companies around the world, including companies in Mexico, Jamaica and the United States. Such a recession could significantly affect our ability to access credit to finance our future projects, therefore adversely affecting our business. See “Item 5, Recent Developments – Developments relating to the outbreak of  COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

Competition from other tourist destinations could adversely affect our business.

The principal factor affecting our results of operations and business is the number of passengers using our airports. The number of passengers using our airports (particularly our international airports at Los Cabos, Puerto Vallarta, Montego Bay) may vary as a result of factors beyond our control, including the level of tourism in Mexico and Jamaica. In addition, our passenger traffic volume may be adversely affected by the attractiveness, affordability and accessibility of competing tourist destinations in Mexico, such as Acapulco and Cancun, or elsewhere, such as Hawaii, Puerto Rico, Florida, Cuba, the Dominican Republic, the other Caribbean islands and destinations in Central America. The attractiveness of the destinations we serve is also likely to be affected by travelers’ perceptions of the safety and political and social stability of Mexico and Jamaica, particularly as a result of the uncertainty and safety concerns resulting from the Mexican government’s ongoing effort against drug cartels. There can be no assurance that tourism levels, and therefore the number of passengers using our airports, in the future will match or exceed current levels. A reduction in tourism to the destinations served by our airports could directly and indirectly affect our revenues from aeronautical and non-aeronautical services.

Negative economic developments in Mexico could reduce domestic passenger traffic at our Mexican airports, which would adversely affect our business and results of operations.

Although a substantial portion of our revenues is derived from foreign tourism, domestic passengers have represented two-thirds of the passenger traffic volume at our Mexican airports for the last three years. Aside from our operation of the Kingston airport, our interest in the Montego Bay airport concession in Jamaica and the operation of DCA in Spain, all of our assets are located, and all of our operations are conducted, in Mexico. Because our revenues are largely dependent on the level of passenger traffic at our airports, any decline in domestic traffic could have an adverse effect on our business, results of operations, prospects and financial conditions. Therefore, if inflation or interest rates increase significantly or the Mexican economy is otherwise adversely impacted, our business, financial condition and results of operations could be materially and adversely affected because, among other things, domestic demand for transportation services may decrease. For more information on the potential impact of negative economic developments in Mexico, see “Item 3, Key Information – Risks Factors – Risks Related to Mexico – Adverse economic conditions in Mexico may adversely affect our financial condition or results of operations” and “Item 5, Recent Developments – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

Our business is particularly sensitive to economic conditions and other developments in the United States.

Our business is particularly sensitive to trends in the United States relating to leisure travel, consumer spending and international tourism. In 2017, 2018 and 2019, 88.8%, 88.1% and 89.7%, respectively, of the international terminal passengers served by our Mexican airports arrived or departed on flights originating in or departing to the United States and 67.8%, 68.6% and 70.3%, respectively, of the passengers served by our Jamaican airports arrived or departed on flights originating on or departing to the United States.

Thus, our business is highly dependent on the condition of the U.S. economy, and events affecting the U.S. economy may adversely affect our business, results of operations and financial condition. In 2017, 2018 and 2019, the U.S. gross domestic product (“GDP”) increased at a rate of 2.3%, 2.6% and 2.1%, respectively, according to the U.S. Bureau of Economic Analysis. If the U.S. economy falls into a recession or economic growth in the U.S. decelerates significantly, it would likely have a material adverse effect on our results of operations due to decreased passenger traffic travel to and from the United States. See “Item 5, Recent Developments – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

Any decision taken by the current U.S. administration, including any changes to U.S. laws and policies governing foreign trade and foreign relations, that could have a negative impact on the Mexican economy, such as reductions in the levels of remittances, reduced commercial activity among the two countries or a slowdown in direct foreign investment in Mexico, could adversely affect our business and our results of operations.

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On October 1, 2018, Mexico announced that it had reached an agreement with Canada and the United States to replace the North American Free Trade Agreement (“NAFTA”) with the United States Mexico Canada Agreement (“USMCA”). The USMCA was signed on November 30, 2018. Mexico, the United States and Canada ratified the USMCA on June 19, 2019, January 29, 2020 and March 13, 2020, respectively. We cannot predict the impact of the USMCA on particular industries or government policies and the changes to international trade and travel that may result, and consequently, we cannot predict what effect it will have on our business and our results of operations.

Other trends and developments in the United States may also adversely impact the frequency and pattern of our international passenger traffic, which may adversely affect our business, financial condition or results of operations. For example, any development that could make travel to and from the United States less attractive to our passengers, including any tax reforms and changes to economic policies that could create tension between the Mexican and U.S. governments or reduce economic activity between Mexico and the United States, could negatively affect the level of passenger traffic in our airports and could have an adverse effect on our business and our results of operations.

Changes in U.S. immigration and border policy could adversely affect passenger traffic to and from Mexico.

Immigration reform and border policies, especially with respect to Mexico, continue to attract significant attention in the U.S. government and public arena. If new federal immigration legislation is enacted, such laws may contain provisions that could make it more difficult for Mexican citizens to travel between Mexico and the United States. Our Tijuana airport is connected to the U.S. border by the Cross Border Express, or “CBX,” an international bridge that allows passengers to cross directly to the United States. By facilitating transfers between the United States and Mexico for travelers holding a boarding pass to all flights departing from or arriving in Tijuana and reducing connection and waiting times at both the San Isidro and Otay Mesa border crossings, the CBX has been a main driver in increasing passenger traffic at our Tijuana airport since its inauguration in December 2015. Any changes to U.S. laws and policies that could affect the operation of the CBX, could adversely impact the passenger traffic at the Tijuana airport, which could have an adverse effect on our business and our results of operations.

In addition, new immigration and border legislation could lead to uncertain economic conditions in Mexico that may affect leisure travel, including travel to and from Mexico. Such restrictions could have a material adverse effect on our passenger traffic results.

Levels of passenger and cargo traffic volumes and air traffic at our airports are highly sensitive to the impact on airlines of international petroleum prices and access to credit.

Our revenues are closely linked to passenger and cargo traffic volumes and air traffic movements at our airports, which are determined by the operating levels of airlines at our airports. Airlines’ costs are highly sensitive to the price of petroleum and their access to credit to finance their operations. Increased costs may increase ticket prices and reduce fleets, thereby decreasing flight frequencies and negatively impacting passenger and cargo traffic volumes.

International petroleum prices have experienced significant volatility in the recent past. For example, European Brent crude oil spot prices increased from U.S.$50.57 per barrel on December 28, 2018, to U.S.$67.77 per barrel on December 31, 2019, with an average price of U.S.$64.28 per barrel during 2019, according to the U.S. Energy Information Administration. The price of fuel may be subject to further fluctuations resulting from a reduction or increase in output of petroleum, voluntary or otherwise, by oil-producing countries, other market forces, a general increase in international hostilities, or any future terrorist attacks. High fuel prices result in increases in airlines’ costs and may lead to airline financial difficulties and bankruptcies, higher ticket prices, cancellations of routes and decreases in frequencies of flights, and may decrease demand for air travel generally. Each of these may reduce passenger and cargo traffic at our airports.

Most airlines also depend on reliable access to credit at interest rates they can afford to finance their fleet of aircraft and make other large investments. As evidenced by the 2008-2009 global recession and financial crisis, high interest rates and disruptions in the global debt markets had an adverse effect on airlines’ ability to operate their fleets, forcing many to raise ticket prices, cancel routes, decrease the frequencies of flights or forego scheduled investments. Such reductions in operations by airlines lead to lower passenger and cargo traffic volumes at our airports, which may have an adverse impact on our results of operations.

See “Item 3, Key Information – Risks Factors – Risks Related to Our Operations – The loss of, or suspension of operations by, one or more of our key customers could result in a loss of a significant amount of our revenues” for a more detailed description of which of our major airline customers have recently reduced or cancelled operations at our airports.

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Our business is highly dependent upon revenues from five of our airports and could be adversely impacted by any condition affecting those airports.

In 2019, approximately82.7% of the sum of aeronautical and non-aeronautical revenues was generated from five of our fourteen airports. The following table lists the percentage of the sum of aeronautical and non-aeronautical revenues generated at our airports in 2019:

Airport	For year ended December 31, 2019
Guadalajara		27.4	%
Los Cabos		15.0	%
Montego Bay		14.7	%
Tijuana		14.1	%
Puerto Vallarta		11.5	%
Eight other Mexican airports (combined) and Kingston		17.3	%
Total revenues		100.0	%

As a result of the substantial contribution to our aeronautical and non-aeronautical revenues from these five airports, any event or condition affecting these airports could have a material adverse effect on our business, results of operations, prospects and financial condition.

International events, including acts of terrorism, wars and global epidemics, could have a negative impact on international air travel.

International events may negatively impact international air travel. Terrorist attacks, wars, other armed conflicts, and public health crises could negatively affect the frequency and pattern of air travel worldwide.

Any future terrorist attacks, whether or not involving aircraft, may adversely affect our business, results of operations, prospects and financial condition. Moreover, we cannot predict what effect any future terrorist attacks or threatened attacks on the United States or any retaliatory measures taken by the United States in response to these events may have on the U.S. economy or leisure travel trends, which may negatively affect our results of operations. Similarly, our Mexican and Jamaican airport operations could be negatively impacted by terrorist attacks on aircraft such as those which occurred with international airlines’ aircraft operating over Egypt and the Ukraine in 2015.

The COVID-19 outbreak is materially reducing demand for, and availability of, worldwide air travel and could therefore have a material adverse effect on our business and results of operations. See “Item 5, Recent Developments –Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

Because our revenues are largely dependent on the level of passenger traffic in our airports, any general increase of hostilities relating to reprisals against terrorist organizations, further armed conflict around the world, outbreaks of health epidemics or other events of general international concern (and any related economic impact of such events) could result in decreased passenger traffic and increased costs to the air travel industry and, as a result, could cause a material adverse effect on our business, results of operations, prospects and financial condition.

Cyber-attacks or other interruptions of our security or information network could have an adverse effect on the operations of our airports and consequently on our financial results.

Cyber-attacks and their impact on our networks and systems, including the introduction of viruses, malware, denial of service, faulty software, equipment outages and other interruptions in or unauthorized access of company systems, have increased in frequency, extent and potency in recent years. We continuously evaluate our weaknesses, maintain security software and employ countermeasures to prevent breaches to our data and systems, and regularly review these preventive measures to avoid cyber-attacks and other interruptions to our business. For example, our information systems are protected from exogenous events with backup systems, including physical and software safeguards, such as malware protection, secure privileged access accounts, penetration tests and red team exercises, as well as inventory of authorized and unauthorized software and hardware. In addition, we have implemented secure Wi-Fi in all of our airports network and used “CyberArk” software to monitor the activity of all our users and the “SUITE Trend Micro” antimalware to enhance the security of our servers.

Nevertheless, any disruption, failure or security breach of our information technology infrastructure, including our back-up systems, could have a negative impact on our operations. The preventive actions that we employ to reduce the risk of experiencing a cyber-attack and to protect our network and information could be inadequate to stop a cyber-attack in the future, which could hinder our ability to protect the privacy of our clients and business and cause the unauthorized distribution of valuable financial information and confidential data relating our clients and business. The costs associated with a possible cyber-attack on our systems include increased expenses associated with reinforcing cyber-security measures, loss of business due to the interruption of services, litigation and damage to our reputation. Such outcomes could cause significant losses or decreases in the price of our shares. The potential losses related to cyber-attacks and disruptions of our network could also surpass our insurance coverage.

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Security enhancements and requirements may require additional investments or result in additional expenses.

The air travel business is susceptible to, and has experienced, increased costs resulting from enhanced security and higher insurance. Following the events of September 11, 2001, we reinforced security at our airports, and our general liability insurance premiums increased substantially. For more information on the insurance policies we carry, see “Item 4, Information on the Company – Property, Plant and Equipment.” Because a substantial majority of our international flights involve travel to the United States, we may be required to comply with security directives of the U.S. Federal Aviation Authority, in addition to the directives of the Mexican and Jamaican civil aviation authorities.

The users of airports, principally airlines, also have been subject to increased costs, as they have been required to adopt additional security measures and their insurance premiums have also increased substantially. While governments in other countries have agreed to indemnify airlines for liabilities they might incur resulting from terrorist attacks, the Mexican and Jamaican governments have not done so and have given no indication of any intention to do the same. In the future, airlines may be required to comply with more rigorous security rules or guidelines and premiums for aviation insurance could rise further. In addition, fuel prices, supplies and interest rates for airlines aircraft lease agreements, which constitute a significant cost for airlines using our airports, may be subject to increases resulting from any future terrorist attacks, a general increase in international hostilities or a reduction in output of fuel, voluntary or otherwise, by oil producing countries. Increases in airlines’ costs may result in higher airline ticket prices and decreased demand for air travel generally, thereby having an adverse effect on our revenues and results of operations.

If authorities require enhancements to security equipment or adoption of additional security measures, we may be required to undertake significant additional expenses and capital expenditures. We cannot guarantee that these expenses and/or capital expenditures will be taken into account for our Mexican airports in our Maximum Tariff and Master Development Programs negotiations. Therefore, these additional expenses could negatively affect our cash flows and affect our results of operations.

In the case of any change in security enhancement requirements in Jamaica, the Jamaican civil aviation authorities have permitted any such unavoidable and unforeseen expenditure to be treated as a cost pass-through for the purposes of regulation, allowing for an increase in regulated charges at any time within the tariff review period to cover the cost of additional security requirements. However, we can provide no assurance that we would be successful in negotiating new tariffs to recover the expenses and/or capital expenditures needed to comply with any new security requirements.

The operation and maintenance of new baggage screening equipment could increase our expenses and may expose us to greater liability.

In 2005, the Mexican government issued a policy letter (carta de política) calling for all checked baggage on all commercial flights to undergo a new comprehensive screening process. The new screening process required the installation of dedicated screening equipment and the manual inspection of baggage if such equipment alerted to the potential presence of prohibited items. Although the Mexican Airport Law expressly provides that airlines bear the responsibility for baggage screening, we incur ongoing expenses to maintain and operate this equipment, which we currently recover from our airline customers. However, if it is determined that we are responsible for all or a portion of the cost or that we are liable for certain issues arising from our operation of the screening systems, our exposure to liability could increase significantly. These operational costs were reviewed during the negotiation of the Master Development Programs for our Mexican airports for the years 2020-2024, completed in December 2019, and there were no changes contemplated to the operational costs or to the cost recovery procedures. However, there can be no assurance that these operational costs or the cost recovery procedures will not be revised in the next negotiation of the Master Development Program in 2024.

We also expect to incur ongoing expenses to maintain any equipment purchased, and we could be required to undertake significant additional capital expenditures for items such as a new screening technology or additional equipment if screening guidelines are expanded further and require that additional steps be taken to comply with the requirements. For instance, replacement of current baggage screening equipment with new Computer Tomography X-ray (“CTX”) baggage screening equipment is scheduled for 2021, although regulatory changes could force our Mexican airports to undertake this replacement sooner, as has already occurred in our Tijuana and Los Cabos airports. In addition, in July 2016, the Federal Civil Aviation Agency (“AFAC”) issued a document titled Airport Security Recommendations, which established that airports must have alternative methods for baggage screening to be used in case the inspection technology that is used is not available. We believe that we comply with the requirement but the AFAC may require additional investments. These additional expenses could restrict our liquidity and adversely affect our results of operations if such costs are higher than those accepted in the negotiations of our Master Development Programs for the 2020-2024 period. For more information on screening equipment, see “Item 4, Information on the Company – Regulatory Framework – Mexican Airport Concessions – Scope of Concessions.”

Our revenues and profitability may be adversely affected if we fail in our business strategy.

Our ability to increase our revenues and profitability depends in part on our business strategy, which consists of setting prices as close as possible to our regulatory maximum rates for any given year for our Mexican and Jamaican airports, as well as, reducing operating costs, controlling our capital expenditure commitments under our Master Development Programs with the Mexican government and under the Capital Development Program with the Jamaican government, increasing passenger and cargo traffic at our airports and increasing revenues from commercial activities.

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Our ability to increase our commercial revenues is significantly dependent, among other factors, on increasing passenger traffic at our airports and on our ability to renegotiate rental agreements with our tenants to provide for contractual terms more favorable to us and for the ability for us to directly operate business lines. In addition, our ability to increase revenues from commercial activities depends on our ability to continue the remodeling, expansion and modernization of the commercial areas we operate within our airports and on the introduction of new business lines. Further, we are in the process of expanding the amount and types of business lines that we operate directly within our airports. Revenues from business lines operated directly by us represented 26.5% of non-aeronautical revenues in 2019 (7.0% of the sum of aeronautical and non-aeronautical revenues generated in our airports in 2019).

We cannot provide assurance that we will be successful in implementing our strategy of increasing our passenger traffic or our revenues from commercial activities, including those that we operate directly. The passenger traffic volume in our airports depends on factors beyond our control, such as the attractiveness of the commercial, industrial and tourist centers that the airports serve. Additionally, our new commercial strategy of increasing revenues by operating lines of businesses in our airports directly could result in the loss of a significant amount of revenues, or not generate the level of profitability sufficient to increase our results of operations. Accordingly, there can be no assurance that the passenger traffic volume in our airports will increase or that our profitability will increase. See “Item 5, Recent Developments – Developments relating to the outbreak of  COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

Our acquisitions may not achieve anticipated benefits, and may increase our liabilities, disrupt our existing business and harm our results of operations.

The benefits we expect to receive from our acquisitions depend on our ability to integrate the operations, services, personnel and administrative infrastructure of the acquired businesses in a timely and efficient manner. Acquisitions also entail increased operating costs, as well as greater allocation of management resources away from daily operations. Additionally, the business growth opportunities, revenue benefits, cost savings and other benefits we anticipate to result from our acquisitions may not be achieved as expected, or may be delayed. To the extent that we incur higher integration costs or achieve lower revenue benefits or fewer cost savings than expected, or if we are required to recognize impairments of acquired assets, investments or goodwill, our results of operations and financial condition may be adversely affected.

In October 2018, we signed the NMIA Concession Agreement with the Government of Jamaica for the operation, modernization and expansion of the NMIA located in Kingston, Jamaica. On October 10, 2019, we took control of the operation, management and administration of the NMIA. See “Item 5, Operating and Financial Review and Prospects – Overview – Recent Developments.” While the NMIA is the second airport we operate in Jamaica, we may not be able to fully implement our business strategy or integrate its operations with the Montego Bay Airport, which could adversely affect our results of operations and financial condition.

Our leverage could adversely affect our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or our industry.

As of December 31, 2019, our outstanding consolidated indebtedness was Ps.16.4 billion (approximately U.S.$871.5 million). This indebtedness may constrain our ability to raise incremental financing or increase the cost at which we could raise and maintain any such financing or impair our ability to take advantage of significant business opportunities that may arise. As a result of this indebtedness, we may also be more vulnerable to general adverse economic, industry or competitive conditions. We cannot assure you that our business will generate cash in an amount sufficient to enable us to service our debt or to fund our other liquidity needs, which may adversely affect our overall performance. We may need to refinance all or a portion of our debt on or before maturity, and we cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms. These risks may be intensified in 2020 due to the impact of the COVID-19 pandemic. See “Item 5, Recent Developments – Developments relating to the outbreak of  COVID-19 may have a material adverse impact on our financial conditions or results of operations.” and “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources.”

Covenants in our indebtedness may limit our discretion with respect to certain business matters.

The instruments governing our indebtedness or the indebtedness of our operating entities may contain restrictive covenants limiting our discretion with respect to certain business matters. These covenants could place significant restrictions on, among other things, our ability to incur additional liabilities, acquire new equity investments, engage in mergers or acquisitions, pay dividends, create liens or other encumbrances or make certain other payments, investments, loans and guarantees. These covenants could also require us to meet certain financial ratios and financial condition tests. A failure to comply with any such covenants could result in a default which, if not cured or waived, could permit acceleration of the relevant indebtedness.

If a change in relations with our labor force should occur, such a change could have an adverse impact on our results of operations.

Although we believe we maintain positive relations with our labor force, if any conflicts with our employees were to arise in the future, including with our unionized employees (which accounted for 39.4% of our total employees in Mexico and 62.0% in Jamaica as of December 31, 2019), resulting events such as strikes or other disruptions that could arise with respect to our workforce could have a negative impact on our results of operations.

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The loss of, or suspension of operations by, one or more of our key customers could result in a loss of a significant amount of our revenues.

A majority of our revenues are driven by the operations of a few key airline customers. In 2019, Concesionaria Vuela Compañía de Aviación, S.A. de C.V. (“Volaris”), Grupo Aeroméxico, S.A.B. de C.V. (“Aeroméxico Group”), a holding company that owns Aeroméxico and Aeroméxico Connect, Aeroenlaces Nacionales, S.A. de C.V. (“VivaAerobus”) and American Airlines, Inc. (“American Airlines”) transported a significant percentage of our passenger traffic. During 2019, the passenger charges collected by these four airlines accounted for 18.3%, 6.0% 4.1% and 4.7%, respectively, of total revenues in our airports (20.7%, 6.8%, 4.7% and 4.9%, respectively, of the sum of aeronautical and non-aeronautical revenues generated in our airports in 2019). Excluding revenues from passenger charges, these airlines accounted for 2.1%, 0.8%, 0.5% and 1.0%, respectively, of our total revenues in 2019 (1.9%, 0.7%, 0.4% and0.9%, respectively, of the sum of aeronautical and non-aeronautical revenues generated in our airports in 2019).

.During 2020, news reports indicated that ABC Aerolíneas, S.A. de C.V. (“Interjet”), was experiencing financial difficulties and there was speculation regarding its potential insolvency. During 2019, the passenger charges collected by Interjet accounted for 3.9%, of total revenues in our airports (4.3% of the sum of aeronautical and non-aeronautical revenues generated in our airports in 2019). Excluding revenues from passenger charges, Interjet accounted for 0.4% of our total revenues in 2019 (0.5% of the sum of aeronautical and non-aeronautical revenues generated in our airports in 2019). Therefore, in case of Interjet continue with financial difficulties and they could not continue with its operations, we expect that it would not have a significant impact on our results of operations

None of our contracts with our airline customers obligate them to continue providing service to our airports, and we can offer no assurance that if any of our key customers reduce their use of our airports, competing airlines would add flights to their schedules to replace any flights no longer handled by our principal airline customers. In addition, Mexican law prohibits an international airline from transporting passengers from one Mexican location to another, except if the passenger originated travel outside Mexico, thus limiting the number of airlines providing domestic service in Mexico. Accordingly, we expect to continue to generate a significant portion of our revenues from domestic travel from a limited number of airlines.

Furthermore, passenger charges, which accounted for 52.9% of our revenues in 2019 (60.0% when taking into account only the sum of aeronautical and non-aeronautical revenues), are collected, pursuant to passenger charges collection agreements, by airlines from passengers on our behalf and are later paid to us, depending on the airline, within no more than 60 days following the date of each flight. During 2019, the average collection term of passenger charges was 54 days. See “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Aeronautical Services – Passenger Charges – Passenger Charges in Mexico.” Consequently, if any of our key airline customers were to become insolvent or seek bankruptcy protection, we would be an unsecured creditor with respect to any unpaid passenger charges, and we would not be assured of collecting the amounts invoiced to that airline for passenger charges despite cash deposits held in guarantee. Additionally, we could not be assured that we would recover the traffic they would stop transporting. Both scenarios could negatively affect our cash flows from operations or our results of operations. See “Item 5, Recent Developments – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

Additionally, if some of our commercial clients were to face difficulties making their payments to our airports, we would try to renegotiate the commercial and payment terms to keep them at our airports. Despite our efforts, however, some clients may decide to leave our commercial spaces and cancel their contracts. This could potentially have a negative effect on our revenues.

The main domestic airlines operating at our Mexican and Jamaican airports have in the past refused to pay certain increases in our specific prices for aeronautical services and could refuse to pay additional increases in the future.

In the past, certain of the domestic airlines operating at our Mexican and Jamaican airports refused to pay certain increases in the specific prices we charge for aeronautical services. Although these prior disputes were resolved, because only a few airlines contribute a substantial portion of our revenues, our results of operations could be adversely impacted if any of these (or any of our other) airlines should refuse to make payments in the future. Moreover, during periods of economic downturn, the airlines that operate at our airports may be more likely to oppose increases in our charges for aeronautical services in future years, which could adversely impact our results of operations. See “Item 4, Information on the Company – Business Overview – Principal Customers – Principal Aeronautical Services Customers – Airline Customers.”

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The airlines at our airports may refuse to continue collecting passenger charges on our behalf or we may decide to collect passenger charges ourselves, which would result in increased costs for us.

The airlines operating at our airports collect a passenger charge on our behalf from each departing passenger on an aircraft (except certain exclusions in each of Mexico and Jamaica, described below under “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Aeronautical Services – Passenger Charges”).

Currently, we have entered into collection agreements with the airlines that operate at our Mexican airports to collect those passenger charges on our behalf. As a result, passenger charges are included in the cost of passengers’ tickets, and we issue invoices for those charges to each airline. We and the airlines with which we have these collection agreements have the right to cancel them with prior notice to the other party. If we or one of our airline customers were to cancel a collection agreement, we would have to implement a collection system of our own to collect passenger charges from passengers directly. The installation and operation of such a collection system would result in additional costs for us, which would negatively impact our results of operations.

MBJA does not have agreements with some of the airlines that operate at the Montego Bay airport for the collection of passenger charges on its behalf. However, the collection of passenger charges by the airlines is implied under the current operating agreements signed by each airline operating at the Montego Bay airport, whereby these airlines must pay MBJA for regulated passenger charges. Newly issued Air Carrier Operating Agreements, however, have been amended to expressly require airlines to collect passenger service charges.

As part of the transition process, all agreements held by the previous operator of the Kingston airport were assigned or novated to PACKAL. All agreements with airlines and the International Air Transport Association (“IATA”) that were assigned or novated to PACKAL by the previous operator as part of this process are space license agreements, each of which includes a schedule of conditions of use outlining the policies for aeronautical operation and requiring that each airline collect all passenger and security charges from departing passengers on behalf of the airport and remit such charges to the airport operator. Airlines operating in NMIA could refuse to collect passenger charges on behalf of the airport.

The operations of our airports may be disrupted due to the actions of third parties, which are beyond our control.

As is the case with most airports, the operation of our airports is largely dependent on the services of third parties, such as air traffic control authorities, airlines and ground transportation providers. We also depend upon the government or entities of the government for provision of services, such as electricity, supply of fuel for aircraft, air traffic control and immigration and customs services for our international passengers. Additionally, the disruption or stoppage of taxi or bus services at one or more of our airports could also adversely affect our operations. We are not responsible for and cannot control the services provided by these parties. Any disruption in, or adverse consequence resulting from, their services, including a work stoppage or other similar event, may have a material adverse effect on the operation of our airports and on our results of operations.

In addition, we are dependent on third-party providers of certain complementary services such as catering, baggage handling, and operation of airport buses and passenger walkways. If these service providers were to halt operations at any of our airports, we would be required to seek a new service provider or provide services ourselves, either of which would likely result in increased capital expenditures or costs and have an adverse impact on our cash generation and results of operations.

Legal claims and other actions by the former holders of land comprising certain of our Mexican airports may disrupt the operations and security of these airports.

Some of our airports are partly sited on lands that were expropriated by the Mexican government pursuant to its power of eminent domain. Prior to their expropriation, some of these lands had been held by groups of individuals through a system of communal ownership of rural land known as an ejido. Certain of these former ejidos’ participants have asserted indemnity claims against the Mexican government challenging the expropriation decrees. See “Item 8, Financial Information – Legal Proceedings – Ejido participants at Tijuana, Guadalajara and Puerto Vallarta airports.”

The Mexican government owns the land on which Guadalajara International Airport operates and has granted us the right to use that land for the purpose of operating the airport pursuant to our concession. Currently, there are squatters residing on or claiming rights to a portion of the property, at least one of whom has attempted to subdivide and sell off certain portions of the property. As owner of the property, the Mexican government must initiate any actions directed at removing these persons from the property.

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In addition, during various periods of 2017, 2018 and 2019, members of an ejido called el Zapote blocked access to commercial areas of the Guadalajara International Airport, specifically the parking facilities, which resulted in commercial revenues losses of Ps.9.0 million in 2017 (7.9% of our total car parking charges at the airport for 2017), Ps.8.1 million in 2018 (5.8% of our total car parking charges at the airport for 2018), and Ps.20.5 million in 2019 (14.1% of our total car parking charges at the airport for 2019). We are reviewing the actions these persons have taken and are cooperating with the Mexican government to ensure that the actions of these squatters and ejidos do not adversely affect the operations of Guadalajara International Airport. However, if the Mexican government is unable to successfully remove these persons from the property, their presence could have an adverse impact on our operations, revenues and security, and could restrict our ability to expand our operations, at the Guadalajara airport.

In addition to challenging the expropriation, certain of the former ejido Tampico participants are also currently occupying portions of Tijuana International Airport property. While these persons are not currently interfering with the airport’s operations, their presence could limit our ability to expand the airport into the areas they occupy. There can also be no assurance that the former ejido participants will not seek to disrupt the airport’s operations if their legal claims against the Mexican government are not resolved to their satisfaction, which may negatively impact our results of operations.

Our Mexican concessions guarantee our access to the land and any interruption caused to our operations by any of the ejidos is the responsibility of the Mexican government. Although the Mexican government must provide restitution for any economic loss resulting from a disruption in access to our airports, there can be no assurance that the former ejido participants will not seek to disrupt the airport’s operations if their legal claims against the Mexican government are not resolved to their satisfaction. There also can be no assurance that the legal proceedings will be resolved in our favor, which may negatively impact our results of operations.

We may be liable for property tax claims asserted against us by certain Mexican municipalities.

We remain subject to ongoing property tax claims that have been asserted against us by certain municipal authorities for the payment of property taxes with respect to certain of the properties on which we operate our airports. We believe that under the law, the Mexican government, as the owner of the property upon which we operate our airports, would currently be responsible for paying these taxes directly if a court were to determine that these taxes must be paid. See “Item 8, Financial Information – Legal Proceedings – Property tax claims by certain municipalities” for a full discussion of these property tax proceedings.

Additionally, if the Mexican government changes the current laws or if we do not prevail in the aforementioned proceedings, these tax liabilities could have an adverse effect on our financial condition and results of operations.

Inability to generate sufficient future taxable profits or adverse changes to tax laws, regulatory requirements or accounting standards could have a negative impact on the recoverability of certain deferred tax assets.

We recognize deferred tax assets relating to tax losses carried forward and deductible temporary differences only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the temporary differences can be utilized. Net deferred tax assets amounted to approximately Ps.5.6 billion at December 31, 2019. The deferred tax assets are quantified on the basis of currently enacted tax rates and accounting standards and are subject to change as a result of future changes to tax laws or the rules for computing taxable profits and allowable losses. Failure to generate sufficient future taxable profits or changes in tax laws or accounting standards may reduce our estimated recoverable amount of net deferred tax assets. Such a reduction could have an adverse effect on our Consolidated Statement of Profit or Loss. For further information on deferred tax assets, refer to Note 12 to our audited consolidated financial statements. See “Item 5, Operating and Financial Review and Prospects – Critical Accounting Policies – Deferred Tax Assets.”

Extreme weather and natural disasters could adversely affect our business.

The Pacific and Central regions of Mexico and the island of Jamaica experience seasonal torrential rains and hurricanes (particularly during the months of July through September), as well as earthquakes. Extreme weather and natural disasters may impede operations, damage infrastructure necessary to our operations or adversely affect the destinations served by our airports. Any of these events could reduce our passenger traffic volume.

The occurrence of extreme weather and natural disasters in the destinations we serve could adversely affect our business, results of operations, prospects and financial condition. We have insured the physical facilities at our airports against damage caused by natural disasters, accidents or other similar events, but do not have insurance covering losses due to resulting business interruption for our Mexican airports.  Moreover, should losses occur, there can be no assurance that losses caused by damages to the physical facilities will not exceed the pre-established limits on any of our insurance policies.

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Risks Related to the Regulation of Our Business

Our business is dependent on international regulations affecting airlines.

Airline regulations promulgated by international bodies or regulatory agencies in other countries could affect our operations and potentially affect our revenues or results of operations.

For instance, on July 30, 2010, the U.S. Federal Aviation Administration (“FAA”) announced that, following an assessment of the Federal Civil Aviation Agency, it had determined that Mexico was not in compliance with international safety standards set by the International Civil Aviation Organization (“ICAO”), and, as a result, downgraded Mexico’s aviation safety rating from “Category 1” to “Category 2”.

Under FAA regulations, because of this downgrade, Mexican airlines were not permitted to expand or change their current operations between the United States and Mexico except under certain limited circumstances; code-sharing arrangements between Mexican and U.S. airlines were suspended; and operations by Mexican airlines flying to the United States were subject to greater FAA oversight. These additional regulatory requirements resulted in reduced service between our Mexican airports and the United States by Mexican airlines, which resulted in a decrease in demand for travel at our Mexican airports.

The FAA restored Mexico’s Category 1 rating on December 1, 2010. In 2019, 10.2% of the passengers who traveled through our Mexican airports traveled on flights to or from the United States operated by Mexican airlines. Jamaica has held an FAA Category 1 rating since a similar downgrade to Category 2 from July 1995 to September 1997.

The FAA, however, may downgrade Mexico’s or Jamaica’s air safety rating in the future. We cannot predict what impact such a downgrade would have on our passenger traffic or results of operations, or on the public perception of the safety of our airports.

We provide a public service regulated by the governments of Mexico and Jamaica, and our flexibility in managing our aeronautical activities is limited by the regulatory environments in which we operate.

Our aeronautical fees charged to airlines and passengers are regulated, like those of most airports in other countries. In 2017, 2018 and 2019, 67.0%, 67.3% and 65.0%, respectively, of our total revenues were earned from aeronautical services (in 2017, 2018 and 2019, 74.9%, 74.9% and 73.7%, respectively, of the sum of aeronautical and non-aeronautical revenues were earned from aeronautical services), which are subject to price regulation under our maximum rates in Mexico and under the maximum regulated charges in Jamaica. These regulations may limit our flexibility in operating our aeronautical activities, which could have a material adverse effect on our business, results of operations, prospects and financial condition. In addition, several of the regulations applicable to our operations that affect our profitability are authorized or established by the Mexican government (as in the case of our Master Development Programs or our maximum rates, respectively) or the Jamaican government (as in the case of maximum regulated charges for MBJ and NMIA) for five-year terms. Except under limited circumstances, we generally do not have the ability to unilaterally change our obligations (such as the investment obligations under our Master Development Programs and Capital Development Programs or the obligation under our Mexican concessions and Jamaican concessions to provide a public service) or increase our maximum rates and regulated charges applicable under those regulations should the passenger traffic or other assumptions on which the regulations were based change during the applicable term. In addition, there can be no assurance that this price regulation system will not be amended in a manner that would cause additional sources of our revenues to be regulated.

We cannot predict how the laws and regulations governing our business will be applied.

Many of the laws, regulations and instruments that regulate our business in Mexico were adopted or became effective in 1999, and there is limited precedent that would allow us to predict the impact of these legal requirements on our future operations. In addition, although Mexican law establishes ranges of sanctions that might be imposed should we fail to comply with the terms of one of our Mexican concessions, the Mexican Airport Law and its regulations or other applicable laws, we cannot predict the sanctions that are likely to be assessed for a given violation within these ranges. We cannot provide any assurance that we will not encounter difficulties in complying with these laws, regulations and instruments. For instance, on November 8, 2017, changes to the Mexican Airport Law took effect which modified various regulations, primarily impacting airlines. One of the changes contemplated is the payment of indemnification to passengers delayed for longer than two hours. The new law further clarifies that the payment will be made if the airport concessionaire or airline is at fault for the delay. As of the date hereof, there is no process in place to determine whether the airport concessionaire or airline is responsible for the delay.

We cannot provide any assurance that once the regulations are finalized, concessionaires, such as ourselves, will not be held responsible for certain passenger delays or will not be required to pay indemnifications to passengers affected by such delays. Further, we cannot provide any assurance that such indemnifications will not have a material impact on our results of operations.

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Although our maximum rates through 2024 have been set, we cannot predict what our Master Development Programs for the next five-year period from 2025 to 2029 will establish. We also cannot provide assurance that other regulatory agencies or the Mexican legislature will not impose regulations adverse to our operations in the future or that the laws and regulations governing our business, including the Master Development Programs, the maximum rate-setting process and the Mexican Airport Law, will not change in the future or be applied or interpreted in a way that could have a material adverse effect on our results of operations. For instance, on January 26, 2015, certain amendments to the Mexican Airport Law were enacted that institute an enforcement mechanism for existing requirements. For a discussion of the regulatory provisions applicable to our business in Mexico, see “Item 4, Information on the Company – Regulatory Framework – Sources of Mexican Regulation.”

Similarly, there is limited precedent that would allow us to predict the impact of the laws, regulations and instruments that regulate our business in Jamaica and we cannot provide any assurance that our Jamaican airports will not encounter difficulties in complying with these laws, regulations and instruments. In addition, although the concession agreements for our Jamaican airports and Jamaican law establishes ranges of sanctions that might be imposed should our Jamaican airports fail to comply with the terms of the concession, other Jamaican applicable law and its regulations, we cannot predict the sanctions that are likely to be assessed for a given violation within these ranges. Although the maximum regulated charges have been set for our Jamaican airports through December 2024, we cannot predict what maximum regulated charges the Jamaican government will establish for the next five-year period from January 2025 to December 2029. We also cannot provide assurance that other regulatory agencies or the Jamaican legislature will not impose regulations adverse to our Jamaican airports’ operations in the future or that the laws and regulations governing our business in Jamaica, including the Jamaican Civil Aviation and Airports Authority acts and the process for setting maximum regulated charges, will not change in the future or be applied or interpreted in a way that could have a material adverse effect on our results of operations. For a discussion of the regulatory provisions applicable to our business in Jamaica, see “Item 4, Information on the Company – Regulatory Framework – Sources of Jamaican Regulation.”

The regulations pursuant to which the maximum rates applicable to our aeronautical revenues in Mexico and to the maximum regulated charges that we may collect at our Jamaican airports are established do not guarantee that we or any of our airports will be profitable.

The regulations applicable to our aeronautical activities establish an annual maximum rate for each Mexican airport, which is the maximum annual amount of revenues per workload unit that we may earn at that airport from services subject to price regulation. The maximum rates for our Mexican airports have been determined for each year through 2024. Our Mexican concessions provide that an airport’s maximum rates will be adjusted periodically for inflation determined by reference to the Mexican Producer Price Index (Índice Nacional de Precios al Productor), or “Mexican PPI,” excluding petroleum. Although we are entitled to request additional adjustments to an airport’s maximum rates under certain circumstances, including the amendment of certain provisions of the Mexican laws and regulations that structure and influence our business, our Mexican concessions provide that such a request will be approved only if the SCT determines that certain events specified in our Mexican concessions have occurred. The circumstances under which we are entitled to an adjustment are described under “Item 4, Information on the Company – Regulatory Framework – Mexican Aeronautical Services Regulation – Special Adjustments to Maximum Rates.” Therefore, there can be no assurance that any such request would be made or granted. For a discussion of the framework for establishing our maximum rates in Mexico and the application of these rates, see “Item 4, Information on the Company – Regulatory Framework – Mexican Aeronautical Services Regulation.”

The Jamaican Airports (Economic Regulation) Act 2002, requires that the Jamaica Civil Aviation Authority, or “JCAA,” adjust the maximum amounts that may be levied by an airport operator at the end of each succeeding period of five years. Specifically, every five years, MBJA and NMIA must submit to the JCAA a proposal for increases to the maximum revenues per passenger (revenue yield cap per passenger) as justified by a schedule of five-year estimates for traffic growth, operating costs and investment commitments, including capital expenditures for capital projects and required improvements at our Jamaican airports under the MBJA and NMIA concession agreements (in the case of MBJA, a “Capital Development Program,” in the case of NMIA, the “Capital Works,” and together, the “Capital Development Programs”), as well as the opening Regulated Asset Base (RAB). After the JCAA’s review of the maximum amounts to be levied based on these estimates, the JCAA makes its determination as to the maximum revenues per passenger for each year of the succeeding five-year period. Under the terms of the MBJA and NMIA concession agreements with the Airports Authority of Jamaica, or “AAJ,” if the JCAA approves the new maximum amount to be levied, MBJA and NMIA must fulfill the estimated capital expenditures included in the Capital Development Programs. The last review by the JCAA of these maximum regulated charges for the Montego Bay and Kingston airports was completed in December 2019. Changes resulting from that review period took effect in January and April 2020 for MBJA and NMIA, respectively. These changes will remain in effect through December 2024 for both MBJA and NMIA. For a discussion of the framework for establishing MBJA’s and NMIA’s maximum regulated charges in Jamaica, see “Item 4, Information on the Company – Regulatory Framework – Jamaican Aeronautical Services Regulation.”

Our Jamaican airports have an obligation under their respective concession agreement to satisfy certain requirements applicable to a Capital Development Program. We cannot provide assurance that AAJ will determine that any such Capital Development Program complies with the applicable requirements under their respective concession agreement, or that AAJ will not request our Jamaican airports to undertake additional capital expenditures.

Under the terms of our concessions, there is no guarantee that our consolidated results of operations or the results of operations of any airport will be profitable.

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Our results of operations may be adversely affected by required efficiency adjustments to our maximum rates in Mexico.

Our maximum rates in Mexico are subject to annual efficiency adjustments, which have the effect of reducing the maximum rates for each year to reflect projected efficiency improvements. For the five-year terms ending 2019 and 2024, an annual efficiency adjustment factor of 0.7% was established by the SCT. Future annual efficiency adjustments will be determined by the SCT in connection with the setting of each Mexican airport’s maximum rates every five years. For a description of these efficiency adjustments, see “Item 4, Information on the Company – Regulatory Framework – Mexican Aeronautical Services Regulation – Methodology for Determining Future Maximum Rates.” We cannot provide assurance that we will achieve efficiency improvements sufficient to allow us to maintain or increase our income from operations as a result of the progressive decrease in each Mexican airport’s maximum rate.

If we exceed the maximum rate at any Mexican airport at the end of any year, we could be subject to sanctions.

Historically, we have set the prices we charge for aeronautical services at each Mexican airport to come as close as possible to the authorized maximum rate for that airport in any given year. We expect to continue to pursue this pricing strategy in the future. For example, in 2017, 2018, and 2019, our revenues subject to maximum rate regulation represented 99.9%, 100.0%, and 100.0% respectively, of the amount we were entitled to earn under the maximum rates for all of our Mexican airports. However, there can be no assurance that we will be able to establish prices in the future that allow us to collect virtually all of the revenues we are entitled to earn from services subject to price regulation.

The specific prices we charge for aeronautical services are determined based on various factors, including projections of passenger traffic volumes, the Mexican PPI, excluding petroleum, and the value of the peso relative to the U.S. dollar. These variables are outside of our control. Our projections could differ from the applicable actual data, and if these differences occur at the end of any year, they could cause us to exceed the maximum rate at any one or more of our airports during that year.

If we exceed the maximum rate at any Mexican airport at the end of any year, the SCT may assess a fine and may reduce the maximum rate at that airport in the subsequent year. The imposition of sanctions for violations of certain terms of a concession, including for exceeding an airport’s maximum rate, can result in termination of the concession if the relevant term has been violated and sanctions have been imposed at least three times for the same cause. In the event that any one of our Mexican airport concessions is terminated, our other Mexican airport concessions may also be terminated.

In prior years, in order to ensure our compliance with the maximum rate at a particular airport when the possibility of exceeding that maximum rate has arisen, we have taken actions in the latter part of the year, such as reducing our specific prices and offering discounts. We can offer no assurance that, should external factors cause us to risk exceeding our maximum rates close to or at the end of any given year, we will have sufficient time to take the actions described above in order to avoid exceeding our maximum rates prior to year-end.

If we fail to fulfill the requirements of our Master Development Programs during a given five-year period, we could be subject to sanctions from the Mexican government.

Historically, our capital expenditure commitments under our Master Development Programs are determined by reference to the Mexican PPI’s construction price index. Using the index we aim to be as close as possible to the five-year period capital expenditure commitments at any time. We expect to continue this capital expenditure control strategy in the future. Using this strategy, our capital expenditure during 2017, 2018, and 2019 was 101.1%, 101.0% and 102.0% respectively, of our capital expenditure commitments under our Master Development Programs. However, there can be no assurance that our capital expenditure control strategy will be sufficiently accurate and that we will not fall below our capital expenditure commitments. If, as a consequence of the annual maximum tariff fulfillment review, the SCT determines that we are not in compliance with the committed investments, the government may assess a fine and may reduce the maximum rate of that airport in the subsequent year. Non-compliance with committed investments could also result in the termination of the concession if the relevant term has been violated and sanctions have been imposed at least three times for the same cause. In the event that any one of our Mexican concessions is terminated, our other concessions may also be terminated.

Although in prior years, in order to ensure compliance with our Master Development Programs, we have taken actions in the latter part of the year, such as increasing the amount or pace of certain construction projects, we can give no assurance that, should external factors cause us to risk failing to meet our investment levels, we will have sufficient time to take actions to comply with our Master Development Programs.

Our operating results could be adversely affected if the airlines fail to collect sufficient Airport Improvement Fees for MBJA or if MBJA does not receive approval for the use of these funds to offset costs associated with capital investments at the Montego Bay airport.

The Airports (Economic Regulation) Act and related agreements require the airlines operating at our Jamaican airports to charge an Airport Improvement Fee (“AIF”) from embarking international passengers on behalf of our Jamaican airports and to deposit the fees on a monthly basis in a trust account controlled by the Jamaican Ministry of Transport and Mining (“MTM”). Subject to the MTM’s approval, our Jamaican airports may use these funds for additional capital investments not included in their respective Capital Development Programs, as well as for interest expenses relating to the financing thereof. Our Jamaican airports are required to commit to such additional capital investments in exchange for the right to use the AIF funds.

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The MTM approval of collection of AIF funds at the Montego Bay airport was renewed on February 25, 2015 for the period ending April 11, 2030, unless otherwise revoked. However, because the MTM’s prior approval of MBJA’s use of AIF funds is for specified capital investments in projects that have already been carried out, MBJA is not currently authorized to use any AIF funds collected after April 11, 2015. As of the date hereof, MBJA has entered into a Memorandum of Understanding (“MOU”) with the AAJ to fund “Phase 3” investments including the extension of the existing runway and installation of Runway End Safety Areas through the AIF. In the MOU, the AAJ has committed to guarantee the financing of specific capital projects to limit MBJA’s exposure to financial risks resulting from AIF shortfalls arising from lower than expected passenger traffic.

If MBJA’s passenger traffic projections are above the levels of passenger traffic realized at the Montego Bay airport, the amount of AIF to be collected may not be sufficient to finance all capital projects approved by the MTM and their financial cost. We can provide no assurance that the Montego Bay airport will achieve the passenger traffic required to recover MBJA’s capital investments committed in exchange for the use of the AIF funds. However, there is an Implementation Letter in place between AAJ and MBJA which will indemnify MBJA for any funds advanced towards the approved capital projects to be funded by the AIF which eliminates any exposure to the company.

This does not apply to NMIA as the AIF funds will solely be used by the government through the AAJ. NMIA will have no benefit from the collection of these funds.

See “Item 4, Information on the Company – Regulatory Framework – Jamaican Aeronautical Services Regulation.”

If our Jamaican airports fail to fulfill the requirements of their respective Capital Development Programs, the airports could suffer specific negative consequences, including a termination of their respective concessions.

Under their concession agreements, our Jamaican airports are required to make capital expenditures in order to meet Capital Development Program requirements by certain strict deadlines. Additionally, our Jamaican airports are also responsible for maintaining the tangible concession assets under the concession agreements, which involves capital investment projects and improvements to concession assets. If either MBJA or NMIA fails to comply with the terms and conditions of its concession agreement, it could be in default and face liquidated damages, and, if it fails to remedy the breach within the applicable grace period, it could suffer other negative consequences, including the termination of its concession.

The Mexican government may terminate or reacquire our Mexican concessions under various circumstances, some of which are beyond our control.

Our concessions are our principal assets, and we would be unable to continue operations without them. A Mexican concession may be revoked by the Mexican government for certain prescribed reasons, including failure to comply with our Master Development Programs, a temporary or permanent halt in our operations, actions affecting the operations of other concession holders in Mexico, failure to pay damages resulting from our operations, exceeding our maximum rates or failure to comply with any other material term of our Mexican concessions. Violations of certain terms of a concession (including violations for exceeding the applicable maximum rate) can result in revocation of a concession only if sanctions have been imposed for violations of the relevant term at least three times. Violations of other terms of a concession can result in the immediate termination of the concession. Our Mexican concessions may also be terminated upon our bankruptcy or insolvency.

We would face similar sanctions for violations of the Mexican Airport Law or the regulations thereunder. Under applicable Mexican law and the terms of our Mexican concessions, our Mexican concessions may also be made subject to additional conditions, including under our renewed Master Development Programs, which we may be unable to meet. Failure to meet these conditions may also result in fines, other sanctions and the termination of the concessions.

The Mexican government may also revoke one or more of our Mexican concessions at any time through reversion, if, in accordance with applicable Mexican law, it determines that it is in the public interest to do so. See “Item 4, Information on the Company – Regulatory Framework – Other Regulation of Mexican Concessions and Concession Assets – Revocation of Concessions” The Mexican government may also assume the operation of any airport in the event of war, public disturbance or a threat to national security. In addition, in the case of a force majeure event, the Mexican government may require us to implement certain changes in our operations. In the event of a reversion of the public domain assets that are the subject of our Mexican concessions, the Mexican government under Mexican law is required to compensate us for the value of the concessions or added costs based on the results of an audit performed by appraisers. In the case of a mandated change in our operations, the Mexican government is required to compensate us for the cost of that change. Similarly, in the event of an assumption of our operations, other than in the event of war, the government is required to compensate us and any other affected parties for any resulting damages. There can be no assurance that we would receive compensation equivalent to the value of our investment in, or any additional damages related to, our Mexican concessions and related assets in the event of such action.

In the event that any one of our Mexican airports’ concessions is terminated, whether through revocation or otherwise, our other concessions may also be terminated. Thus, the loss of any concession would have a material adverse effect on our business and results of operations.

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The Jamaican government may terminate or reacquire the concessions held by our Jamaican airports under various circumstances, some of which are beyond our control.

Our Jamaican airport concessions are our principal assets in Jamaica, and we would be unable to continue operations at our Jamaican airports without them. As owner of the concession assets, the AAJ is entitled under certain circumstances, however, to expel us from all or part of our Jamaican airport sites or to take over or carry on the operation and management of the airports or provision of airport services. The AAJ may step into the public domain assets that are the subject of the Jamaican airport concessions for as long as may be required if it determines that we are in breach of the concession agreements, to prevent material disruptions in service at the airports or in cases of national emergencies. Upon such a step-in by the AAJ, the AAJ must account to us for any revenues collected at the airports during the step-in period. Where the AAJ steps into the public domain assets that are the subject of the airport concession pursuant to any uncured event of default or to prevent material disruptions in service, we are required to bear all costs (except consequential losses) and expenses associated with the AAJ exercise of its step-in rights. There can be no assurance that we would receive compensation equivalent to the value of our investment in, or any additional damages related to, our concessions and related assets in the event of such action.

Following notice and good-faith consultations to avoid such a result, the AAJ may terminate the concession agreements upon an event of default on our part. Regardless of cause for termination, a termination fee is due to us upon a termination or revocation of the concession. However, the concession agreements expressly limit the AAJ’s liability to such termination fee. In the event that the AAJ terminates the concession with or without cause, there can be no assurance that the loss of the airport concession would not have a material adverse effect on our business and results of operations.

See “Item 4, Information on the Company – Regulatory Framework – The Montego Bay Airport Concession – AAJ’s Rights to Step In, Terminate or Grant a New Concession.” See “Item 4, Information on the Company – Regulatory Framework – The Kingston Airport Concession – AAJ’s Rights to Step In, Terminate or Grant a New Concession.”

The Mexican and Jamaican governments could grant new concessions that compete with our airports.

The Mexican and Jamaican governments could grant additional concessions to operate existing government-managed airports, authorize the construction of new airports or allow existing privately held domestic airports to change into international airports and permit them to receive regular domestic and international flights, all of which could lead to increased competition for our airports.

One factor that may significantly increase competition from other airports is the expansion of the permits of existing private airports that are currently not permitted to operate regular commercial routes. Under Mexican law, any privately held airport that has operated with a permit to provide public service for at least five years automatically acquires the right to also operate regularly scheduled commercial flights and to receive a concession to operate as a public service airport. In addition, through an amendment proposed by the SCT and confirmed by the Presidency, an airport operating with a permit to provide public service could become an international airport.

Any competition from other such additional airports could have a material adverse effect on our business and results of operations. Under certain circumstances, the grant of a concession for a new or existing airport must be made pursuant to a public bidding process. In the event that a competing concession is offered in a public bidding process, we cannot provide assurance that we would participate in such process, or that we would be successful if we were to participate. See “Item 4, Information on the Company – Regulatory Framework – Other Regulation of Mexican Concessions and Concession Assets – Grants of New Mexican Concessions” and “Item 4, Information on the Company – Regulatory Framework – The Montego Bay Airport Concession – AAJ’s Rights to Step In, Terminate or Grant a New Concession.”

The SCT could require us to monitor certain aircraft movements at our Mexican airports that we do not currently control, which could result in increased costs.

The Mexican Air Traffic Control Authority (Servicios a la Navegación en el Espacio Aéreo Mexicano) or “SENEAM”, could require us to monitor certain aircraft movements at our Mexican airports that we do not currently control, which could result in increased costs. SENEAM currently requires us to manage and control aircraft movements in and out of our arrival and departure gates and remote boarding locations at our Guadalajara, Tijuana and Puerto Vallarta airports. At our other Mexican airports, these aircraft movements are monitored by SENEAM. Should SENEAM require us to control, or if we, for efficiency purposes, request to control, these aircraft movements directly at any or all of our other Mexican airports in the future, our results of operations could be negatively impacted by increased operating insurance and liability costs resulting from taking on these obligations.

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The Mexican civil aviation authority could require us to extend the official operating schedule at our Mexican airports, which could result in increased operating costs.

The AFAC is responsible for establishing the official operating schedules of our Mexican airports. Outside of our Mexican airports’ official hours of operation, we are permitted to double our airport charges for services that we provide. Currently, our airports at Guadalajara, Puerto Vallarta and Morelia have official operating schedules of 24 hours per day. The AFAC can issue a decree extending the official operating schedule of one or more of our other airports from its current schedule, which would deprive us of the ability to double our airport charges for off-hour services at airports for which such a decree has been issued. For instance, as of January 17, 2014, the AFAC expanded the operating schedule of our Aguascalientes airport from 6:00 a.m. to 8:00 p.m. to 6:00 a.m. to 12:00 a.m. and as of April 2, 2015, the operating schedule of our Los Cabos airport was expanded from 7:00 a.m. to 6:00 p.m. to 7:00 a.m. to 9:00 p.m. Such extensions of our official operating schedules result in increases in operating costs, and we can provide no assurances that we would be able to recover those costs.

Federal tax legislation in Mexico may have an adverse effect on our financial condition and our results of operations.

The terms of our Mexican concessions do not exempt us from generally applicable Mexican tax laws. Changes to tax laws and regulations in Mexico could significantly increase our tax expense, which could have a material adverse impact on our results of operations.

For instance, on January 1, 2014, new tax laws came into force following tax reforms in Mexico that, among other changes: maintained the income tax rate on corporations of 30%; imposed withholding tax in respect of dividends paid to Mexican and foreign shareholders; eliminated deductions previously allowed in respect of payments between related parties or certain foreign corporations; limited the tax deductions for certain benefits paid to employees; and increased the value-added tax in certain areas of Mexico.

We cannot predict the impact that changes in law will have, if fully implemented and applied to us, on our business, financial condition and results of operations. In addition, we cannot predict the indirect impact that such legislation could have on our customers and shareholders.

Changes to Mexican laws, regulations and decrees applicable to us could have a material adverse impact on our results of operations.

The Mexican government has in recent years implemented various changes to the laws applicable to Mexican companies, including us. The terms of our Mexican concessions do not exempt us from any changes to Mexican laws. Changes to the Mexican constitution or to any other Mexican laws could have a material adverse impact on our results of operations.

For instance, as a result of certain 2013 amendments to Mexico’s Constitution, on July 6, 2014, a new Federal Economic Competition Law (Ley Federal de Competencia Económica) went into effect, which, among other things, grants broader powers to the federal competition authority, including the ability to regulate essential facilities. If the new competition authority determines that a specific service or product is an essential facility, it has the ability to regulate access conditions, prices, tariffs or technical conditions for or in connection with the specific service or product. Some of the services we render are public services that are regulated by the Mexican government, and we are unsure if the competition authority will apply the new competition law in the same manner and under the same considerations as it would apply to non-regulated service providers. Should the new competition authority determine that all or part of the services we provide are considered an essential facility, we may be required to implement significant changes to the way we currently do our business, which could have a material adverse impact on our results of operations. For a discussion of the new competition law, see “Item 4, Information on the Company – Regulatory Framework – Sources of Mexican Regulation – Federal Economic Competition Commission.” Also see “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – We cannot predict how the regulations governing our business will be applied” in this section.

For more detailed information on current sources of regulation governing the operation of airports in Mexico, see “Item 4, Information on the Company – Regulatory Framework – Sources of Mexican Regulation.”

Risks Related to Our Strategic Shareholder

AMP, our strategic shareholder, has significant influence over our operations, and AMP’s interests may differ from those of other shareholders.

AMP holds Series BB shares currently representing 15% of our total capital stock. The Series BB shares have certain special rights that allow AMP to exercise significant influence over our operations. Through its right to appoint and remove members of our senior management, AMP participates in the decision-making process of our management in areas such as business strategy, operations, financing, acquisitions and dispositions of assets or business.

Pursuant to our bylaws, AMP (as holder of our Series BB shares) has the right to appoint and remove our top-level executive officers (upon consultation with our Nominations and Compensation Committee), to elect four members of our board of directors and their alternates and to designate three members of our Operating Committee and 20% of the members of each other board committee (or one member of any committee consisting of fewer than five members). Audit Committee members are selected according to Mexican and U.S. independence standards. AMP (as holder of our Series BB shares) also has the right pursuant to our bylaws to veto certain actions requiring the approval of

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our shareholders (including the approval of our financial statements, increases or decreases of our capital stock, the payment of dividends, the amendment of our bylaws and any decision that has the objective to modify or annul its right to appoint our top-level executive officers). These rights are not conditioned on whether or not the technical assistance agreement and the participation agreement remain in force. Pursuant to our bylaws, if at any time AMP (as the holder of our Series BB shares) were to hold less than 7.65% of our capital stock in the form of Series BB shares, such shares would be mandatorily converted into Series B shares, which would cause AMP to lose all of its special rights. Shareholders of AMP have allocated among themselves certain veto rights relating to the exercise by AMP of its veto and other rights, which increases the risk of impasse at AMP shareholders’ meetings and ultimately at our shareholders’ meetings. Differences in points of view among AMP’s shareholders with respect to our management could affect our results of operations. The interests of AMP may differ from those of our other shareholders, and we can offer no assurance that AMP and the officers appointed by AMP will exercise their rights in ways that favor the interests of our other shareholders.

Disputes among AMP’s shareholders may affect our shareholders’ meetings or management.

In 2010 and 2011, disputes among AMP’s shareholders affected our shareholders’ meetings and trading of our shares on the Bolsa Mexicana de Valores, S.A.B. de C.V. (“Mexican Stock Exchange”) and the New York Stock Exchange (“NYSE”), as well as involving us in litigation. Notwithstanding those disputes, on December 1, 2011, we were advised by AMP’s shareholders that they had entered into an agreement to end their dispute and to terminate their legal proceedings. Additionally, we were informed that AMP’s shareholders agreed to a comprehensive mechanism for decision-making (primarily by consensus, but with specific mechanisms aimed at avoiding deadlocks that could affect our operations), and that AMP’s shareholders would continue developing our business.

On November 19, 2014, Controladora Mexicana de Aeropuertos, S.A. de C.V. (“CMA”) became 66.66% owner of the capital stock of AMP . As a result of this transaction, CMA agreed that the minority shareholders’ consent is required with respect to certain significant actions or decisions. See “Item 7, Major Shareholders and Related Party Transactions – Major Shareholders – AMP Trust, Bylaws and Shareholders’ Agreement.”

If disputes among AMP’s shareholders were to occur in the future, it is not possible to predict if they would result in deadlock at our shareholders’ meetings or distract our management, or what effects such events might have on the price of our stock, its liquidity or our market value and the effects that these conflicts could have on our business or results of operations. In addition, AMP’s veto, appointment and other rights could adversely impact our operations and constitute an obstacle for us to bring in a new strategic shareholder and/or operator.

If AMP should decide to sell all or a portion of its interest in us, our operations could be adversely affected.

AMP currently exercises significant influence over our management, as described above. AMP is able to sell nearly all of the shares that it owns. Our bylaws provide that, subject to certain exceptions, Series BB shares must be converted into Series B shares prior to transfer. Should AMP divest its interest in us or cease to hold Series BB shares, our management could change and our operations could be adversely and significantly affected as a result.

Our operations could be adversely affected if the technical assistance agreement is not renewed with AMP.

AMP exercises a significant influence over our management through the technical assistance agreement, through which AMP provides our airports with expertise in operating in the aeronautical sector and strategic planning guidance to increase aeronautical and non - aeronautical revenues, in addition to knowledge of the Mexican government and business sectors and assistance with the negotiation of our Master Development Programs. Therefore, if either we or AMP decides not to renew the technical assistance agreement, it would require time and potentially higher costs for us to replace AMP’s strategic expertise through contracts with new external advisors; apart from the possible higher costs, the need to replace AMP could have an impact on our business strategy and ongoing projects, such as the successful negotiation of tariffs, investments and other elements of our Master Development Programs. As a result, our results of operations could be negatively affected. For more detailed information on the technical assistance agreement with AMP, see “Item 4, Information on the Company – History and Development of the Company – Investment by AMP.”

Failure to comply with certain requirements of the privatization guidelines and the participation agreement relating to our privatization could have a material and adverse effect on our operations or the value of our securities.

Pursuant to the guidelines published by the Mexican government during the first phase of our privatization and the participation agreement setting forth the rights and obligations of each of the parties involved in our privatization, AMP assumed certain rights and obligations.

Although we believe AMP satisfies all their requirements under the privatization guidelines and the participation agreement, there can be no assurance that allegations or official inquiries relating to AMP’s compliance with its obligations under those requirements will not take place. In the event of future inquiries or an official finding that AMP is or was not in compliance with the requirements of the privatization guidelines or the participation agreement, AMP could be subject to fines and the technical assistance agreement between us and AMP could be terminated, which could have a material effect on our operations. In addition, there can be no assurance that any such developments would not result in a material decrease in the market value of our shares or ADSs or their liquidity.

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Certain actions by Grupo México, S.A.B. de C.V. may affect our management, financial condition or results of operations.

Articles X and XII of our bylaws, among others, limit the ability of Series B shareholders, directly or with related parties, other than AMP, to hold more than 10% of our outstanding capital stock, and any shares held in excess of that amount must be sold in a public offering. In accordance with our bylaws, until the public offering of such shares takes place, such excess shares have no voting power and cannot be represented in any shareholders’ meeting.

On June 13, 2011, Grupo México, S.A.B. de C.V. (“Grupo México”) announced that its board of directors had approved the acquisition, directly or indirectly, of at least 30%, and up to 100%, of our shares outstanding at that time, excluding treasury shares, through a public tender offer. Grupo México and its subsidiary, Infraestructura y Transportes México, S.A. de C.V. (“ITM”), then commenced legal proceedings seeking (i) to modify our bylaws to eliminate the foregoing limitations and (ii) to terminate AMP’s special rights that stem from AMP’s ownership of our Series BB shares.

On June 17, 2015, the Mexican Supreme Court issued an amparo ruling upholding the validity of Articles X and XII of our bylaws regarding the limitations on ownership of our capital stock. On February 17, 2016, the Superior Court of Mexico City declared that Grupo México and ITM were in violation of the Company’s bylaws due to the fact that together they held more than 10% of our outstanding capital stock, and ordered Grupo México and ITM to sell any Series B shares held in excess of that limit. Consequently, the challenge initiated by Grupo México and ITM against these articles has been definitively concluded, with the ruling confirming the validity and effectiveness of these articles in support of the position we maintained and defended. Grupo México filed an appeal looking for clarification regarding the ruling. On November 9, 2016, the Grupo México complaint was declared unfounded. We filed a complaint seeking fees and expenses. On May 8, 2019, a civil court in Mexico City granted Grupo Mexico´s request for an amparo on a challenge to the constitutionality of Article 48, Section III of the Mexican Securities Law. We then filed a direct amparo appeal. The amparo review is pending. See “Item 8, Financial Information – Legal Proceedings – Litigation related to Grupo México, S.A.B. de C.V. seeking to void certain of our bylaws.”

In its most recent filing on Schedule 13D with the SEC on December 24, 2019, Grupo México disclosed that it beneficially owned 10.6% of our total outstanding shares. It is not possible to predict the extent to which these disputes with Grupo México will distract our management, the effects that future developments in this dispute might have on the price of our stock, its liquidity or our market value or the effects that these conflicts could have on our business or results of operations.

Risks Related to Mexico

Adverse economic conditions in Mexico may adversely affect our financial condition or results of operations.

All of our operations conducted in Mexico are dependent upon the performance of the Mexican economy. As a result, our business, financial condition or results of operations may be affected by the general condition of the Mexican economy, over which we have no control. In the past, Mexico has experienced economic crises, caused by internal and external factors, characterized by exchange rate instability (including large devaluations), high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment rates. We can provide no assurance that such conditions will not return or that such conditions will not have a material adverse effect on our business, financial condition or results of operations. See “Item 5, Recent Developments – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

According to the Mexican National Institute for Statistics and Geography (Instituto Nacional de Estadística y Geografía), or “INEGI,” GDP increased 2.1% in 2017, 2.0% and 2018, and decreased 0.1% in 2019, in each case compared with the previous year. The annualized interest rates for 28-day Mexican Treasury Bills (CETES) averaged approximately 6.7%, 7.6% and 7.8% in 2017, 2018 and 2019, respectively. As of May 22, 2020, the 28-day Interbank Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio), or “TIIE-28,” was 5.7644%. To the extent that we incur peso-denominated debt in the future, it could be at high interest rates.

If inflation or interest rates increase significantly or if the Mexican economy is otherwise adversely impacted, our business, financial condition or results of operations could be materially and adversely affected.

Additionally, economic conditions in Mexico may also be affected by political developments in the United States, such as the change in administrations in January 2017, and economic developments in the United States, such as interest rates, exchange rates and GDP growth, among others. We cannot assure you that any developments in the U.S. or elsewhere will not materially and adversely affect us in the future.

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Depreciation or fluctuation of the peso relative to the U.S. dollar could adversely affect our results of operations and financial condition.

Any future significant appreciation or depreciation of the peso could impact our aggregate passenger traffic volume, which could have a material adverse effect on our results of operations. Following the devaluation of the peso and the economic crisis beginning in 1994, the aggregate passenger traffic volume in our airports in 1995 (then operated by our predecessor) decreased as compared to prior years, reflecting a decrease in Mexican passenger traffic volume that more than offset an increase in international passenger traffic volume. Another substantial decrease in value could occur, and it could (notwithstanding other factors) lead to a decrease in domestic passenger traffic that may not be offset by any increase in international passenger traffic. In 2017, the peso appreciated 4.5% against the U.S. dollar. In 2018, the peso appreciated 0.3% against the U.S. dollar. In 2019, the peso appreciated 4.0% against the U.S. dollar. Any future significant depreciation of the peso could impact our aggregate passenger traffic volume by increasing the cost of travel for domestic passengers, while any future significant appreciation of the peso could impact our aggregate passenger volume by increasing the cost of travel for international passengers. See “Item 5, Recent Developments – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

International passengers and international flights pay tariffs denominated in U.S. dollars. However, in Mexico, these tariffs are generally invoiced and collected in Mexican pesos. Because such tariffs are invoiced taking into account the average of the exchange rate for the 30 days prior to the date of a flight, a significant depreciation of the peso during the final two months of any year could result in our exceeding our maximum rates, which would be a violation of our concession. If a significant depreciation of the peso occurred, we could be required to issue rebates to our customers to avoid exceeding our maximum rates. On the other hand, a significant appreciation of the peso could result in us invoicing substantially less than our maximum rate per workload unit. We do not have any means of recovering lost revenue if we charge less than the maximum rate as a result of a significant appreciation in the peso. We attempt to set our U.S. dollar-denominated tariffs so as to avoid exceeding our maximum rates while attempting to charge as close to the maximum rate as possible.  

Due to the acquisition of 100% of the shares of DCA in 2015, we incurred indebtedness in U.S. dollars. A devaluation of the peso would increase the debt service cost of such U.S. dollar-denominated indebtedness and result in foreign exchange losses. In 2019, approximately 99.0% of MBJA’s operating revenues, 58.0% of its operating expenses and 98.0% of its capital expenditures were denominated in U.S. dollars, with the remaining 42.0% of operating expenses and 2.0% of its capital expenditures denominated in Jamaican dollars, which are pegged to the U.S. dollar. All of MBJA’s indebtedness was also denominated in U.S. dollars in 2019. Accordingly, fluctuations in the exchange rate between the Mexican peso and the U.S. dollar may also affect our performance through the consolidation of MBJA and NMIA’s financial and operating results.

In addition, fluctuations in the exchange rate between the peso and the U.S. dollar, particularly depreciations, may adversely affect the U.S. dollar equivalent of the peso price of the Series B shares on the Mexican Stock Exchange. As a result, such peso depreciations will likely affect the market price of the ADSs. Exchange rate fluctuations would also affect the ADS depositary’s ability to convert into U.S. dollars, and make timely payment of, any peso cash dividends and other distributions paid in respect of the Series B shares.

We can provide no assurance that depreciation or fluctuation of the peso relative to the U.S. dollar will not require us to issue rebates to avoid exceeding our maximum rates or cause us to invoice substantially less than our maximum rate per workload unit, negatively impact our financial results or our performance through the consolidation of MBJA and NMIA’s financial and operating results, or adversely affect the market price of our ADSs. In addition, although most of our operating costs are denominated in pesos, we cannot predict whether our cost of services will increase as a result of the depreciation of the peso or as a result of other factors.

The value and prices of securities issued by Mexican companies may be adversely affected by developments in other countries.

The Mexican economy may be, to varying degrees, affected by economic and market conditions in other countries. Although economic conditions in other countries may differ significantly from economic conditions in Mexico, investors’ reactions to adverse developments in other countries may have an adverse effect on the market value of securities of Mexican issuers. For instance, the credit freeze and global recession that began in 2007 and continued into 2009 had a significant impact in Mexico. Mexico’s stock market fell 48% during that period. Similarly, the European debt crisis that began in Greece and then spread to other countries such as Italy and Spain as well as European financial institutions, affected financial markets around the world and in Mexico.

We cannot provide assurance that events in other emerging market countries, in the United States or elsewhere, will not materially and adversely affect our business, financial condition or results of operations.

Political conditions in Mexico could materially and adversely affect Mexican economic policy or business conditions and, in turn, our operations.

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy could have a significant impact on Mexican private sector entities in general, as well as on market conditions and prices and returns on Mexican securities, including our securities.

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Andrés Manuel López Obrador, a member of the National Regeneration Movement (“MORENA”), began a six-year term as president of Mexico on December 1, 2018. The newly elected members of the Mexican Congress took office on September 1, 2018, with MORENA holding an absolute majority in the Chamber of Deputies and no political party holding a majority in the Senate. The transition in leadership and party control could result in economic or political conditions in Mexico that could materially impact our operations. As with any governmental change, this change to the country’s administration may lead to significant changes in laws, public policies or regulations, may affect the political and economic environment in Mexico, and consequently, they may contribute to economic uncertainty and to heightened volatility of the Mexican capital markets and in securities issued by Mexican companies.

We can provide no assurance that changes in the policies of Mexico’s federal government will not have an adverse effect on our business, financial conditions and results of operations. Consequently, we can provide no assurance that Mexican political or social developments, over which we have no control, will not adversely affect our financial conditions, results of operations, our ability to make dividend payments to our shareholders or the market price of our securities.

Our business could be adversely affected by other claims by certain Mexican municipalities.

Certain of our Mexican airports are subject to claims by the municipalities in which they operate regarding our failure to obtain certain municipal licenses. Although we do not believe that we are subject to the license requirements at issue, if the municipalities require additional licenses or make changes to the current laws and we are unable to obtain the necessary licenses or if we do not prevail in proceedings challenging these requirements, our failure to obtain these licenses could have a material adverse effect on the operations of certain of our airports and consequently on our financial condition and results of operations.

High incidences of crime in Mexico and violence related to drug trafficking could adversely affect our business.

Travel alerts issued by the U.S. Bureau of Consular Affairs, the most recent as of December 17, 2019, informed of the risks of traveling in Mexico due to (i) threats to safety and security posed by transnational criminal organizations in the country and (ii) increased violence in many towns and cities across Mexico. These travel alerts emphasize the extent of criminal activity in different Mexican states, including recommending against travel in states such as Michoacan, Colima and Sinaloa in which our Morelia, Manzanillo and Los Mochis airports are located.

In addition, perceptions about crime in Mexico and violence related to drug trafficking may also have an adverse effect on our business as they may decrease the international passenger traffic directed to Mexico or the domestic passenger travel using our airports in affected states.

Higher incidences of crime throughout Mexico and drug trafficking-related violence could have an adverse effect on our business as it may decrease the international passenger traffic directed to Mexico or the domestic passenger travel using our airports in affected states.

Increased environmental regulation and enforcement in Mexico may affect us.

The level of environmental regulation in Mexico is increasing and the enforcement of environmental laws has become more common. For instance, a new carbon dioxide (“CO2”) market commenced operating in Mexico during 2018. The market will require that industries that generate above a certain amount of CO2 emissions pay for rights to excess emissions. As of 2019, companies subject to the legislation are required to report their global emissions for verification by the Mexican Emissions Registry (Registro Nacional de Emisiones). We are subject to this legislation, and began reporting our emissions in 2018. In 2019, we began submitting our emissions reports for verification by the Mexican Emissions Registry. In addition, new water quality standards are being discussed, which would require greater water quality for all of our wastewater disposal. There can be no assurance that environmental regulations or their enforcement will not change in a manner that could have a material adverse effect on our business, results of operations, prospects or financial condition. For more information on environmental regulation, see “Item 4, Information on the Company – Regulatory Framework – Mexican Environmental Regulation.”

Minority shareholders may be less able to enforce their rights against us, our directors, or our strategic shareholders in Mexico.

Under Mexican law, the protections afforded to minority shareholders are different from those afforded to minority shareholders in the United States. For example, because provisions concerning fiduciary duties of directors have only recently been incorporated into the new Securities Market Law, it may be difficult for minority shareholders to bring an action against directors for breach of this duty and achieve the same results as in most jurisdictions in the United States. In addition, the procedures for class action lawsuits were incorporated into Mexican law and became effective in March 2012; however, certain rules and procedures could be different than the ones in the United States. Therefore, in some cases it may be more difficult for minority shareholders to enforce their rights against us, our directors, or our strategic shareholders than it would be for minority shareholders of a U.S. company.

We are subject to different corporate disclosure and accounting standards than U.S. companies.

A principal objective of the securities laws of the United States, Mexico and other countries is to promote full and fair disclosure of all material corporate information, including accounting information. However, there may be different or less publicly available information about issuers of securities in Mexico than is regularly made available by public companies in countries with highly developed capital markets, including the United States.

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In addition, accounting standards and disclosure requirements in Mexico differ from those of the United States. Our financial statements are prepared in accordance with IFRS, which differs from U.S. GAAP in a number of respects. Items on the financial statements of a company prepared in accordance with IFRS may not reflect its financial position or results of operations in the way they would be reflected, if such financial statements had been prepared in accordance with U.S. GAAP.

Risks Related to Jamaica

Adverse economic conditions in Jamaica may adversely affect our financial condition or results of operations.

Despite 99% of the passenger traffic through our Jamaican airports consisting of international passengers, the general condition and performance of the Jamaican economy, over which we have no control, may affect our business, financial condition or results of operations. Jamaica is a small, emerging market country, which has struggled with low growth and high public debt. Due to its size, indebtedness, reliance on exports to a small number of principal markets, such as the United States and Canada, and the concentration of its economic activity in its two principal industries of bauxite mining and tourism, the Jamaican economy is highly susceptible to external shocks. Jamaica is also affected by social and security problems, including, among others, trafficking in drugs and high rates of violent crime, underemployment and youth unemployment.

If growth remains lower than what is needed for reducing the poverty, and the country continues to be confronted by serious social issues that predominantly affect youth, such as a high levels of crime and violence and high unemployment. The Statistical Institute of Jamaica estimated the unemployment rate in Jamaica at 7.8% in July 2019, down from 8.4% in July 2018.

If Jamaican inflation or interest rates increase significantly or if the Jamaican economy is otherwise adversely impacted, our business, financial condition or results of operations could be adversely affected. See “Item 5, Recent Developments – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations.”

Political conditions in Jamaica could materially and adversely affect Jamaican economic policy or business conditions and, in turn, our operations in Jamaica.

National elections to determine which party forms the Jamaican government for the next five years were held in February 2016, which resulted in the Jamaica Labour Party (“JLP”) holding a majority of the seats in both houses of Parliament. The previous ruling party, the People’s National Party (“PNP”) advocated for the continued implementation of public policies and private partnerships to encourage infrastructure development in the tourism sector. Thus far, the change in ruling political parties in Jamaica has not led to significant modifications of the economic and regulatory policies pursued by the previous administration. Any adverse changes in legislation in the future could have a negative impact on our business, financial condition, performance of operations and cash flows.

Our business in Jamaica is subject to substantial governmental regulation.

Our Jamaican airport concessions are regulated principally by the AAJ, an agency of the Jamaican government, under the Airports Authority Act of 1974. In April 2003, the AAJ divested operational responsibility for the Montego Bay airport to MBJA under a concession agreement pursuant to which MBJA is responsible for the management of the day-to-day operations of the Montego Bay airport in keeping with specific performance criteria and prescribed international standards. In addition, on October 10, 2018, the AAJ signed a concession agreement with PACKAL, for the management of the day-to-day operations of the Kingston airport. The AAJ retains ownership of the non-movable assets of these airports. Our Jamaican airports pay a concession fee to the Jamaican government and at the end of the concession agreements will transfer the infrastructure of our Jamaican airports, and any moveable assets acquired during the period of the concessions, to the AAJ. Regular performance reviews and other contract administration oversight functions are conducted by the AAJ, as specified under the concession agreements. There can be no assurance that governmental regulations or their enforcement will not change in a manner that could have a material adverse effect on our business, results of operations, prospects or financial condition. However, there are certain provisions within the concession agreements that offer some protection to MBJA and PACKAL in the event of adverse changes in Jamaican law. In certain instances, if there is an adverse change in Jamaican law resulting in an unavoidable net increase in costs or net reduction in revenues to MBJA and PACKAL, MBJA and PACKAL will be entitled (subject to remaining provisions of the MBJA and PACKAL Concession Agreements) to monetary compensation from AAJ. See “Item 4, Information on the Company – Regulatory Framework.”

High incidences of crime in Jamaica and violence related to drug trafficking could adversely affect our business.

Travel alerts issued by the U.S. Bureau of Consular Affairs, the most recent as of April 15, 2019, informed of the risks of traveling in Jamaica due to threats to safety and security posed by increased crime, including violent crime, in many areas across Jamaica. The travel alerts emphasize the increase of criminal activity in different areas across Jamaica, including in certain areas in Montego Bay and Kingston, near where our Jamaican airports are located.

In addition, perceptions about crime in Jamaica and violence related to drug trafficking may also have an adverse effect on our business as they may decrease the international passenger traffic directed to Jamaica.

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Higher incidences of crime throughout Jamaica could have an adverse effect on our business as it may decrease the international passenger traffic directed to Jamaica.

Government tax legislation in Jamaica may have an adverse effect on our financial condition and results of operations.

The Jamaican government has in recent years implemented various changes to the tax laws applicable to Jamaican companies. Except certain relief from withholding tax in relation to interest on commercial and shareholder’s loans to non-resident lenders and to dividends to non-resident shareholders, and in the case of our Jamaican airports certain relief from customs duty and general consumption tax on major capital investment, the terms of our concession agreements do not exempt us from generally applicable Jamaican tax laws. Changes to tax laws and regulations in Jamaica could significantly increase our tax expense, which could have a material adverse impact on our results of operations.

We cannot predict the impact that changes in law, if fully implemented and applied to us, will have on our business, financial condition and results of operations. In addition, we cannot predict the indirect impact that such legislation could have on our customers and shareholders.

Item 4. Information on the Company

HISTORY AND DEVELOPMENT OF THE COMPANY

We hold concessions to operate, maintain and develop twelve international airports in the Pacific and Central regions of Mexico and two international airports in Jamaica. As operator of the airports under our concessions, we charge airlines, passengers and other users’ fees for the use of the airports’ facilities. We also derive rental and other income from commercial activities conducted at our airports, such as the leasing of space to restaurants and retailers.

Grupo Aeroportuario del Pacífico, S.A.B. de C.V., a corporation (sociedad anónima bursátil de capital variable) organized under the laws of Mexico, was incorporated in 1998 as part of the Mexican government’s initiative to open Mexico’s airports to private investment. The corporation’s period of duration is set at 100 years.

Each of our Mexican concessions has a term of 50 years beginning on November 1, 1998. The term of each of our Mexican concessions may be extended by the SCT under certain circumstances for up to 50 additional years. Our wholly owned Spanish subsidiary, DCA, holds a 74.5% stake in MBJA, the entity that holds the concession to operate, maintain and utilize the Montego Bay International Airport in Jamaica for a period of 30 years beginning on April 12, 2003 but includes no extension provision.

On October 10, 2018, we signed a concession agreement with the Government of Jamaica to operate, modernize and expand the NMIA in Kingston, Jamaica for a period of 25 years with a possible five-year extension. We took control of the operation and management of NMIA on October 10, 2019.

The address of our registered office is as set forth on the cover of this annual report on Form 20-F. Our telephone number is +52 (33) 3880-1100. Our U.S. agent is Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711.

Opening of Mexican Airports to Private Investment

In February 1998, the Mexican government issued the Investment Guidelines for the Opening of Investment in the Mexican Airport System. Under these guidelines, the SCT identified 35 of Mexico’s 58 principal airports as being suitable for investment. These 35 airports were divided into four airport groups: Grupo Aeroportuario del Pacífico, or the Pacific Airport Group (twelve Mexican airports); Grupo Aeroportuario del Sureste, or the Southeast Airport Group (nine airports), Grupo Aeroportuario de la Ciudad de México, D.F., or the Mexico City Airport Group (one airport) and Grupo Aeroportuario del Centro-Norte, or the Central-North Airport Group (thirteen airports).

The guidelines generally provided for the airport groups to become open to private investment through a two-stage program. In the first stage, a series of public auctions were conducted to award a minority interest in each airport group to a strategic shareholder. In the second stage, all or a portion of the remaining interest in each airport group was sold through public offerings in the Mexican and international capital markets. Except for the Mexico City Airport Group, all of the other airport groups have completed both stages of the program.

As a result of the opening of Mexico’s airports to private investment, we and our subsidiaries are no longer subject to the Mexican regulations applicable to government wholly owned companies. We believe that this provides us greater flexibility to develop and implement our business strategy and to respond to potential business opportunities.

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Investment by AMP

In 1999, through a public auction held as part of the first stage of the private investment program, the Mexican government sold a 15% equity interest in us to AMP.

The following are AMP’s current shareholders:

• Controladora Mexicana (“CMA”) owns 66.66% of AMP. Controladora Mexicana is a private company 50%-owned by Pal Aeropuertos, S.A. de C.V. (“PAL”) and 50%-owned by Promotora Aeronáutica del Pacífico, S.A. de C.V. (“PAP”), PAL is a Mexican special purpose vehicle owned by Eduardo Sánchez Navarro Redo and Juan Gallardo Thurlow, and PAP is a Mexican special purpose vehicle previously owned by Laura Díez Barroso Azcárraga and her spouse, Carlos Laviada Ocejo. On May 5, 2020, Mrs. Díez Barroso and Mr. Laviada Ocejo transferred to direct family members all of their interest in PAP. See “Item 7. Major Shareholders and Related Party Transactions —Major Shareholders.”Pursuant to the privatization guidelines published by the Mexican government during the first phase of our privatization, which require our strategic shareholder to have, among other characteristics, an “operating” partner and a “Mexican” partner (each a “key partner”), CMA is one of AMP’s two key partners, acting as its designated “Mexican” partner.

• Aena Desarrollo Internacional, S.A. (“Aena Internacional”) owns 33.33% of AMP. Aena Internacional is a wholly owned subsidiary of Aena, S.A. (“Aena”), parent company of the Spanish economic group Grupo AENA. Aena is a listed company with 51% of its shares currently held by E.P.E. Enaire, a Spanish government corporation, and the remaining 49% currently traded on the Spanish stock exchange. Aena operates 46 airports and two heliports in Spain, six airports in Brazil and is one of the largest airport operators in the world. Pursuant to the privatization guidelines described above, Aena Internacional is one of AMP’s two key partners, acting as its designated “operating” partner. In addition to its investment in AMP, Aena Internacional also owns 51.0% of London Luton Airport Holding III Limited, a British airport company that owns the airport company concessionaire of the London Luton Airport in the United Kingdom, as well as relevant stakes in two other airport concession companies in Latin America.

AMP paid the Mexican government a total of Ps.2.45 billion (nominal pesos, excluding interest) (U.S.$261 million based on the exchange rates in effect on the date of AMP’s bid) in exchange for:

• all of our Series BB shares, representing 15% of our outstanding capital stock;and

• the right and obligation to enter into various agreements with us and the Mexican government, including a participation agreement setting forth the rights and obligations of each of the parties involved in the privatization (including AMP), a fifteen-year technical assistance agreement setting forth AMP’s right and obligation to provide technical assistance to us in exchange for an annual fee and a shareholders’ agreement under terms established during the bidding process. These agreements are described in greater detail in Item 7.

The Technical Assistance Agreement with AMP

Under the technical assistance agreement, AMP provides management and consulting services and transfers industry expertise and technology to us in exchange for a fee. The agreement provides us an exclusive license in Mexico to use all technical assistance and expertise transferred to us by AMP or its shareholders during the term of the agreement. AMP provides us assistance in various areas, including development of our commercial activities, preparation of marketing studies focusing on increasing passenger traffic, assistance with the preparation of the Master Development Programs that we are required to submit to the SCT and the improvement of our airport operations. Our management believes that if we were not to receive the technical assistance provided via our agreement with AMP, this could adversely and significantly affect our results of operations.

Upon expiration, the agreement automatically renews for successive five-year terms unless one party provides notice of termination at least 60 days prior to a scheduled expiration date. Under our bylaws, a decision by us to renew or cancel the technical assistance agreement is subject to the approval of 51% of Series B shareholders other than AMP or any related party of AMP (to the extent that AMP or any such related party holds Series B shares). A party may also terminate the technical assistance agreement prior to its expiration date upon non-compliance with its terms by the other party. The technical assistance agreement with AMP was automatically renewed on August 25, 2019 for five additional years.

The technical assistance fee is equal to the greater of U.S.$4.0 million, adjusted annually for U.S. inflation since August 25, 2000 (measured by the U.S. CPI), or 5% of our annual consolidated income from operations from our Mexican airports (calculated prior to deducting the technical assistance fee, income taxes and depreciation and amortization, in each case determined in accordance with MFRS). We believe that this structure creates an incentive for AMP to increase our annual consolidated earnings. AMP is also entitled to reimbursement for the out-of-pocket expenses it incurs in its provision of services under the agreement. In 2017, 2018 and 2019, the technical assistance fee, based on our Mexican airports’ income from operations, amounted to Ps.357.4 million, Ps.411.5 million and Ps.461.6 million, respectively. These amounts represented 4.4%, 4.5% and 4.5% of our annual consolidated income from operations (calculated prior to deducting the technical assistance fee, income taxes and depreciation and amortization), respectively.

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The technical assistance agreement allows AMP, its shareholders and their affiliates to render additional services to us only if our Acquisitions Committee determines that these related parties have submitted the most favorable bid in a public bidding process involving at least three unrelated parties. For a description of this committee, see Item 6 herein. Our bylaws, the participation agreement and the technical assistance agreement also contain certain other provisions designed to avoid conflicts of interest between AMP and us.

AMP’s Rights and Obligations under Our Bylaws

Pursuant to our bylaws, AMP (as holder of our Series BB shares) has the right to appoint and remove our top-level executive officers (upon consultation with our Nominations and Compensation Committee), to elect four members of our board of directors and their alternates and to designate three of the members of our Operating Committee and 20% of the members of each other board committee (or one member of any committee consisting of fewer than five members). According to Mexican and U.S. independence standards, the members of our Audit Committee must be independent. Pursuant to our bylaws, AMP (as holder of our Series BB shares) also has the right to veto certain actions requiring approval by our shareholders (including the payment of dividends, the amendment of our bylaws and any decision that has the objective of modifying or annulling its right to appoint our top-level executive officers). In addition, shareholders of AMP have allocated among themselves certain veto rights relating to the exercise by AMP of its veto and other rights, which increases the risk of impasse at the AMP shareholders’ meetings and ultimately at our shareholders’ meetings. See “Item 3, Key Information – Risk Factors – Risks Related to Our Strategic Shareholder.”

Our bylaws provide that, subject to certain exceptions, Series BB shares must be converted into Series B shares prior to transfer. Our bylaws and certain of the agreements executed in connection with the privatization process prohibited AMP from transferring any of its Series BB shares before August 25, 2004. Since that date, AMP has been permitted to transfer up to 49% of its Series BB shares without restriction. Since August 25, 2009, AMP has been permitted to sell in any year up to 20% of its remaining 51% interest in our Series BB shares. Also pursuant to our bylaws, if at any time AMP (as the holder of our Series BB shares) were to hold less than 7.65% of our capital stock in the form of Series BB shares, its Series BB shares would be mandatorily converted into Series B shares, which would cause AMP to lose all of its special rights.

AMP Shares in Bancomext Trust

As required under the participation agreement entered into in connection with the Mexican government’s sale of our Series BB shares to AMP, AMP has transferred its Series BB shares to a trust, the trustee of which is Banco Nacional de Comercio Exterior, S.N.C. (“Bancomext”). For a description of this trust, see “Item 7, Major Shareholders and Related Party Transactions – Major Shareholders – AMP Trust, Bylaws and Shareholders’ Agreement.”

Pursuant to the terms of the trust, AMP may direct the trustee to vote only shares representing up to 10% of our capital stock. Any shares in excess of 10% are voted by the trustee in accordance with the vote of the majority of Series B shares. The trust does not affect the veto and other special rights granted to the holders of Series BB shares described above.

Global Offering and Establishment of ADR Facility with NYSE Listing

In 1999, 85% of our capital stock was transferred from the Mexican government to a trust established in Nacional Financiera, S.N.C., Institución de Banca de Desarrollo (“NAFIN”), a Mexican government-owned development banking institution. In February 2006, we conducted an initial public offering to allow NAFIN to dispose of its 85% interest in us. Through this offering, all of our outstanding Series B shares were sold to the public in Mexico, the U.S. and elsewhere, and NAFIN ceased to be a shareholder. The net proceeds from the sale of shares were remitted entirely to the Mexican government. We received no proceeds from this offering. At the same time, we established an American Depositary Receipt facility with The Bank of New York Mellon (formerly The Bank of New York) and obtained approval to list our ADSs on the NYSE. In addition, we registered our Series B shares with the National Securities Registry (Registro Nacional de Valores) and listed our Series B shares on the Mexican Stock Exchange.

Master Development Programs

Under the terms of our Mexican concessions, each of our Mexican subsidiary concession holders is required to present a Master Development Program for approval by the SCT every five years. Each Master Development Program includes investment commitments for the regulated part of our Mexican airports business (including capital expenditures and improvements) for the succeeding five-year period. Once approved by the SCT, these commitments become binding obligations under the terms of our Mexican concessions.

On December 12, 2019, the SCT approved our Master Development Programs for each of our Mexican airports for the 2020 to 2024 period. This five-year program took effect on January 1, 2020 and will be in effect through December 31, 2024.

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The table below sets forth our historical capital expenditures for our Mexican airports. Capital expenditures are calculated on a cash flow basis, meaning that capital expenditures are equal to those investments actually paid for by each airport during a given year and not including investments allocated for by the airport during that year but not paid for during the given year. The investments shown in the table below therefore reflect our expenditures actually paid for by our Mexican airports for the years indicated. In order to be compared with our committed investments for a given year, the investments made in the previous year but paid for in the given year need to be subtracted while the investments allocated but not paid for in the given year need to be added. For 2017, 2018 and 2019, our investments allocated but unpaid totaled Ps.409.2 million, Ps.318.5 million and Ps.286.4 million, respectively. The substantial majority of these investments were made under the terms of our Master Development Programs.

Historical Capital Expenditures by Mexican Airport

	Year ended December 31,
	2017			2018		2019
		(thousands of pesos)
Guadalajara	Ps.		405,868	Ps.	271,966	Ps.	990,610
Tijuana			393,306		377,220		356,236
Los Cabos			316,388		417,856		343,284
Puerto Vallarta			162,955		98,196		70,480
Guanajuato			143,025		114,035		69,496
Hermosillo			202,084		61,107		43,671
Mexicali			42,639		117,174		40,465
La Paz			25,794		93,959		76,181
Aguascalientes			29,990		22,430		70,536
Morelia			18,263		34,223		48,261
Los Mochis			21,014		44,162		32,918
Manzanillo			10,115		36,346		31,339
Other (1)			29,958		153,676		53,505
Total	Ps.		1,801,399	Ps.	1,842,350	Ps.	2,226,982

(1) Includes SIAP, CORSA, PCP and Fundación GAP.

The following table sets forth our historical capital expenditures by type of investment across all of our Mexican airports for the years indicated:

Historical Capital Expenditures by Type for our Mexican Airports

	Year ended December 31,
	2017		2018		2019
	(thousands of pesos)
Terminals	Ps.	793,163	Ps.	733,284	Ps.	1,271,197
Runways and aprons		657,298		518,656		543,597
Machinery and equipment		338,631		515,370		389,379
Other		12,307		75,040		22,809
Total	Ps.	1,801,399	Ps.	1,842,350	Ps.	2,226,982

During 2017, 2018, and 2019, 3.1%, 1.9% and 2.4% respectively, of our capital expenditures were funded by cash flows from operations, while the remaining balance was funded by bank loans and long-term debt securities issued on the Mexican capital markets (Certificados Bursátiles de Largo Plazo). We expect to continue funding the most significant portion of our capital expenditures for our Mexican airports in the future with new debt issuances on the Mexican capital markets; however, our ability to incur debt may be restricted by our existing bank loans. See “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources.”

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Our capital expenditures in 2019 were allocated to the following types of investments at the majority of our Mexican airports:

• Terminals. During 2019, we started the expansion of Terminal 3 at the Los Cabos airport, this expansion extends the one side of the terminal 30 meters to the airside from its original point. This expansion will be done according to a multiannual plan that also includes the expansion of Terminal 2 and is expected to conclude in 2021. At the Tijuana airport we concluded a major expansion and refurbishment of Concourses A and B and the connecting aisle between them, as well as, the beginning of the terminal passenger building. We also increased the capacity of the departure halls at the Morelia, Aguascalientes and Manzanillo airports.

• Runways and aprons. We completed phase 1 of the runway renovation at our La Paz airport, and we expect to conclude phase 2 during 2021. We also made improvements to the aprons at the Tijuana, Los Cabos, Guadalajara and Puerto Vallarta airports.

• Machinery and equipment. We invested in machinery and equipment, metal detectors and other security-related equipment, passenger walkways, air conditioning equipment, and public information systems.  

• Other. At several airports, we continued improving our sewage treatment plants and recycled water systems and we improved our drainage systems.

The following table sets forth our estimated committed investments for each airport for 2020 through 2024 under the new Master Development Programs expressed in thousands of constant pesos as of December 31, 2017, that were approved by the SCT on December 12, 2019. We are required to comply with the investment obligations under these programs on a year-to-year basis.

Estimated Committed Investments by Mexican Airport (2020-2024)

	Year ended December 31,
	2020		2021		2022		2023		2024			Total
	(thousands of constant pesos as of December 31, 2017) (1)
Guadalajara	Ps.	2,309,223	Ps.	2,083,147	Ps.	2,627,989	Ps.	2,125,263	Ps.	779,138	Ps.		9,924,760
Tijuana		1,043,430		1,016,012		943,917		108,652		42,104			3,154,115
Los Cabos		991,503		781,576		519,091		127,043		63,723			2,482,936
Puerto Vallarta		1,200,632		1,294,890		761,673		98,598		35,586			3,391,379
Guanajuato		275,191		157,485		63,683		25,391		24,810			546,560
Hermosillo		137,061		142,313		69,659		37,426		32,587			419,046
Mexicali		110,693		76,465		104,186		30,923		16,727			338,994
La Paz		171,756		98,199		66,582		28,591		9,135			374,263
Morelia		128,757		98,011		27,673		20,231		8,468			283,140
Aguascalientes		136,289		104,915		97,645		19,090		21,469			379,408
Los Mochis		112,637		68,768		25,846		10,555		9,295			227,101
Manzanillo		122,220		73,522		88,242		18,261		7,757			310,002
Total	Ps.	6,739,392	Ps.	5,995,303	Ps.	5,396,186	Ps.	2,650,024	Ps.	1,050,799	Ps.		21,831,704

(1) Figures expressed in thousands of constant pesos as of December 31, 2017. These amounts are based on investment commitments approved by the SCT. Because the amounts are expressed in constant pesos as of December 31, 2017, the figures for investment periods not yet elapsed are adjusted to take into consideration increases in the Mexican PPI’s construction price index since the date of the Ministry’s approval of the Master Development Programs then in effect.

The following table sets forth our estimated committed investments for 2020 through 2024 by type of investment:

Estimated Committed Investments by Type for our Mexican Airports (2020-2024)

	Year ended December 31,
	2020			2021		2020		2023		2024			Total
		(thousands of constant pesos as of December 31, 2017) (1)
Terminals	Ps.		1,864,962	Ps.	2,838,212	Ps.	3,007,146	Ps.	1,361,483	Ps.	340,322	Ps.		9,412,125
Runways and aprons			1,389,233		1,580,312		1,210,830		707,951		430,869			5,319,194
Machinery and equipment			1,713,562		658,772		398,279		341,552		162,497			3,274,662
Other			1,771,635		918,008		779,931		239,040		117,110			3,825,724
Total	Ps.		6,739,392	Ps.	5,995,303	Ps.	5,396,186	Ps.	2,650,026	Ps.	1,050,798	Ps.		21,831,704

(1) Figures expressed in thousands of constant pesos as of December 31, 2017. These amounts are based on investment commitments approved by the SCT. Because the amounts are expressed in constant pesos as of December 31, 2017, the figures for investment periods not yet elapsed are adjusted to take into consideration increases in the Mexican PPI’s construction price index since the date of the Ministry’s approval of the Master Development Programs then in effect.

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Differences between estimated committed investments and historical capital expenditures sometimes exist due primarily to: (i) the difference between capital expenditures made but unpaid during the prior year and investments made but unpaid during the current year; (ii) adjustments for inflation; and (iii) investments deferred into the first two months following the corresponding fiscal year, among other factors.

We allocated 86.8% of the total amounts committed under our Master Development Program for the 2020–2024 period to four of our airports: Guadalajara, Puerto Vallarta, Tijuana and Los Cabos. On February 14, 2020, we issued long-term bond certificates on the Mexican market (Certificados Bursátiles) under the ticker symbol “GAP20” for a total of Ps.3.0 billion. The proceeds from the issuance were allocated to make the maturity payment of our “GAP15” debt securities for a total of Ps.2.2 billion and the remaining will be allocated to finance capital investments set forth in the Master Development Program for 2020. We expect the remaining of our Master Development Program for the 2020-2024 period will also be financed primarily through cash from our operations and through the debt market in Mexico, subject to market conditions. See “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources – Indebtedness.”

Due to the COVID-19 pandemic, we have delayed non-obligatory capital investments and shall request the postponement of investments committed for this year from the proper authorities. See “Item 3, Risk Factors – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations control”, and “Item 5, Recent Developments – Developments related to the outbreak of COVID-19.”

Acquisition of DCA

On April 20, 2015, we completed a transaction with Abertis for the acquisition of 100% of the shares of DCA for a total of U.S.$192.0 million. We financed 100% of the acquisition of DCA via bridge loans with external sources provided by Scotiabank and BBVA Bancomer. On September 24, 2015, we signed two new long term loans agreements, also with Scotiabank and BBVA Bancomer, for the refinancing of the bridge loans for an amount of U.S.$191.0 million. See “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources – Indebtedness.”

DCA Assets

DCA has a 74.5% stake in MBJA, the entity that holds the concession to operate, maintain and utilize the Montego Bay International Airport in Jamaica. Vantage Airport Group Limited (“Vantage”), a Canadian joint venture that operates Vancouver International Airport, owns the remaining 25.5% stake in MBJA. The Montego Bay airport is Jamaica’s main airport, located in the city of Montego Bay, in the center of the tourist corridor between Negril and Ocho Rios, where 88% of the island’s hotel capacity is located. See “Item 3, Key Information – Risk Factors – Risks Related to Jamaica.” Based on our and Vantage’s experience in the airport sector, we believe that this cooperation will strengthen MBJA, benefitting it in terms of both operations and profitability.

DCA also held a 14.77% stake in SCL, the operator of the international terminal in Santiago de Chile until September 30, 2015. Upon expiration of the concession to operate the Santiago de Chile airport, those assets were immediately returned to the Chilean government and the new operator. Pursuant to the concession agreement, there is a one-year period after delivery of the concession assets during which the concessionaire remains responsible for any latent defects in those assets. After this period and a subsequent one-year period, SCL shall be liquidated in accordance with Chilean corporate and tax regulations. During 2016, we received dividends and capital reimbursements of Ps.58.9 million. In 2018, we received a capital reimbursement of Ps.10.0 million. Though SCL will no longer have operations, SCL must remain in effect for an additional year after the transfer. After that first year, SCL will remain in effect until its dissolution in accordance with tax regulations in Chile, in spite of this and due to some legal proceedings still pending, we expect to liquidated this subsidiary in December 2023.

MBJA

On April 3, 2003, MBJA entered into a concession agreement with the AAJ pursuant to which the AAJ granted MBJA the right and obligation to rehabilitate, develop, operate and maintain the Montego Bay International Airport for 30 years from April 12, 2003 (the “MBJA Concession Agreement”). MBJA, as the approved airport operator, is thereby permitted to undertake the functions of the AAJ with respect to the Montego Bay airport and required to provide the airport services set out therein at the Montego Bay airport. The MBJA Concession Agreement is governed by Jamaican law and MBJA cannot assign its rights or obligations under the agreement except with the prior written consent of the AAJ. Under the terms of the MBJA Concession Agreement, MBJA also has certain other obligations to make capital investments. See “Item 4, Information on the Company – Regulatory Framework – The Montego Bay Airport Concession.”

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MBJA made capital investments of US.$6.5 million, U.S.$34.2 million and U.S.$11.7 million in 2017, 2018 and 2019, respectively, for the rehabilitation of the taxiways and aprons and modernization of equipment at the Montego Bay airport. Estimated committed investments in the  Capital Development Program from April 2015 through December 2019 are U.S.$37.9 million. These investment commitments were funded by bank loans mainly and by cash flows from operations, therefore, MBJA has also arranged a U.S.$40.0 million credit facility with the Bank of Nova Scotia and Bank of Nova Scotia Jamaica Limited to finance the majority of these projects. See “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources – Capital Expenditures – Capital Expenditures in Jamaica.”.

The following table sets forth our estimated committed investments for 2020 through 2024 under the new Capital Development Program:

	Year ended December 31,
	2020		2021		2022		2023		2024			Total
	(million)
Montego Bay	U.S.	41.9	U.S.	34.0	U.S.	21.9	U.S.	13.0	U.S.	0.9	U.S.		111.7

At their annual general meeting on March 23, 2017, MBJA’s shareholders approved a dividend payment of U.S.$26.0 million to be distributed pro rata amongst the shareholders. Accordingly on January 22, 2018, MBJA paid dividends of approximately U.S.$19.4 million to DCA. At their annual general meeting on June 12, 2018, MBJA’s shareholders approved a dividend payment of U.S.$30.0 million to be distributed pro rata amongst the shareholders. Accordingly on September 26, 2018, MBJA paid dividends of approximately U.S.$22.4 million to DCA. At their annual general meeting on December 4, 2019, MBJA’s shareholders approved a dividend payment of U.S. $30.0 million. Accordingly on December 16, 2019 MBJA paid dividends of approximately U.S. $22.4 million to DCA.

PACKAL

On October 10, 2018, PACKAL entered into a concession agreement with AAJ, with which the authority guaranteed to PACKAL the right to rehabilitate, develop, operate and maintain NMIA for a period of 25 years, with a possible extension of 5 years, as of October 10, 2019. In accordance with the terms of the concession agreement, We paid U.S. $7.1 million (U.S. $2.1 million to the International Finance Corporation (“IFC”) and U.S. $5.0 million to the AAJ). PACKAL is obliged to pay the AAJ a concession right of 62.01% of the total aeronautical and commercial revenues. All long-lived assets located in the NMIA are owned by AAJ. Upon the expiration of the term of the concessions agreement granted to us, the assets, including all the improvements made to the airport facilities during the term of the concessions, will automatically revert in favor of AAJ. The following table sets forth our estimated committed investments for 2020 through 2024 under the new Capital Development Program:

	Year ended December 31,
	2020		2021		2022		2023		2024			Total
	(million)
Kingston	U.S.	16.2	U.S.	28.9	U.S.	34.9	U.S.	8.9	U.S.	12.5	U.S.		101.4

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BUSINESS OVERVIEW

Our Operations

We hold concessions to operate twelve international airports in Mexico and two international airports in Jamaica.

Mexican Operations

Our twelve Mexican airports serve two major metropolitan areas (Guadalajara and Tijuana), several tourist destinations (Puerto Vallarta, Los Cabos, La Paz and Manzanillo), and a number of mid-sized cities (Hermosillo, Guanajuato, Morelia, Aguascalientes, Mexicali and Los Mochis). Our Mexican airports are located in nine of the 32 Mexican states, covering a territory of approximately 566,000 square kilometers, with a population of approximately 31.1 million according to the 2015 national census data from INEGI. All of our Mexican airports are designated as international airports under Mexican law, meaning that they are all equipped to receive international flights and maintain customs, refueling and immigration services managed by the Mexican government.

Our Mexican airports handled 36.5 million, 40.5 million and 43.6 million terminal passengers in 2017, 2018, and 2019 respectively, which we believe places us among the largest private airport operator in the Americas. As of December 31, 2019, five of our airports ranked among the top ten busiest airports in Mexico based on commercial aviation passenger traffic, according to data published by the SCT. According to the SCT’s figures, our commercial aviation passenger traffic accounted for approximately 26.3%, 26.9% and 27.2% of all arriving and departing commercial aviation passengers in Mexico in 2017, 2018 and 2019, respectively. In 2019, our Mexican airports recorded total revenues of Ps.13.8 billion, of which Ps.12.0 billion corresponds to the sum of aeronautical and non-aeronautical revenues and Ps.1.8 billion corresponds to the improvements to concession assets.

Our Mexican airports serve several major international routes, including Guadalajara-Los Angeles, which, in 2019, ranked as the fifth busiest international route in Mexico by total number of passengers according to the Federal Civil Aviation Agency. In addition, our airports serve major resort destinations such as Puerto Vallarta and Los Cabos, which are among the most popular destinations in Mexico visited by tourists from the United States. Our airports also serve major domestic routes, including Guadalajara-Mexico City, which was the country’s fifth busiest route in 2019, according to the Federal Civil Aviation Agency. Other top domestic routes in terms of total passenger traffic include Mexico City-Tijuana and Guadalajara-Tijuana, which ranked seventh and eleventh, respectively, among the busiest domestic routes in Mexico in 2019, according to the Federal Civil Aviation Agency.

Mexico and the United States are party to a bilateral aviation agreement, which went into force on August 21, 2016. The bilateral agreement provides for an increase in airlines servicing existing routes between Mexico and the United States, as well as the addition of new routes and an increase in the frequency of flights on existing routes. The agreement also grants Mexican airlines the ability to further penetrate international markets. We believe that our business has benefited from and will continue to benefit from this amendment as a result of increased service to Mexican airports by U.S. airlines.

Principal Mexican Airports by Passenger Traffic (2019)

	Commercial Aviation Passengers (1)
	(thousands)
Mexico City		50,308
Cancun		25,482
Guadalajara*		14,846
Monterrey		11,177
Tijuana*		8,926
Los Cabos*		5,609
Puerto Vallarta*		5,052
Merida		2,791
Guanajuato*		2,756
Culiacan		2,459

Source: SCT and Company data.

* Indicates airports operated by us.

(1) Excluding general aviation passengers.

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Guadalajara and Tijuana are among Mexico’s most important manufacturing, industrial and commercial centers. Both cities have significant maquiladora industries. A maquiladora plant is a manufacturing facility to which mostly raw materials are imported and from which finished products are exported, with the manufacturer paying tariffs only on the value added in Mexico. Maquiladora plants were originally concentrated along the Mexico-U.S. border, but more recently have moved further south in order to access lower labor costs and a larger and more diverse labor pool, and to take greater advantage of certain inputs available from Mexican suppliers. In 2019, our Guadalajara and Tijuana airports were Mexico’s third and fifth busiest airports, respectively, in terms of passenger traffic, according to the SCT. In 2017, 2018 and 2019, our Guadalajara and Tijuana airports together represented approximately 54.6%, 54.8% and 54.5% of our Mexican airports’ terminal passenger traffic and 48.2%, 47.4% and 51.4% of our Mexican airports’ total revenues (in 2017, 2018, and 2019 they represented 48.9%, 49.4% and49.3% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues).

Mexico is one of the main tourist destinations in the world. Mexico has historically ranked in the top fifteen countries worldwide in terms of foreign visitors, ranking seventh with approximately 45 million international tourists in 2019, according to the Mexican Ministry of Tourism. The tourism industry is one of the largest generators of foreign exchange in the Mexican economy. Within Mexico, the region bordering the Pacific Ocean (where several of our airports are located) is a principal tourist destination due to its beaches and cultural sites, which are served by numerous hotels and resorts. Four of our airports, the Los Cabos, Puerto Vallarta, La Paz and Manzanillo airports, serve popular Mexican tourist destinations. Of these tourist destinations, Los Cabos and Puerto Vallarta are the most popular, with Los Cabos constituting Mexico’s third most popular international tourist destination and Puerto Vallarta the fourth, in terms of visitors in 2019, according to the Mexican National Institute of Migration (Instituto Nacional de Migración). The Los Cabos and Puerto Vallarta airports attracted approximately 5.6 million and 5.1 million terminal passengers, respectively, in 2019. In 2017, 2018, and 2019 our Los Cabos and Puerto Vallarta airports together represented 25.9%, 24.8%, and 24.5% of our Mexican airports’ terminal passengers and 32.5%, 32.9% and 30.0% of our Mexican airports’ total revenues (33.4%, 32.0% and 31.5% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues). In addition, these two airports have general aviation and Fixed Base Operations (“FBO”) terminals, where specialized, full service operations are offered to general aviation aircraft, including refueling, cleaning and catering.

The remaining six Mexican airports in our group serve mid-sized cities—Hermosillo, Leon, Morelia, Aguascalientes, Mexicali and Los Mochis—with diverse economic activities. These cities are industrial centers (Hermosillo, Leon, Aguascalientes and Mexicali) and/or serve as the hubs for important agricultural regions (Leon, Morelia and Los Mochis). In 2017, 2018 and 2019, these six airports serving mid-sized cities accounted for approximately 16.7%, 17.7% and 18.3% of our Mexican airports’ terminal passenger traffic and 16.8%,16.7% and 15.7% of our Mexican airports’ total revenues (15.1%, 16.1%, and 16.7% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues). Of these six airports, Guanajuato has the greatest passenger traffic volume. In 2017, 2018, and 2019 Guanajuato accounted for approximately 5.4%, 5.8% and 6.3% of our Mexican airports’ terminal passenger traffic and 6.0%, 5.6%, 5.8% of our Mexican airports’ total revenues (5.4%, 5.9%, and 6.4% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues).

Jamaican Operations

Montego Bay International Airport is a full-service international passenger airport, with additional FBO and cargo operations driven by agricultural exports from the island, serving as the primary gateway for international air travel to Jamaica, a major international tourist destination and growing tourism market. In 2019, it was the third busiest airport in the Caribbean region, excluding Cuba, in terms of commercial aviation passenger traffic, according to Airports Council International. Located in the town of Montego Bay, which is in the geographical center of the tourist corridor between the coastal resort areas of Negril and Ocho Rios where, according to the Jamaican Tourist Board, 88.0% of the island’s hotel capacity is located, the Montego Bay airport facilitates the transit of more than 70% of the tourists arriving on the island. In 2019, 4.7 million terminal passengers travelled through the Montego Bay airport, an 5.0% increase over the previous year, of which 99.0% were international passengers. Of the total passengers in 2019, 70.0% came from the United States, 16.0% came from Canada, 12.0% came from Europe and 2.0% from other countries.

In 2017, 2018, and 2019 respectively, the Montego Bay International Airport served 4.2 million, 4.5 million and 4.7 million terminal passengers. During 2017, MBJA’s total revenues amounted to Ps.1.9 billion, of which Ps.1.3 billion were from aeronautical revenues, Ps.496.5 million were from non-aeronautical revenues and Ps.66.1 million correspond to improvements to concession assets. During 2018, MBJA’s total revenues amounted to Ps.2.5 billion, of which Ps.1.4 billion were from aeronautical revenues, Ps.543.9 million were from non-aeronautical revenues and Ps.546.0 million correspond to improvements to concession assets. During 2019, MBJA’s total revenues amounted to Ps.2.2 billion, of which Ps.1.5 billion were from aeronautical revenues, Ps.585.3 million were from non-aeronautical revenues and Ps.136.3 million correspond to improvements to concession assets.

On February 20, 2017, the Government of Jamaica issued a Request for Qualifications inviting interested parties to prepare and submit a prequalification application to participate in a bidding process for a public private partnership to operate the Norman Manley International Airport in Kingston, Jamaica. We timely submitted our prequalification application and, after participating in a competitive bidding process with seven other international airport operators, we were selected for the concession.

On October 10, 2018, we signed a concession agreement with the government of Jamaica for the operation, modernization and expansion of the Kingston International Airport for a period of 25 years. We began operating and managing the Kingston International Airport in the last quarter of 2019.

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Our Sources of Revenues

All revenue amounts in this “Business Overview” section include revenues from improvements to concession assets; however, in some cases we include discussion surrounding only aeronautical and non-aeronautical revenues or the sum of both. See the introduction to “Item 3, Key Information – Selected Financial and Other Data,” for a discussion of the reasons for using aeronautical and non-aeronautical revenues for certain comparisons. We specifically state when either aeronautical or non-aeronautical revenues are being used. Because aeronautical and non-aeronautical revenues are derived from our business operations, we believe these figures may in some cases be more useful for readers because those revenues stem from the key drivers of our business: passenger traffic and our maximum rates.

Aeronautical Services

Aeronautical services represent the most significant source of our revenues. In 2017, 2018 and 2019, aeronautical services revenues represented approximately 67.0%, 67.3% and 65.0% respectively, of our total revenues (in 2017, 2018, and 2019 aeronautical services represented 74.9%, 74.9% and 73.7% respectively, of the sum of aeronautical and non-aeronautical revenues). Our aeronautical services revenues are principally dependent on the following factors: passenger traffic volume, the number of air traffic movements, the weight of the aircraft, the duration of an aircraft’s stay at the airport and the time of day the aircraft operates at the airport.

In Mexico, all of our revenues from aeronautical services are regulated under the maximum-rate price regulation system applicable to our airports. See “Item 4, Information on the Company – Regulatory Framework – Mexican Aeronautical Services Regulation.”

In Jamaica, MBJA’s revenues from passenger charges, aircraft landing and parking charges, airport security charges and passenger walkway charges are regulated by the JCAA, revenues from car parking charges are set by the MTM and revenues from leasing of space to airlines, complementary services, cargo handling and ground transportation are unregulated. See “Item 4, Information on the Company – Regulatory Framework – Jamaican Aeronautical Services Regulation.”

Passenger Charges

Passenger Charges in Mexico

In Mexico, we collect a passenger charge for each departing passenger on an aircraft (other than diplomats, infants and transit and transfer passengers, if the transfer of the passenger occurs within 24 hours of the passenger’s arrival at the airport). We do not collect passenger charges from arriving passengers. Passenger charges are included in the cost of a passenger’s ticket, and we issue invoices for those charges to each airline on a weekly basis and record an account receivable for the invoice corresponding to a flight during the actual month of the flight.

Before the opening of Mexico’s airports to private investment, all airports in Mexico had entered into agreements with national and foreign airlines under which the airlines were obligated to collect all passenger charges on behalf of the airports in exchange for being given a period of time in which to reimburse those passenger charges to the airports. The length of the reimbursement period was tied to the interest rate on short-term Mexican treasury bills (CETES), in order to allow airlines to accumulate interest that would compensate them for the costs they incurred in collecting those passenger charges.

Under passenger charges collection agreements negotiated with our airline customers, which took effect as of November 1, 2009, airlines requesting payment period extensions are obligated to: (i) reimburse passenger charges collected on behalf of our airports during a period no greater than 60 days after the “operational average date” (no later than the invoice date) for such charges; and (ii) provide cash, bonds, standby letters of credit or other similar instruments as a guarantee for passenger charges in an amount equal to the highest passenger charges received by the airline on an airport-by-airport basis for the previous year during a period of time equal to the requested payment period plus 30 additional days. Each airline with a payment grace period is obligated to maintain the guarantee at an agreed-upon level, and if it does not do so, it must reimburse the passenger charges on the day the applicable flight departs from our airports without any grace period. If the airline pays our airports on time, the airport is obligated to give the airline an allowance of 3% of the value of each invoice billed no later than seven days after the payment date. The airline can then apply this allowance to cover airport services, leases for ticket counters and back-office and passenger charges. During 2017, 2018 and 2019, under the passenger charges collection agreements, we received payments within an average period of 52, 57, and 54 days, respectively.

Passenger charges vary at each of our Mexican airports and depending on whether the destination is national or international. International passenger charges are currently U.S. dollar-denominated, but are invoiced and collected in pesos based on the average exchange rate during the month prior to the flight. Domestic passenger charges are peso-denominated. Because passenger charges for international flights are denominated in U.S. dollars, the value of our revenues from those charges is therefore affected by fluctuations in the value of the U.S. dollar as compared to the peso.

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At our Mexican airports in 2017, 2018 and 2019, passenger charges represented approximately 85.5% (domestic passenger charges represented 43.7% and international passenger charges represented 41.8%), 85.4% (domestic passenger charges represented 47.1% and international passenger charges represented 38.3%) and 85.5% (domestic passenger charges represented 46.7% and international passenger charges represented 38.9%) respectively, of our aeronautical services revenues and approximately 56.8% (domestic passenger charges represented 29.1% and international passenger charges represented 27.8%), 59.4% (domestic passenger charges represented 32.8% and international passenger charges represented 26.7%), and 55.1% (domestic passenger charges represented 30.1% and international passenger charges represented 25.0%), respectively, of our total revenues. In 2017, 2018, and 2019 passenger charges represented approximately 64.5% (domestic passenger charges represented 33.0% and international passenger charges represented 31.5%), 64.4% (domestic passenger charges represented 35.5% and international passenger charges represented 28.9%), and 63.2% (domestic passenger charges represented 34.5% and international passenger charges represented 28.7%), respectively, of the sum of aeronautical and non-aeronautical revenues.

In March 2017, we published new rates for passenger charges and other specific tariffs for ten airports (Aguascalientes, Hermosillo, Guanajuato, La Paz, Manzanillo, Mexicali, Los Mochis, Morelia, Puerto Vallarta and Los Cabos) and passenger walkway charges for Hermosillo. In May 2017, we published new rates for passenger charges and other specific tariffs for our Guadalajara and Tijuana airports. In June 2018, we published new rates for passenger charges and other specific tariffs for our twelve Mexican airports. In March 2019, we published updated fees for jet bridges and apron buses. In September 2019, we published rates for passenger charges set in USD for five airports (Hermosillo, La Paz, Los Mochis, Mexicali, Tijuana) where rates were previously only set in Mexican pesos. These new rates for passenger charges and other specific tariffs did not change materially compared to those of each prior year, because charges are capped by the Maximum Tariff corresponding to each airport in its Master Development Program for the period.

Passenger Charges in Jamaica

In Jamaica, MBJA and NMIA collect a passenger charge for each departing passenger on an aircraft (other than infants and transit and transfer passengers). We do not do not collect passenger charges from arriving passengers. Passenger charges are included in the cost of a passenger’s ticket, and we issue invoices for those charges to each airline on a weekly basis and record an account receivable for the invoice corresponding to a flight during the actual month of the flight. Passenger charges are invoiced in U.S. dollars for all airlines.

In 2017, 2018 and 2019, passenger charges represented 60.2%, 60.2%, and 60.9% respectively, of MBJA’s aeronautical revenues and 41.9%, 44.0% and 43.9%, respectively, of MBJA’s total revenues.

From October 10, 2019 through December 31, 2019, passenger charges of NMIA represented 42.3% of NMIA’s aeronautical revenues and 33.3% of NMIA’s total revenues.

Aircraft Landing Charges

Aircraft Landing Charges in Mexico

In Mexico, we collect landing charges from carriers for their use of our runways, illumination systems on the runways and other visual landing assistance services. Our landing charges are different for each of our airports and are based on each landing aircraft’s weight (determined as an average of the aircraft’s weight without fuel and maximum takeoff weight), the time of the landing, the origin of the flight and the nationality of the airline or client.

In 2017, 2018 and 2019, aircraft landing charges represented approximately 7.9%, 8.0% and 7.9% respectively, of our Mexican airports’ aeronautical revenues and 5.3%, 5.5% and 5.1% respectively, of our Mexican airports’ total revenues (in 2017, 2018 and 2019, aircraft landing charges represented 6.0%, 6.0%, and 5.9% respectively, of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues).

Aircraft Landing Charges in Jamaica

In Jamaica, MBJA and NMIA collect landing charges from aircraft operators for landing at the airport. These landing charges are included in the list of charges regulated by the JCAA. Landing charges are paid by each aircraft operator based on each landing aircraft’s maximum takeoff weight and the origin, destination and purpose of the flight.

In 2017, 2018 and 2019, aircraft landing charges represented 9.8%, 9.9% and 9.8% respectively, of MBJA’s aeronautical revenues and 6.8%, 7.1% and 6.6% respectively, of MBJA’s total revenues.

From October 10, 2019 through December 31, 2019, aircraft landing charges of NMIA represented 11.1% of NMIA’s aeronautical revenues and 8.8%, of NMIA’s total revenues.

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Aircraft Parking Charges

Aircraft Parking Charges in Mexico

In Mexico, we collect various charges from carriers for the use of our facilities by their aircraft and passengers after landing. We collect aircraft parking charges for aircraft that are loading and unloading passengers or cargo as well as for long-term aircraft parking that does not involve the loading or unloading of passengers or cargo. Aircraft parking charges that involve loading and unloading passengers or cargo vary based on the time of day or night that the relevant service is provided (with higher fees generally charged during peak usage periods and at night), the aircraft’s maximum takeoff weight, the origin and destination of the flight and the nationality of the airline or client, while charges for long-term parking vary based on the time of day or night the aircraft is parked at our facilities, the length of time the aircraft is parked at our facilities and the nationality of the airline or client. We collect aircraft parking charges the entire time an aircraft is on our aprons.

During 2017, 2018 and 2019 these charges represented 1.9%, 1.9% and 1.8%, respectively, of our Mexican airports’ aeronautical revenues and 1.3%, 1.3%, and 1.2% respectively, of our Mexican airports’ total revenues (in 2017, 2018 and 2019 aircraft parking charges represented 1.4%, 1.4%, 1.4% respectively, of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues).

Aircraft Parking Charges in Jamaica

In Jamaica, MBJA and NMIA collect parking charges from aircraft operators in respect of any aircraft remaining on the ground at the airport for a period of five hours or more. Parking charges are calculated on the basis of 24-hour intervals so that any ground stops amounting to five hours or more for the first 24-hour interval may be rounded up to one day. Parking charges are based on aircraft maximum takeoff weights and whether the aircraft is used for commercial, visiting non-commercial or domestic activity.

In 2017, 2018 and 2019 aircraft parking charges represented 0.1%, 0.1% and 0.1%, respectively, of MBJA’s aeronautical revenues and 0.1%, 0.1% and 0.1%, respectively, of MBJA’s total revenues.

From October 10, 2019 through December 31, 2019, aircraft parking charges of NMIA represented 6.6% of NMIA’s aeronautical revenues and 5.2%, of NMIA’s total revenues.

Airport Security Charges

Airport Security Charges in Mexico

In Mexico, we also assess an airport security charge, which is collected from each airline, based on the number of its departing terminal passengers (other than diplomats, infants and transit passengers), for use of our x-ray equipment, metal detectors and other security equipment and personnel. These charges are based on the time of day the services are used, the number of departing passengers and the destination of the flight. We provide airport security services at our airports directly.

The AFAC and the Ministry of Public Security (Secretaría de Seguridad Pública) issue guidelines for airport security in Mexico. In response to the September 11, 2001 terrorist attacks in the United States, we took additional steps to increase security at our airports. At the request of the U.S. Federal Aviation Authority, the Mexican civil aviation authority issued directives in October 2001 establishing new rules and procedures to be adopted at our airports. Under these directives, these rules and procedures were implemented immediately and for an indefinite period of time.

Additional regulations were issued by the AFAC in 2011 established rules and procedures for the inspection of carry-on baggage. See  “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Non-Aeronautical Services – Recovery of Costs from Checked Baggage Screening at our Mexican Airports” in this section. To fulfill these requirements, we improved our security by providing new training and operating procedures, adding new equipment and security personnel, most of them from third-party providers, in addition to increasing our coordination with other airports and airlines. However, as security is a primary concern in our industry, the possibility of new threats may require frequent updates to the security measures at our airports.

In 2017, 2018 and 2019, these charges represented approximately 1.1%, 1.2% and 1.2% respectively, of our Mexican airports’ aeronautical services revenues and approximately 0.8%, 0.8% and 0.8% respectively, of our Mexican airports’ total revenues. In 2017, 2018 and 2019, security charges represented 0.9%, 0.9% and 0.9% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues.

Airport Security Charges in Jamaica

In Jamaica, MBJA and NMIA collect a security charge from each airline based on the number of its departing terminal passengers (other than infants and transit and transfer passengers) for use of the x-ray equipment, metal detectors, security personnel services and other related security equipment. These security charges are included in the list of charges regulated by the JCAA. Security charges are billed at a flat rate for all categories of passengers.

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In 2017, 2018 and 2019, airport security charges represented 7.8%, 7.9% and 7.9%,respectively, of MBJA’s aeronautical revenues and 5.5%, 5.7% and 5.4% respectively, of MBJA’s total revenues.

From October 10, 2019 through December 31, 2019, airport security charges of NMIA represented 23.7% of NMIA’s aeronautical revenues and 18.7%, of NMIA’s total revenues.

Passenger Walkway and Airport Bus Charges

Passenger Walkway and Airport Bus Charges in Mexico

In Mexico, airlines are also assessed charges for the connection of their aircraft to terminals through a passenger walkway and for the transportation of passengers between terminals and aircraft via airport buses and other vehicles. Charges for use of passenger walkways are based on each unit or service rendered, which are limited to a period of 30 minutes each, but charges for the transportation of customers between terminals and aircraft via airport buses and other vehicles are determined based on the number of trips taken between the terminal and the aircraft.

Passenger walkways are only available at our Guadalajara, Tijuana, Los Cabos, Puerto Vallarta, Guanajuato and Hermosillo airports. Beginning in November 2012, we transferred the operation of our passenger walkways and our airport buses, which had previously been provided by us, to an independent third party, which also maintains relationships with the airlines for their use of this equipment. Therefore, as of November 2012, we receive only recovery of cost revenues associated with the energy usage of the walkways and a per-unit fee for the use of the walkways and airport buses.

During 2017, passenger walkway and airport bus revenues equaled Ps.4.1 million, or 0.04% of our Mexican airports’ total revenues (0.04% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues). During 2018, passenger walkway and airport bus revenues equaled Ps.4.7 million, or 0.04% of our Mexican airports’ total revenues (0.04% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues). During 2019, passenger walkway and airport bus revenues equaled Ps.5.7 million, or 0.04% of our Mexican airports’ total revenues (0.04% of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues).

Passenger Walkway Charges in Jamaica

At MBJA, airlines are also assessed charges for the connection of their aircraft to terminals through a passenger walkway or loading bridge, which are included in the list of charges regulated by the JCAA. Each airline is billed at a flat rate per aircraft connection for the first two hours and at an hourly rate thereafter.

In 2017, 2018 and 2019 passenger walkway charges represented 2.6%, 2.5% and 2.6% respectively, of MBJA’s aeronautical revenues and 1.5%, 1.9% and 1.7% respectively, of MBJA’s total revenues.

NMIA does not assess passenger walkway charges.

Leasing of Space to Airlines

Leasing of Space to Airlines in Mexico

In addition, we receive regulated revenues from leasing space in our Mexican airports to airlines as needed for their operations, such as the leasing of ticket counters, monitors and back offices.

In 2017, 2018 and 2019, leasing of space to airlines represented approximately 1.9%, 1.8% and 1.7% respectively, of our Mexican airports’ aeronautical revenues services, and approximately 1.3%, 1.3% and 1.1%, respectively, of our Mexican airports’ total revenues (in 2017, 2018 and 2019 revenues from leasing of space to airlines represented 1.4%, 1.4% and 1.3% respectively, of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues).

Leasing of Space to Airlines in Jamaica

MBJA and NMIA receive revenues from leasing land and space, such as back offices and ticket offices, storage, vehicle and aircraft maintenance areas and ground handling equipment space. Land and space leasing is not considered a regulated activity by the JCAA.

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Complementary Services

Complementary Services in Mexico

At each of our Mexican airports, we earn revenues from charging access and other fees to third-party providers of baggage handling services, catering services, aircraft maintenance and repair services and fuel services. These fees are included in the revenues that are regulated under our maximum-rate price regulation system and are determined for each third-party service provider based on a percentage of its total revenues.

Under the Mexican Airport Law, we are required to provide complementary services at each of our airports if there are no third parties providing such services. For example, Menzies Aviation, S.A. de C.V., Aveespress, S.A. de C.V. and Administradora Especializada en Negocios, S.A. de C.V. (a subsidiary of Aeroméxico Group), currently provide the majority of the baggage handling services at our Mexican airports. If the third parties currently providing these services ceased to do so, we would be required to provide these services or find other third parties to provide such services.

The Mexican Airport and Auxiliary Services Agency (Aeropuertos y Servicios Auxiliares), or “ASA,” a corporation owned by the federal government, maintains an exclusive contract to sell fuel at all of our Mexican airports, and we charge the agency a nominal access fee. ASA, in turn, is required to purchase all of its fuel from Petróleos Mexicanos (“Pemex”), a decentralized public entity of the Mexican federal government. In the event that the Mexican government privatizes fuel supply activities in the future, the terms of our Mexican concessions provide that it will do so through a competitive bidding process.

We currently maintain contracts with 54 companies that provide the majority of these complementary services at our twelve Mexican airports. In 2017, 2018 and 2019 revenues from complementary service fees represented approximately 1.6%, 1.3% and 1.8%, respectively, of our Mexican airports’ aeronautical revenues services, and approximately 1.1%, 0.9% and 1.1%, respectively of our Mexican airports’ total revenues (in 2017, 2018 and 2019, revenues from complementary service fees represented 1.2%, 1.0%, and 1.3%, respectively, of the sum of our Mexican airports’ aeronautical and non-aeronautical revenues).

Complementary Services in Jamaica

In Jamaica, MBJA and NMIA earn revenues from charging access and other fees to third-party providers of refueling, inflight catering, ground handling and FBO services. Refueling services are provided by a consortium of three companies: Gulf Stream Petroleum SRL (formerly Total), GB Energy and Jamaica Aircraft Refueling Services (JARS). This consortium leases land from MBJA and NMIA on which they constructed an aviation fuel storage facility and each operator pays MBJA and NMIA a fuel concession fee based on the number of gallons of fuel sold through the airport’s fueling system. Inflight catering is provided by Goddard Catering through an exclusive contract inherited from the AAJ. The three ground handling services companies operating at our Jamaican airports, AJAS, GCG Ground Services (Jamaica) Limited (formerly Jamaica Dispatch) and Eulen America, pay a fee per aircraft and cargo handled as well as a vehicle permit for vehicles accessing the ramp. IAM Jet Centre is the licensed operator for provision of FBO services at MBJA and NMIA. MBJA and NMIA are not required by law to provide complementary services, even if a third party is not providing such services at the airports.

In 2017, 2018 and 2019 revenues from complementary service fees represented 19.4%, 19.4% and 18.7%, respectively, of MBJA’s aeronautical revenues and 13.5%, 14.0% and 12.7%, respectively, of MBJA’s total revenues.

From October 10, 2019 through December 31, 2019, complementary services from NMIA represented 9.2% of NMIA’s aeronautical revenues and 7.3% of NMIA’s total revenues.

Cargo Handling

Cargo Handling in Mexico

Cargo-related revenues include revenues from the leasing of space in our airports to handling agents and shippers, landing fees for each arriving aircraft carrying cargo and a portion of the revenues derived from other complementary services for each workload unit of cargo. Cargo-related revenues are largely regulated and therefore subject to maximum rates applicable to regulated revenues sources. Increases in our cargo volume are beneficial to us for purposes of maximum rate calculations, as cargo increases the number of our workload units.

Revenues from cargo handling in our airports historically have represented a negligible portion of our total revenues, but we believe that Mexico has significant potential for growth in the volume of cargo transported by air. A substantial portion of cargo originating in the United States and destined for Latin America is currently handled in the Miami and Los Angeles international airports, and we believe that a portion of this cargo could instead be routed more efficiently through our Guadalajara airport or our Tijuana airport.

In 2017, 2018 and 2019, our Mexican airports handled approximately 202.9 thousand, 213.8 thousand and214.6 thousand metric tons of cargo, respectively. Guadalajara International Airport represents the most significant portion of our cargo volume, accounting for approximately 78.5%, 76.8% and 75.1% of the cargo handled by our Mexican airports in 2017, 2018 and 2019, respectively.

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Cargo Handling in Jamaica

The majority of cargo in our Jamaican airports is belly cargo, or cargo carried on passenger aircraft; there are only two dedicated cargo carriers at the airports, both of which use small aircraft. There are no significant revenues from cargo handling at the Montego Bay airport nor Kingston airport.

In 2017, 2018 and 2019 the Montego Bay airport handled approximately 6.9 thousand, 7.5 thousand and 7.2 thousand metric tons of cargo, respectively.

From October 10, 2019 through December 31, 2019, NMIA handled 2.4 thousand metric tons of cargo.

Ground Transportation

Permanent Ground Transportation in Mexico

In Mexico, we receive revenues from ground transportation vehicles and taxi companies who pay an access fee to operate on our airports’ premises. Our revenues from providers of ground transportation services deemed “permanent” under applicable Mexican law, such as access fees charged to taxis and buses, are subject to price regulation. Taxi rates to passengers are also subject to regulation.

Non-Aeronautical Services

General

Non-aeronautical services historically have generated a significantly smaller portion of our revenues as compared to aeronautical services. The contribution to the sum of our aeronautical and non-aeronautical revenues from non-aeronautical services was 25.1% in 2017, 25.1% in 2018 and 26.3% in 2019 . We estimate that this contribution will increase as we continue to focus on growing these revenues. Our revenues from non-aeronautical services are principally derived from commercial activities.

Our strategy to increase our commercial revenue is driven by an in-depth analysis and understanding of our market. This strategy includes leveraging brand and consumer behavior studies, careful selection of the best business operators in every segment based on innovative concepts and brand recognition, layout redesigns and modernizations of terminal spaces and research into potential new projects, all of which lead to increased sales per passenger.

In addition, we continue to expand the number of businesses operated directly by us, including conversion from static to digital signage for advertising, opening more VIP lounges and in the medium term, the development of a project for a hotel at our Guadalajara airport, which will be owned by us but operated by an international brand, among others. None of our revenues from non-aeronautical services are regulated under the Mexican price regulation system. In Jamaica, all of our Jamaican airport revenues from non-aeronautical services are unregulated except for revenues from car parking facilities.

Revenues from Commercial Activities

Leading privatized airports generally generate an important portion of their revenues from commercial activities. An airport’s revenues from commercial activities are largely dependent on passenger traffic, its passengers’ level of spending, terminal design, the mix of commercial tenants and the basis of fees charged to businesses operating in the airport. Revenues from commercial activities also depend substantially on the percentage of traffic represented by international passengers, who tend to spend greater amounts at our airports, particularly on duty-free items.

We currently have the following types of commercial activities in each of our airports:

• Leasing of space. Revenues that we derive from the leasing of space in our terminals to airlines and complementary service providers for certain non-essential activities, such as first class/VIP lounges, are not subject to price regulation under our maximum rates and are classified by us as non-aeronautical commercial activities. Examples of these first class/VIP lounges operated by third parties include the Banamex Salon Beyond and Aeroméxico’s Club Premier in our Guadalajara airport.

• Retail stores. In recent years, we have completed renovation projects to improve the product mix of retail stores in the commercial areas at our Guadalajara, Puerto Vallarta, Los Cabos, Hermosillo, Guanajuato, Tijuana, Manzanillo, Morelia, La Paz and Montego Bay airports. In 2019, we solicited bids for retailers in our Guadalajara and Puerto Vallarta airports. As a result, new retail spaces began operating in those airports in 2019. In the last quarter of 2019, we solicited bids for retailers in our Guadalajara, Los Cabos, Morelia and Aguascalientes airports. The new retails stores are expected to begin operations in the second quarter of 2020.

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• Food and beverage services. In 2019, we opened a VIPS branded restaurant and bar at our Hermosillo airport. Two food and beverage units were added to the commercial space at our Guanajuato airport during the first quarter of 2019. The bid for food and beverage services at the international terminal of our Los Cabos airport was solicited during the last quarter of the 2019.  

• Car rentals. In 2019, we solicited bids for the car rental business at our Guanajuato airport.

• Timeshare marketing and sales. We receive revenues from timeshare developers to whom we rent space in our Mexican airports for the purpose of marketing and sales of timeshare units.

• Duty-free stores. We currently have duty-free stores at five of our twelve Mexican airports, located at Los Cabos, Puerto Vallarta, Guanajuato, Guadalajara, Tijuana and at our Montego Bay and Kingston airports, where we have a greater number of international passengers. All of the duty-free stores located in our airports are now operated on leases under which rent is structured primarily as a royalty based on tenants’ revenues, subject to minimum fixed amounts related to square footage. Because the duty-free stores are located at the entrance to the airport’s commercial area, our strategy with regards to the duty-free stores is to optimize passengers’ ability to quickly and easily find desired products and complete their purchase with a high level of service that encourages passengers to shop more. During 2019, we redesigned the main duty-free store at our Guadalajara airport.

• Communications. We have consolidated all telephone and internet service at our Mexican airports with one provider. We charge the provider a fixed monthly rent in exchange for allowing the provider to install their communications infrastructure in our airports. In Jamaica, two communication companies, Digicel and Flow, provide cellular and fixed line telephone services at our Montego Bay airport. Fixed line telephone services have reached maturity and are now starting to decline due to the increasing prevalence of mobile phones. However, there has been an increase in the demand for space outside our terminals to install cellular antennas in order to improve the level of service offered to our passengers. All of our airports offer wireless internet service. Beginning in 2019, the Wi-Fi service for passengers started being provided directly by us. This will be our first step to generate new lines of business through the internet, like WI-FI Premium and net advertising.

• Financial services. In recent years, we have expanded and modernized the spaces we lease to financial services providers, such as currency exchange bureaus. Additionally, we improved our contracts with Globo Cambio, our principal financial services provider. In 2019, two new exchange offices opened at the Puerto Vallarta and Tijuana airports.

• Ground transportation. Under applicable Mexican law, our revenues from providers of ground transportation services deemed “non-permanent,” such as access fees charged to charter buses, are not subject to price regulation under our maximum rates and are classified by us as non-aeronautical commercial activities. In Jamaica, MBJA receives revenues from ground transportation vehicles and taxi companies who pay an access fee to operate on the Montego Bay airport’s premises. Ground transportation operators pay monthly fees for each vehicle operated on the airport’s premises and for any commercial space used in the airport. Ground transportation access fees charged to taxis and buses are not regulated and are set by MBJA.

We currently operate the following commercial lines directly:

• Parking facilities. We directly operate the car parking facilities at all of our airports. Our main car parking facilities are at Guadalajara International Airport and Tijuana International Airport. Revenues from parking facilities are directly correlated to passenger traffic at our airports. Currently, in Mexico, parking facilities are not regulated under our maximum rates, although they could become regulated upon a finding by the Mexican Antitrust Commission (Comisión Federal de Competencia) that there are no competing alternatives for such parking at certain airports. In Jamaica, car parking facility fees are set by the MTM, however, MBJA has lobbied and continues to press the Jamaican Government to allow car parking fees to be freely set at commercial rates. In 2017, we expanded our parking facilities at our Guadalajara airport by approximately 5%. During 2018, we expanded our Guanajuato airport parking facilities by 35%, and began expansion of parking lots at our Mexicali and Guadalajara airports, in the case of Mexicali it was concluded in 2019, for Guadalajara airport we expect to conclude in 2020, increasing by 26% and the Mexicali airport parking by 82%. In addition, we began an expansion of the Tijuana airport parking facilities. The expansion began at the pension parking lot and is expected to conclude during the next two years with the public parking lot.

• Advertising. Since May 2011, we have been directly operating the advertising at all of our Mexican airports. Increased domestic and international traffic in our Mexican airports makes third-party investment in advertising media more attractive. The new Cross Border Express, or “CBX,” was the main factor for the growth of advertising revenues in Tijuana, which experienced increased traffic as a result. Advertising at our Tijuana airport is expected to continue to grow due to the installation of new advertising spaces. Similarly, the Guanajuato airport continued to grow due to the investment of car manufacturers in the area, making the airport much more attractive for advertising. Overall, the increase in passenger volume and improvement in spending power of users in all of our Mexican airports is expected to lead to an increase in sales of advertisements in our airports to international brands. Our revenues decreased from 2016 to 2017, due to the temporary negative impact of several remodeling projects on availability of advertising space. During 2018, we continued these expansion projects at some of our most important airports, including our Tijuana and Guadalajara airports and, as a result, revenues from advertising at these airports continued to be negatively impacted. In contrast, there was an increase at our Aguascalientes, La Paz, Los Mochis, Mexicali and Manzanillo airports, through a sales strategy mainly focused on local brands and companies. During 2018, we were able to obtain a 15%

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growth in advertising revenues. During 2019, we focused on upgrading the current advertising spaces to digital advertising and operating a new advertising website focused on providing quotes and selling advertising spaces in our airports.

• VIP Lounges. We began operating our first VIP Lounge at Los Cabos airport’s Terminal 1 in 2011. By the end of 2019, we operated 12 lounges in eight Mexican airports: two in our Guadalajara airport (including both domestic and international lounges), two in our Los Cabos airport (Terminal 1 and Terminal 2) and three in our Puerto Vallarta (domestic, international and arrivals), and in each of our Aguascalientes, Guanajuato, Hermosillo, La Paz and Tijuana airports. In 2019, we hosted over 850,000 users in the VIP lounges at our Mexican airports, an increase of 18.5% from 2018. Also, during 2019 we opened a new VIP lounge at the La Paz airport. During 2020, our domestic lounge in Guadalajara and our lounges in Tijuana, Los Cabos Terminal 2 and Guanajuato will increase their capacity by 35% in order to accommodate the passenger growth experienced during 2019. During the first quarter of 2020, we opened our thirteenth lounge at our Mexicali airport. In Jamaica, a third party operates the sole common use lounge in the arrivals and departures areas, and there are five lounges operated by hotels in the arrivals area.

• Convenience stores. In April 2012, we began operating certain airport convenience stores directly. Due to strong performance, we opened a total of 21 convenience stores across our Mexican airports. In October 2016, we franchised 14 of our Aeromarket stores to Grupo Areas, from which we now receive both a fixed payment and a variable sales-based monthly payment, in addition to a sales-based royalty. This strategic change maintained the same level of profitability over a smaller revenue base, achieving greater operational efficiency. As of December 31, 2018, we operated six convenience stores at our Aguascalientes, Guanajuato and Puerto Vallarta airports, and during 2019 we opened nine convenience stores: one in Guanajuato, two in Mexicali, two in Puerto Vallarta and four in Tijuana.

Domestic Passengers in Mexico

Domestic passengers represented approximately 56.4%, 57.8% and 63.9% of our Mexican terminal passenger traffic in 2017, 2018 and 2019, respectively (CBX users at Tijuana airport were considered international passengers in 2017, 2018 and 2019). In addition, we estimate that a significant minority of our international passengers in Mexico are lower-income Mexicans traveling to or from the United States. Based on surveys and studies conducted at our airports to better understand the consumption habits of our passengers, we believe that the spending habits of these Mexican international passengers are more similar to the spending habits of our domestic passengers, who generally purchase fewer products than other international passengers do. However, in order to increase the consumer spending of this demographic, we have been increasing the brand recognition of commercial spaces and the products they offer, which, based on the surveys and studies we have conducted, we believe is likely to contribute to increased consumption among our domestic passengers and our Mexican international passengers. Partly as a result of the implementation of these strategies, consumer spending per passenger in our Mexican airports increased by 10.7% during 2019 as compared to 2018, and 5.9% during 2018 as compared to 2017.

Recovery of Costs from Checked Baggage Screening at our Mexican Airports

In 2005, the Mexican government issued a policy letter (carta de política) calling for all checked baggage on all commercial flights to undergo a new comprehensive screening process. The new screening process required the installation of dedicated screening equipment and the manual inspection of baggage if such equipment alerted to the potential presence of prohibited items. Uncertainty regarding the new screening process initially caused a delay in the implementation. Although the Mexican Airport Law expressly provides that airlines bear the responsibility for baggage screening, the fact that the policy letter was silent as to responsibility caused some of our airline customers to contend that the policy letter’s intent was for airport concessionaires, such as us, to bear responsibility for the new screening process. Since the issuance of the policy letter, the Federal Civil Aviation Agency (Agencia Federal de Aviación Civil), or “AFAC”, has been expected to issue implementing regulations. On November 23, 2012, the Mexican civil aviation authority published a recommendation (circular obligatoria) on the SCT website that, instead of modifying the legal responsibilities set forth in the Mexican Airport Law, attempted to facilitate contracts between parties through certain non-binding recommendations regarding issues of responsibility that have been raised by the policy letter. These non-binding recommendations have no legal effect unless incorporated into a valid contract.

Today eleven of our twelve Mexican airports employ baggage screening equipment and an explosives trace detector system is used in our Los Mochis airport. As of December 31, 2019, we have signed agreements to operate the baggage screening equipment with every airline customer, and 99.3% of the passengers travelling through our Mexican airports were using the baggage screening system.

We incur ongoing expenses to maintain and operate this equipment, which we currently recover from our airline customers. For more information on screening equipment, see “Item 4, Information on the Company – Regulatory Framework – Mexican Airport Concessions – Scope of Concessions.”  

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Recent Expansion and Development of Commercial Areas

We believe that leading privatized airports typically generate a greater portion of their revenues from commercial activities than we currently do. We typically generate approximately 20% to 30% of total revenues from commercial activities. In 2019, revenues from non-aeronautical services in our airports accounted for 26.3% of our total revenues. As this is a primary component of our business strategy, we have focused on increasing our revenues from commercial activities in our airports by:

• Redesigning and expanding the space available in our airport terminals allocated to commercial activities:

In order to increase our revenues from commercial activities, we have focused on expanding and redesigning the layout of certain terminals in our Mexican airports to allow for the inclusion of more commercial businesses, as well as to redirect the flow of passengers through our airports, increasing their exposure to the commercial areas of our airports. In 2017, we added 7,542 square meters of commercial area at the Guadalajara airport and 1,973 square meters at the Tijuana airport, where we redesigned the commercial layout. In 2018, we added about 6,500 square meters of commercial area, of which 85% was in our Tijuana and Guadalajara airports. At our Tijuana airport new food and beverage and retail stores began operation, including Panda Express, Johnny Rockets and Starbucks, among others. Meanwhile, in Guadalajara our new food and beverage offerings include 900 Bistro Argentino, Café Punta del Cielo and Carl’s Jr., among others. In the first half of 2019, the rest of the new commercial offerings at our Tijuana and Guadalajara airports were completed and began operations. During 2019, we also improved the commercial layout of our Los Cabos airport.

• Renegotiating agreements with terminal tenants to be more consistent with market practices:

We have also continued improving our lease arrangements with existing tenants through the usage of royalty-based lease contracts, whereby lease amounts are based on tenants’ revenues, subject to minimum fixed amounts related to the square footage. We estimate that approximately 88.4% of current commercial revenues could be arranged as royalty-based contracts based on the nature of our tenants’ operations. Approximately 99.1% of the contracts that could be arranged as royalty-based have already been executed under those conditions.

• New projects developed by the Company:

In 2016, we hired HVS Consulting & Valuation, a leading consultant in the hospitality industry, to develop proposals for commercial development at our Guadalajara airport. In order to maximize profitability and based on HVS Consulting & Valuation’s study, we plan to develop a 180-room select-service hotel operated by a third party under a fee agreement. In October 2017, our Board of Directors approved the creation of a new subsidiary responsible for the construction and operation of the hotel at the Guadalajara airport. This hotel is expected to represent an investment of approximately Ps.350 million. With the operation of the hotel at the Guadalajara airport, we will be able to dedicate an additional 549 square meters for retail and other complementary services and 1,564 square meters for food and beverage. It is estimated that the hotel will begin operations in 2022.

Recognition of Revenues from Improvements to Concession Assets

We recognize revenues and the associated costs of improvements to concession assets that we are obligated to perform as established by the Master Development Programs at our Mexican airports and the Capital Development Program at the Montego Bay airport. Revenues represent the value of the exchange between ourselves and the respective governments with respect to the improvements, given that we construct or provide improvements to the airports as obligated under the Master Development Programs and the Capital Development Program, and in exchange, the governments grant us the right to obtain benefits for services provided using those assets, which are recognized as intangible assets. We have determined that our obligations per the Master Development Programs and the Capital Development Program should be considered to be a revenue-earning activity as all expenditures incurred to fulfill the Master Development Programs and the Capital Development Program are included in the maximum tariffs and regulated charges that we charge our customers. Therefore, we recognize the revenue and expense in profit or loss when the expenditures are performed. The cost for such additions and improvements to concession assets is based on actual costs incurred by us in the execution of the additions or improvements, considering the investment requirements in the Master Development Programs and the Capital Development Program. Through bidding processes, we contract third parties to carry out such construction. The amount of revenues for these services is equal to the amount of costs incurred, as we do not obtain any profit margin for these construction services. The amounts paid are set at market value. As a result, revenues from improvements to concession assets do not have a cash impact on our results. Furthermore, they are not directly related to our passenger traffic, which is the main driver of our revenues. See “Item 5, Operating and Financial Review and Prospects – Critical Accounting Policies.”

Marketing Activities

We focus our marketing activities, with respect to aeronautical services, on participation in business conferences organized by public organizations, such as the International Air Transport Association, and private organizations, such as the annual “Routes Americas” and “World Routes” conferences organized by United Business Media. These conferences provide a forum for the exchange of information relating to airlines’ decisions about changes in routes and flights. Additionally, we go through several one-on-one meetings with domestic and international airlines to further discuss specific route opportunities as well as route performance. During 2019, a total of 45 new routes were opened to and from our airports, many of which originated from air service development work during the past decade. The work performed by our commercial department is complemented by several different airline marketing consultants, who provide us with market intelligence and databases in order to better execute our network expansion strategy.

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Our Mexican Airports

In 2019, our Mexican airports served a total of approximately 43.6 million terminal passengers. In 2019, our two principal airports that serve important metropolitan areas, Guadalajara International Airport and Tijuana International Airport, together represented approximately 54.5% of our Mexican airports’ total terminal passenger traffic. Puerto Vallarta International Airport and Los Cabos International Airport, our main Mexican airports serving popular tourist destinations, together accounted for approximately 24.5% of our Mexican airports’ total terminal passenger traffic in 2019. Guanajuato International Airport, which is our largest airport serving a mid-sized city, accounted for approximately 6.3% of our Mexican airports’ total terminal passenger traffic in 2019.

All of our Mexican airports are designated as international airports under applicable Mexican law, meaning that they are equipped to receive international flights and maintain customs and immigration facilities operated by the Mexican government.

The following table shows the sum of aeronautical and non-aeronautical revenues for each of the Mexican airports for the years indicated:

Sum of Aeronautical and Non-Aeronautical Revenues by Mexican Airport

	Year ended December 31,
	2017			2018		2019
		(thousands of pesos)
Guadalajara	Ps.		3,072,286	Ps.	3,621,416	Ps.	3,917,062
Los Cabos			1,729,761		1,942,997		2,152,170
Tijuana			1,462,919		1,670,337		2,022,396
Puerto Vallarta			1,361,076		1,487,844		1,639,309
Guanajuato			503,412		632,918		764,976
Hermosillo			335,422		389,040		435,076
Mexicali			153,026		221,819		261,502
La Paz			193,146		216,304		246,322
Aguascalientes			178,210		212,212		236,386
Morelia			154,206		188,859		210,665
Los Mochis			72,303		82,006		98,793
Manzanillo			46,404		46,558		50,126
Total	Ps.		9,262,171	Ps.	10,712,310	Ps.	12,034,783

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The following tables set forth the passenger traffic volume for each of our Mexican airports for the years indicated:

Passenger Traffic by Mexican Airport

	Year Ended December 31,
	2017						2018						2019
	Terminal (1)		Transit (2)		Total		Terminal (1)		Transit (2)		Total		Terminal (1)		Transit (2)		Total
Total Passengers:
Guadalajara		12,808,007		36,644		12,844,651		14,351,563		19,288		14,370,851		14,846,329		15,480		14,861,809
Tijuana		7,103,249		34,369		7,137,618		7,835,064		48,794		7,883,858		8,925,873		47,325		8,973,198
Los Cabos		4,909,746		1,984		4,911,730		5,249,039		3,223		5,252,262		5,609,122		3,901		5,613,023
Puerto Vallarta		4,522,571		9,156		4,531,727		4,767,060		5,940		4,773,000		5,051,855		6,335		5,058,190
Guanajuato		1,955,608		13,389		1,968,997		2,338,752		13,853		2,352,605		2,755,807		12,156		2,767,963
Hermosillo		1,627,848		18,063		1,645,911		1,743,754		30,942		1,774,696		1,874,059		19,836		1,893,895
La Paz		848,493		2,037		850,530		926,334		1,423		927,757		1,008,136		2,307		1,010,443
Mexicali		804,031		4,814		808,845		1,138,467		6,968		1,145,435		1,198,808		4,357		1,203,165
Aguascalientes		754,141		525		754,666		868,505		2,674		871,179		858,433		1,127		859,560
Morelia		618,829		5,447		624,276		729,606		4,174		733,780		897,754		3,728		901,482
Los Mochis		348,527		11,315		359,842		344,830		8,384		353,214		391,300		9,416		400,716
Manzanillo		181,987		392		182,379		172,493		1,187		173,680		174,718		392		175,110
Total		36,483,037		138,135		36,621,172		40,465,467		146,850		40,612,317		43,592,194		126,360		43,718,554

(1) Includes arriving and departing passengers as well as transfer passengers (passengers who arrive on one aircraft and depart on a different aircraft).

(2) Terminal passengers who arrive at our airports but generally depart without changing aircraft.

	Year Ended December 31,
	2017						2018						2019
	Domestic		International		Total		Domestic		International		Total		Domestic		International		Total
Departing Terminal    Passengers:
Guadalajara		4,489,034		1,954,286		6,443,320		5,113,419		2,099,518		7,212,937		5,199,715		2,271,994		7,471,709
Tijuana		2,598,969		893,307		3,492,276		2,777,045		1,061,145		3,838,190		3,025,408		1,357,161		4,382,569
Los Cabos		718,621		1,740,176		2,458,797		818,495		1,809,390		2,627,885		937,323		1,869,708		2,807,031
Puerto Vallarta		697,819		1,569,840		2,267,659		781,798		1,609,047		2,390,845		891,549		1,643,729		2,535,278
Guanajuato		630,568		346,079		976,647		802,265		370,389		1,172,654		1,015,691		372,192		1,387,883
Hermosillo		767,462		43,065		810,527		816,921		47,146		864,067		879,749		48,247		927,996
La Paz		421,030		9,090		430,120		549,569		4,918		554,487		497,589		11,462		509,051
Mexicali		387,279		4,592		391,871		457,359		10,042		467,401		579,307		6,067		585,374
Aguascalientes		277,618		101,363		378,981		323,741		111,871		435,612		303,023		126,612		429,635
Morelia		155,905		150,859		306,764		179,143		188,206		367,349		233,450		218,408		451,858
Los Mochis		169,945		5,827		175,772		167,691		5,925		173,616		191,012		6,584		197,596
Manzanillo		46,498		44,869		91,367		42,874		42,778		85,652		40,931		45,562		86,493
Total		11,360,748		6,863,353		18,224,101		12,830,320		7,360,375		20,190,695		13,794,747		7,977,726		21,772,473

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	Year Ended December 31,
	2017						2018						2019
	Domestic		International		Total		Domestic		International		Total		Domestic		International		Total
Arriving Terminal    Passengers:
Guadalajara		4,556,570		1,808,117		6,364,687		5,200,101		1,938,525		7,138,626		5,296,110		2,078,510		7,374,620
Tijuana		2,536,919		1,074,054		3,610,973		2,724,709		1,272,165		3,996,874		2,954,316		1,588,988		4,543,304
Los Cabos		752,950		1,697,999		2,450,949		853,715		1,767,439		2,621,154		978,406		1,823,685		2,802,091
Puerto Vallarta		731,577		1,523,335		2,254,912		823,538		1,552,677		2,376,215		947,766		1,568,811		2,516,577
Guanajuato		677,188		301,773		978,961		851,986		314,112		1,166,098		1,041,187		326,737		1,367,924
Hermosillo		795,465		21,856		817,321		858,024		21,663		879,687		924,069		21,994		946,063
La Paz		416,604		1,769		418,373		457,573		1,360		458,933		497,795		1,290		499,085
Mexicali		411,239		921		412,160		582,997		983		583,980		612,589		845		613,434
Aguascalientes		299,942		75,218		375,160		353,067		79,826		432,893		332,207		96,591		428,798
Morelia		166,801		145,264		312,065		190,081		172,176		362,257		245,372		200,524		445,896
Los Mochis		172,222		533		172,755		170,853		361		171,214		193,362		342		193,704
Manzanillo		54,599		36,021		90,620		54,335		32,506		86,841		54,413		33,812		88,225
Total		11,572,076		6,686,860		18,258,936		13,120,979		7,153,793		20,274,772		14,077,592		7,742,129		21,819,721

The following table shows the passengers who used the CBX facilities to travel from the United States to Mexico and vice versa, who are reported as international passengers in the Tijuana airport.

	Year ended December 31,
	2017		2018		2019
CBX/Tijuana		855,362		1,012,059		1,319,275
Tijuana/CBX		1,066,627		1,249,411		1,578,628
Total		1,921,989		2,261,470		2,897,903

The following table sets forth the air traffic movement capacity of each of our Mexican airports as of December 31, 2019:

Capacity by Mexican Airport in 2019

	Peak air traffic movements per hour (1)	Runway capacity (2)
Guadalajara	48	39
Tijuana	19	36
Los Cabos	35	42
Puerto Vallarta	34	38
Hermosillo	20	33
Guanajuato	12	18
La Paz	9	14
Mexicali	7	14
Aguascalientes	8	14
Morelia	8	13
Los Mochis	8	16
Manzanillo	6	17

(1) Represents the greatest number of air traffic movements in a single hour during the year. Includes commercial and general aviation operations (demand).

(2) Air traffic movements per hour (capacity).

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The following table sets forth the air traffic movements for each of our Mexican airports for the years indicated:

Air Traffic Movements by Mexican Airport (1)

	For the year ended December 31,
	2017		2018		2019
Guadalajara		167,274		180,347		179,689
Tijuana		63,292		66,662		69,626
Los Cabos		49,773		51,020		51,718
Puerto Vallarta		54,389		56,472		56,526
Guanajuato		34,097		35,953		37,346
Hermosillo		41,326		41,462		40,221
La Paz		18,409		18,008		17,436
Mexicali		10,457		13,333		11,793
Aguascalientes		15,586		18,133		16,433
Morelia		14,899		13,876		13,771
Los Mochis		10,821		10,639		10,991
Manzanillo		5,336		4,923		5,435
Total		485,659		510,828		510,985

(1) Includes departures and arrivals.

The following table sets forth the average number of passengers per air traffic movement for each of our Mexican airports for the years indicated:

Average Passengers per Air Traffic Movement by Mexican Airport (1)

	Year ended December 31,
	2017		2018		2019
Guadalajara		76.79		79.58		82.62
Tijuana		112.77		117.53		128.20
Los Cabos		98.68		102.88		108.46
Puerto Vallarta		83.32		84.41		89.37
Guanajuato		57.75		65.05		73.79
Hermosillo		39.83		42.06		46.59
La Paz		46.20		51.44		57.82
Aguascalientes		48.42		47.90		52.24
Mexicali		77.35		85.39		101.65
Morelia		41.90		52.58		65.19
Los Mochis		33.25		32.41		35.60
Manzanillo		34.18		35.04		32.15
Average		75.41		79.22		72.81

(1) Includes number of total passengers within the total number of air traffic movements.

The following table sets forth the air traffic movements in our Mexican airports for the years indicated in terms of commercial, charter and general aviation:

Air Traffic Movements in Mexican Airports by Aviation Category (1)

	Year ended December 31,
	2017		2018		2019
Commercial aviation		363,317		382,160		381,065
Charter aviation		19,727		19,996		20,281
General aviation and other		102,615		108,672		109,639
Total		485,659		510,828		510,985

(1) Includes departures and landings for all twelve Mexican airports.

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Guadalajara International Airport

Guadalajara International Airport is our most important Mexican airport in terms of passenger traffic, air traffic movements and contribution to the sum of aeronautical and non-aeronautical revenues.

In 2019, Guadalajara International Airport was the third busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 14.8 million terminal passengers, accounting for approximately 34.1% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 70.7% of the terminal passengers served were domestic passengers and 29.3% were international passengers. Of the airport’s international passengers, we estimate that a significant portion is Mexicans living in the United States visiting Guadalajara. This airport also serves many business travelers traveling to and from Guadalajara. Because the airport’s passengers are predominantly domestic, the airport’s passenger traffic and results of operations are affected to a greater extent by Mexican economic conditions.

Guadalajara International Airport is located approximately 20 kilometers from the city of Guadalajara, which has a population (including its suburbs) of approximately 8 million inhabitants. Guadalajara is Mexico’s second largest city in terms of population and is the capital of the state of Jalisco, the country’s fourth largest state in terms of population. As a major hub for the Mexican national highway system, the city of Guadalajara is an important center for both ground and air transportation. Other major cities in the state of Jalisco include Puerto Vallarta and Lagos de Moreno. Jalisco is an important agricultural producer, making Guadalajara an important center for agricultural commerce. The state is an important contributor to Mexico’s maquiladora industry, most notably in the electronic, computer equipment and clothing industries. The maquiladora industry in Jalisco grew significantly in the 1990’s as maquiladoras moved away from the U.S.-Mexico border seeking lower labor costs and a more diverse labor pool.

A total of fourteen airlines operate at the airport, of which the principal airlines are Volaris, Aeromexico Group and VivaAerobus. The main non-Mexican airlines operating at the airport are United, Alaska, American and Delta. Airlines operating at the airport reach 60 destinations. Of these destinations, Mexico City, Tijuana and Los Angeles are the most popular.

Guadalajara International Airport operates 24 hours daily. The airport has two operating runways, one with a length of 4,000 meters and a full parallel taxiway and the other with a length of 1,800 meters, with a threshold displacement of 300 meters at the runway, which permits a landing distance of 1,500 meters. The runway capacity at this airport is 39 air traffic movements per hour. The airport also has an Instrument Landing System (“ILS”) that assists pilots in poor weather. The airport’s facilities include a main commercial terminal with a large parking facility and a general aviation building. The airport’s main commercial terminal has a total area of approximately 73,000 square meters, as well as parking facilities consisting of an additional 68,000 square meters. The general aviation building has an additional 975 square meters. The commercial terminal has 37 gates and 36 remote boarding positions. Of the international gates, four have air bridges, and of the domestic gates, eight have air bridges.

In 2019, approximately 161.1 thousands metric tons of cargo were transported through the airport.

We have continued to take significant steps to modernize and expand Guadalajara International Airport in order to improve its operations and image. These steps have included the improvement of the airport’s main commercial terminal, including the modernization of  restrooms, hallways and gate areas. During 2019, we completed the expansion of the main terminal by adding an additional 3,200 square meters and renovated an additional 3,000 square meters.

During the last quarter of 2017, we requested bids for four food and beverage service areas and 20 retail spaces at the airport. These bids sought to attract experienced concessionaries and well-known brands in order to improve the image of the airport and to accommodate the expansion of the domestic terminal. In 2018, approximately 3,000 square meters of new commercial space was added, including 1,200 square meters to be used by Areas, S.A. for its concepts and the rest of the space including brands such as Gandhi, Tous, Swarovski, Charros, Marissa, among others.

We directly operate two VIP lounges in the Guadalajara airport: one in the international departures area and another in the domestic departures area. In 2019, we added 783 square meters of space to the domestic VIP lounge.

In 2019, approximately 23.9% of the sum of our aeronautical and non-aeronautical revenues generated at Guadalajara International Airport was derived from non-aeronautical revenues.

In 2019 we started the executive design of a new mixed-use development; this new area will include an expansion of the existing terminal building, new commercial areas, an office tower with 9,500 square meters of gross leasable area and a business class hotel with 180 keys. We also began the conceptual design of a new terminal with almost 100,000 square meters.

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A portion of the land on which Guadalajara International Airport is located was expropriated by the Mexican federal government in 1975 pursuant to its power of eminent domain and is subject to certain legal proceedings by its former landholders. For a description of these legal proceedings and their potential impact on our operations, see “Item 8, Financial Information – Legal Proceedings – Ejido participants at Tijuana, Guadalajara and Puerto Vallarta airports.”

Tijuana International Airport

Tijuana International Airport is our second most important Mexican airport in terms of passenger traffic and air traffic movements, and third in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Tijuana International Airport was the fifth busiest airport in Mexico in terms of commercial aviation traffic, according to the SCT. In 2019, it served a total of 8.9million terminal passengers, accounting for approximately 20.5% of our Mexican airports’ terminal passenger traffic. Approximately 99.5% of the terminal passengers served were domestic passengers. Since Tijuana is located near the Mexico-U.S. border and is therefore a popular entry point to the United States for Mexican and American travelers, the airport’s passenger traffic and results of operations are affected by Mexican and U.S. economic conditions.

Tijuana International Airport serves the city of Tijuana and surrounding areas in the State of Baja California, including the municipalities of Ensenada, Tecate and Rosarito. With a population of approximately 1.3million, Tijuana is the largest city in the state. Currently, the state of Baja California is the second largest maquiladora center in Mexico, according to INEGI data on workforce by industry. A highway connecting the city of Tijuana to the airport also extends directly to the U.S.-Mexico border crossing, providing convenient access to San Diego, California (which is located approximately 30 kilometers from Tijuana International Airport) and other areas of southern California, particularly Los Angeles.

A total of seven airlines operate at the airport, of which the principal airlines are Volaris, Aeromexico Group and Interjet. Airlines operating at this airport provide service to 37 destinations. Of these destinations, Mexico City, Guadalajara and Culiacan are the most popular. In addition, in 2019, Aeromexico Group flew from Tijuana to Shanghai and Hainan Airlines flew from Tijuana to Beijing.

Tijuana International Airport currently operates seventeen hours daily between the hours of 7:00 a.m. and 12:00 a.m. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. The airport has one runway with a length of 2,959 meters and a full parallel taxiway. The runway capacity at this airport is 36 air traffic movements per hour. The airport also has an ILS that assists pilots in poor weather. It has twenty-two gates serving both domestic and international travelers and ten remote boarding positions. Of the 22 gates, ten have air bridges.

During 2019, we completed an expansion of 2,000square meters and a renovation of 5,500square meters. We started the construction (foundation, structure and civil works) of the new terminal building which will facilitate and increase the airport´s capacity to process international passengers, and we began the expansion of the commercial aviation apron and renovations of the main taxiway A.

In December 2015, we inaugurated the international bridge between our Tijuana airport and the U.S. border, or CBX. This bridge allows passengers to cross directly to the United States using a pathway between the airport and the international border, facilitating transfers between the United States and Mexico for travelers holding a boarding pass to all flights departing from or arriving in Tijuana, and reducing connection and waiting times at both the San Isidro and Otay Mesa border crossings. The Mexican border authority’s services are located in the Tijuana airport, and the corresponding U.S. services are located on the premises of the CBX terminal on the north side of the border. The use of this facility is limited to passengers traveling through the airport upon presentation of a boarding pass, but is not subject to additional charges as it is part of the services offered by the Tijuana airport, which are included in the passenger charges. Passengers using the bridge from or to Tijuana may also be subject to toll charges levied by Otay-Tijuana Venture, L.L.C. (“OTV”), the bridge operator on the U.S. side. We estimate that up to 45% of Tijuana passengers have a final destination or origin in the U.S., and consequently a significant portion of the passengers at the airport are expected to be users of the CBX. Due to its convenience for U.S. residents in the area, the CBX is also expected to increase the overall number of passengers using the airport. During 2019, the CBX served 2.9million passengers, approximately 32.5% of the Tijuana airport’s total passengers. The CBX was the primary driver behind the 13.9% increase in total passengers during the 2019 at the Tijuana airport. For more information see “Item 7, Major Shareholders and Related Party Transactions – Related Party Transactions.” Our investment in adapting the Tijuana airport installations and building the Mexican infrastructure amounted to Ps.185.0 million.

In 2019, approximately 30.7thousands metric tons of cargo were transported through the airport.

In 2019, approximately 22.5% of the sum of our aeronautical and non-aeronautical revenues generated at Tijuana International Airport was derived from non-aeronautical revenues.

During 2018, we also solicited bids for the rent-a-car modules and obtained a significant revenue increase compared to the previous contracts. A new model office was built in order to standardize the image of the car rental facilities within the terminal.

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During 2018, we awarded bids for 25 new retail spaces and thirteen food and beverage spaces, totalling 729 and 2,700 square meters, respectively. At the end of 2018, 70% of the new commercial space began operating with brands such as Panda Express, Domino’s Pizza and Johnny Rockets. The rest of this space was in operation by the second quarter of 2019.

During 2019 we performed a complete refurbishment of the land side food court and all the commercial units for which bids were received during 2018 began operating.

A portion of the land on which Tijuana International Airport is sited was expropriated by the Mexican federal government in 1970 pursuant to its power of eminent domain and is subject to certain legal proceedings by its former landholders. For a description of these legal proceedings and their potential impact on our operations, see “Item 8, Financial Information – Legal Proceedings – Ejido participants at Tijuana, Guadalajara and Puerto Vallarta airports.”

Los Cabos International Airport

Los Cabos International Airport is our third most important Mexican airport in terms of passenger traffic, fourth in terms of air traffic movements and second in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Los Cabos International Airport was the sixth busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 5.6 million terminal passengers, accounting for approximately 12.9% of our Mexican airports’ terminal passenger traffic of whom approximately 65.8% were international passengers.

The airport serves primarily tourists visiting San Jose del Cabo, Cabo San Lucas and other coastal destinations along the Trans-Peninsular highway of the state of Baja California Sur. Los Cabos International Airport is located approximately thirteen kilometers from the city of San Jose del Cabo, in the state of Baja California Sur. According to the Mexican Ministry of Tourism, 1.9 million international tourists visited Los Cabos (San Jose del Cabo and the nearby city of Cabo San Lucas) by air in 2019. Visitors to this area are generally affluent and include golfers who enjoy world-class courses, as well as sport fishing and diving enthusiasts who are drawn by the rich marine life in the region’s coastal waters.

A total of eighteen airlines operate at the airport, of which the principal airlines are American, Alaska, United, Southwest and Volaris. Airlines operating at this airport provide service to 48 destinations. Of these destinations, Mexico City, Los Angeles, Guadalajara and Dallas are the most popular.

Los Cabos International Airport currently operates eleven hours daily between 7:00 a.m. and 9:00 p.m. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. The airport has one runway measuring 3,004 meters, and a full parallel taxiway to the runway. The runway capacity at this airport is 42 air traffic movements per hour. The existing runway allows us to serve planes flying to any destination in the United States and Canada. The airport has two commercial aviation terminals. Terminal 1 occupies approximately 14,600 square meters and Terminal 2 occupies approximately 38,000 square meters. In addition, the airport has a general aviation and an FBO terminal. The airport has sixteen gates (eight in Terminal 1 and eight in Terminal 2), including four gates with air bridges, and eighteen remote boarding positions.

During 2019, we continued renovating and expanding the international terminal building, increasing the terminal area by 5,000 square meters and renovating 10,600 square meters, adding 10 remote boarding gates. These construction projects will be concluded in 2020.  

We operate a commercial space of approximately 2,000 square meters at Los Cabos International Airport; this space includes two VIP lounges and five convenience stores, which have been operated by a third party since October 2016.

To create a better experience for our domestic passengers, we finished the construction of a 280 square meter beer garden at the domestic terminal. The new bar brings more options to the food and beverage services for this terminal. In 2019, approximately 36.6% of the sum of our aeronautical and non-aeronautical revenues generated at Los Cabos International Airport was derived from non-aeronautical revenues (of which 93.9% came from commercial activities, the highest such percentage among our airports). During 2019, we redesigned the commercial layout of the international terminal to maximize sales per passenger through a new commercial mix. This process will take until 2021 to complete.

We solicited bids for food and beverage service for ten commercial units with a total surface of 1,941 square meters. As a result of the process brands such as Panda Express, Subway, Sbarro, Carl's Junior, Pacific Grill, Tequila Patron, STK, The Coffee Bean and Starbucks were incorporated; increasing the food and beverage area by 40%. We expect to request retail bids during the second quarter of 2020.

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Puerto Vallarta International Airport

Puerto Vallarta International Airport is our fourth most important Mexican airport in terms of passenger traffic, third in air traffic movements and fourth in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Puerto Vallarta International Airport was the seventh busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 5.0 million terminal passengers, accounting for 11.6% of our Mexican airports’ terminal passenger traffic. During 2019, 63.6% of these terminal passengers were international passengers and 36.4% were domestic passengers.

Puerto Vallarta International Airport is located on the Pacific coast in the state of Jalisco. The airport primarily serves foreign tourists and is also a popular tourist destination within Mexico. Puerto Vallarta’s tourist attractions include the natural beauty of the Bay of Banderas, the area’s many beaches and abundant marine wildlife. Puerto Vallarta is a mature tourist destination, and the completion of new resort areas including hotels and golf courses in the areas known as Nuevo Vallarta and Punta Mita is expected to bring more tourists to the area in subsequent years.

A total of twenty three airlines operate at the airport, of which the principal airlines are American, United, Alaska, Interjet, Volaris,  Aeromexico Group and Southwest. Airlines operating at this airport provide service to 52 destinations. Of these destinations, the most popular are Mexico City, Los Angeles, Monterrey and Dallas. In addition, Thomson Airways flies once weekly from Puerto Vallarta to London Gatwick and Manchester and Finnair flies once weekly to Helsinki.

Puerto Vallarta International Airport operates 24 hours daily. The airport has one runway with a length of 3,105 meters as well as a parallel taxiway. The runway capacity at this airport is 37 air traffic movements per hour. This airport has one main commercial terminal, an FBO terminal and a general aviation building. The airport has nineteen gates, of which five serve domestic flights and fourteen serve international flights, nine remote boarding positions and eleven air bridges.

In 2019, approximately 27.8% of the sum of our aeronautical and non-aeronautical revenues generated at our Puerto Vallarta airport was derived from non-aeronautical revenues (of which 93.9% came from commercial activities).

Guanajuato International Airport

Guanajuato International Airport is our fifth most important Mexican airport in terms of passenger traffic, sixth in air traffic movements and fifth in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Guanajuato International Airport was the ninth busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 2.8 million terminal passengers, accounting for approximately 6.3% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 74.6% of the terminal passengers served were domestic passengers.

Guanajuato International Airport is located in the central state of Guanajuato near the cities of Leon, Irapuato, Silao and Guanajuato, approximately 315 kilometers northwest of Mexico City. The state of Guanajuato has a population of approximately 5.9 million people according to the Mexican National Population Council and is located in Mexico’s Bajio region, best known for its rich colonial history, agricultural sector and manufacturing industry. General Motors, Honda, Kia, Mazda and Toyota have assembly plants in Guanajuato. In addition, several automobile parts manufacturers are located in Guanajuato. The local government is developing a “dry dock”, or truck loading service terminal, near the airport that we believe will increase cargo demand.

A total of nine airlines operate at the airport, of which the principal airlines are Volaris, Aeromexico Group, Interjet, VivaAerobus and United Airlines operating at this airport provide service to fifteen destinations. Of these destinations Tijuana, Mexico City and Cancun are the most popular.

Guanajuato International Airport operates 20 hours daily between 4:00 a.m. and 12:00 midnight. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. The airport has one runway with a length of 3,501 meters. The runway capacity at this airport is 16 air traffic movements per hour. It has two terminals (one commercial and one general aviation), with seven gates, seven remote boarding positions and three air bridges.

During 2017, we began a 3,000 square meter terminal expansion and the renovation of another 7,990 square meters. We concluded the expansion during 2019, and the new commercial areas and expanded VIP Lounge began operations in 2019 as well. During 2019, we also began the renovation of the security checkpoint, restrooms and commercial areas.

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Hermosillo International Airport

Hermosillo International Airport is our sixth most important Mexican airport in terms of passenger traffic, fifth in terms of air traffic movements and sixth in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Hermosillo International Airport was the eleventh busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served approximately 1.9 million terminal passengers, accounting for approximately 4.3% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 96.3% of the terminal passengers served were domestic passengers. Many of the airport’s passengers use the airport as a hub for connecting flights between other Mexican cities, particularly Mexico City, Tijuana, Guadalajara and Monterrey. Because the airport’s passengers are predominantly domestic, the airport’s passenger traffic and results of operations are affected to a greater extent by Mexican economic conditions.

Hermosillo International Airport serves the city of Hermosillo and four other nearby municipalities, which together have a population of approximately 1.0 million, according to the Mexican National Population Council. The city of Hermosillo, which is the capital of the state of Sonora, is located approximately 260 kilometers south of the border town of Nogales and 130 kilometers east of the Gulf of California. The airport is located approximately thirteen kilometers west of the city of Hermosillo. The airport is an important hub in a primarily agricultural and industrial region. Approximately 10.6 thousand metric tons of cargo passed through the airport in 2019. Currently, cargo transport services at this airport primarily serve the nearby Ford factory, which receives components via the airport.

A total of seven airlines operate at the airport, of which the principal airlines are Volaris, Aeromexico Group, VivaAerobus and Interjet. Airlines operating at this airport provide service to thirteen destinations. Of these destinations, Mexico City, Guadalajara, Monterrey and Tijuana are the most popular.

Hermosillo International Airport operates eighteen hours daily between 6:00 a.m. and 12:00 midnight. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. The airport has two runways, one with a length of 2,300 meters and the other, a private aircraft runway that is not currently operating due to commercial considerations, with a length of 1,100 meters. Runway capacity at this airport is 30 air traffic movements per hour. The airport has nine gates and ten remote boarding positions and includes both a commercial aviation building and a general aviation building for small private aircraft.

As part of our business strategy, in recent years we changed the profile and category of services of almost all of the stores at Hermosillo International Airport to stores with greater brand recognition. During 2018, we opened a new VIP lounge in our Hermosillo airport. In 2019, we solicited bids for a new restaurant with approximately 200 square meters of surface area located in the waiting lounge.

Mexicali International Airport

Mexicali International Airport is our seventh most important Mexican airport in terms of passenger traffic, tenth in terms of air traffic movements and seventh in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Mexicali International Airport was the eighteenth busiest airport in Mexico in terms of commercial aviation passenger traffic according to the SCT. In 2019, it served 1.2 million terminal passengers, accounting for approximately 2.8% of our Mexican airports’ terminal passenger traffic.

During 2019, approximately 99.4 % of the terminal passengers served by this airport were domestic passengers. Because the airport’s passengers are predominantly domestic, the airport’s passenger traffic and results of operations are affected to a greater extent by Mexican economic conditions.

Mexicali International Airport serves the city of Mexicali, in the Mexican state of Baja California, as well as the U.S. cities of Yuma, Arizona and Calexico, California. The city of Mexicali is located along the U.S.-Mexico border approximately 150 kilometers east of Tijuana and 80 kilometers west of Yuma, Arizona. Manufacturing forms the basis of the area’s economy, most notably in the form of maquiladora factories, which have proliferated along the California-Baja California border.

A total of five airlines operate at the airport, of which the principal airlines are Volaris and Aeromexico Group. Airlines operating at this airport provide service to seven destinations. Of these destinations, Guadalajara, Mexico City, and Culiacan are the most popular.

Mexicali International Airport operates nineteen hours daily between 6:00 a.m. and 1:00 a.m. the following day. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. The airport has one runway measuring 2,720 meters in length, as well as a main commercial terminal and a smaller general aviation terminal. The runway capacity at this airport is fourteen air traffic movements per hour. The main commercial terminal has four gates and five remote boarding positions.

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During 2018, we completed a 1,200 square meters expansion of the terminal building, adding two new boarding gates (increasing from two to four) and, expanding the baggage claim area, including the installation of a new baggage carousel (increasing from two to three). We also completed a 1,600-square-meter renovation in the check-in area and the ambulatory area. A “gastro pub” restaurant (called Gastro Hub) of approximately 185 square meters, began operations. Car rental services began operating at the Mexicali airport during the first quarter of 2019, as a result of the bid released in 2018.

La Paz International Airport

La Paz International Airport is our eighth most important Mexican airport in terms of passenger traffic, air traffic movements and contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, La Paz International Airport was the twenty first busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 1.0 million terminal passengers, accounting for approximately 2.3% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 98.7% of the terminal passengers served were domestic passengers. Because the airport’s passengers are predominantly domestic, the airport’s passenger traffic and results of operations are affected to a greater extent by Mexican economic conditions.

La Paz International Airport serves the city of La Paz, located along the coast of the Gulf of California in the state of Baja California Sur, of which La Paz is the capital. Eco-tourism is a growing industry in La Paz due to the abundance of marine life found in the Gulf of California.

A total of five airlines operate at the airport, of which the principal airlines are Volaris, Calafia Airlines and Aeromexico Group. Airlines operating at this airport provide service to thirteen destinations. Of these destinations, Mexico City, Guadalajara and Tijuana are the most popular.

La Paz International Airport operates sixteen hours daily between 7:00 a.m. and 11:00 p.m. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. The airport has one runway measuring 2,500 meters in length and a single main commercial terminal. The runway capacity at this airport is fifteen air traffic movements per hour. It also has four gates and nine remote boarding positions.

During 2019 we opened a new 70 square meter VIP Lounge.

Aguascalientes International Airport

Aguascalientes International Airport is our ninth most important Mexican airport in terms of passenger traffic, seventh in air traffic movements and ninth in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Aguascalientes International Airport was the twenty fifth busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 858.4 thousand terminal passengers, accounting for approximately 2.0% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 74.0% of the terminal passengers served were domestic passengers. Because the airport passengers are predominantly domestic, the airport’s passenger traffic and results of operations are affected to a greater extent by Mexican economic conditions.

Aguascalientes International Airport serves the city of Aguascalientes and eight surrounding municipalities in the central state of Aguascalientes, which is located roughly 513 kilometers northwest of Mexico City. Manufacturing forms the basis of the region’s economy. One of Nissan’s main manufacturing plants in Mexico is located in the city of Aguascalientes.

A total of six airlines operate at the airport, of which the principal airlines are Aeromexico Group, Volaris and Interjet. Airlines operating at this airport provide service to eight destinations. Of these destinations Mexico City, Tijuana, Cancun and Dallas are the most popular.

Aguascalientes International Airport operates eighteen hours daily between 6:00 a.m. and 12:00 a.m. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. It has two runways, one measuring 3,000 meters in length and the other, a private aircraft runway that is not currently operating as a result of commercial considerations, measuring 1,000 meters, and a single main commercial terminal. The runway capacity at this airport is twelve air traffic movements per hour. The airport has four gates and five remote boarding locations.

In 2019, we concluded the terminal expansion and renovation. The project increased the boarding lounge capacity and surface area, with two additional boarding gates, and included a renovated security checkpoint. In 2019, the commercial area increased by 27% compared with 2018, and we opened a new VIP Lounge with 1,300 square meters of space. A bid for a retail commercial space of 20 square meters at the Aguascalientes airport was carried out during the third quarter with a recognized clothing brand known for featuring popular designs of Mexican culture, winning the bid.

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Morelia International Airport

Morelia International Airport is our tenth most important Mexican airport in terms of passenger traffic, ninth in terms of air traffic movements and tenth in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Morelia International Airport was the twenty three busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 897.8 thousand terminal passengers, accounting for approximately 2.1% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 53.3% of the terminal passengers served by this airport were domestic passengers.

Morelia International Airport serves the city of Morelia and ten other municipalities in the immediate vicinity. The city of Morelia is the capital of the state of Michoacan, which has a population of approximately 4.6 million according to the Mexican National Population Council. Michoacan’s principal industry is agriculture, and it has a developing eco-tourism industry (primarily due to the seasonal presence of monarch butterflies).

A total of six airlines operate at the airport, of which the principal airlines are Volaris, Aeromexico Group, American and United. Airlines operating at this airport provide service to ten destinations. Of these destinations, Tijuana, Chicago Midway and Mexico City are the most popular.

Morelia International Airport operates 24 hours a day. The airport has one runway with a length of 3,408 meters and a single main terminal building. The runway capacity at this airport is fourteen air traffic movements per hour. The airport has four gates and eight remote boarding positions.

In 2019, we concluded a terminal expansion and renovation which increased the boarding lounge by 200 square meters, added two boarding gates, and included a renovated and expanded security checkpoint with additional security lines, X-ray equipment and waiting areas. The commercial area grew by 16% in 2019 as compared with 2018.

Los Mochis International Airport

Los Mochis International Airport is our eleventh most important Mexican airport in terms of passenger traffic and air traffic movements and eleventh in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Los Mochis International Airport was the forty first busiest airport in Mexico in terms of commercial aviation passenger traffic, according to the SCT. In 2019, it served 391.3 thousand terminal passengers, accounting for approximately 0.9% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 98.2% of the terminal passengers served were domestic passengers. Because the airport’s passengers are predominantly domestic, the airport’s passenger traffic and results of operations are affected to a greater extent by Mexican economic conditions.

Los Mochis International Airport serves the city of Los Mochis, in the Pacific coastal state of Sinaloa, an important agricultural state. The area’s sport fishing and hunting attract both Mexican and foreign visitors.

A total of three airlines operate at the airport: Volaris, Aeromexico Group and Calafia Airlines. Airlines operating at this airport provide service to six destinations, of which Mexico City, Tijuana and Guadalajara are the most popular.

Los Mochis International Airport operates fourteen hours daily between 7:00 a.m. and 9:00 p.m. However, it is equipped to operate 24 hours daily if necessary, and we are authorized to charge double our regular passenger charges and fees for aeronautical services provided outside normal business hours. The airport has one runway measuring 2,007 meters in length as well as a single main commercial terminal. The runway capacity at this airport is sixteen air traffic movements per hour. The airport has three gates and eight remote boarding positions.

Manzanillo International Airport

Manzanillo International Airport is our twelfth most important Mexican airport in terms of passenger traffic and air traffic movements and twelfth in terms of contribution to the sum of aeronautical and non-aeronautical revenues. In 2019, Manzanillo International Airport was the forty fourth busiest airport in Mexico in terms of commercial aviation passenger traffic according to the SCT. During 2019, the airport served 174.7 thousand terminal passengers, accounting for approximately 0.4% of our Mexican airports’ terminal passenger traffic. During 2019, approximately 54.6% of the terminal passengers served were domestic passengers and 45.4% were international passengers.

Manzanillo International Airport serves the city of Manzanillo and six surrounding municipalities in the small Pacific coastal state of Colima. The city is located on the coast approximately 230 kilometers southeast of Puerto Vallarta and 520 kilometers northwest of Acapulco. The airport serves primarily tourists visiting coastal resorts in Colima and neighboring Jalisco. In recent years, passenger traffic at Manzanillo International Airport has remained stable despite the increased popularity of Puerto Vallarta and other tourist destinations due to a decline in investments in the tourism sector in Manzanillo.

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A total of six airlines operate at this airport, of which the principal airlines are Aeromexico Group and Alaska Airlines. Some of the other airlines operate only during the high tourist season (November to April). The principal destinations served by airlines at this airport are Mexico City, Los Angeles and Calgary.

Manzanillo International Airport operates twelve hours daily between 8:00 a.m. and 8:00 p.m. However, it is equipped to operate 24 hours daily if necessary, and we double our passenger charges and fees for aeronautical services provided outside normal business hours. The airport has one runway measuring 2,260 meters. The runway capacity at this airport is sixteen air traffic movements per hour. The airport has four gates and four remote boarding positions.

During 2019, we opened a new restaurant located in the waiting lounge, with 150 square meters of surface area in order to improve the passenger experience.

Montego Bay International Airport

The Montego Bay International Airport is Jamaica’s main tourist airport. In 2019, the Montego Bay airport served 4.7 million terminal passengers, making it the third busiest airport in the Caribbean region, excluding Cuba, in terms of commercial aviation passenger traffic, according to Airports Council International. In 2019, 99.8% of the terminal passengers served were international passengers. Of the total passengers in 2019, 70.0% came from the United States, 16.0% came from Canada, 12.0% came from Europe and 2.0% from other countries.

Montego Bay International Airport serves as the primary gateway for international air travel to Jamaica, a major international tourist destination, by facilitating the transit of more than 71% of the tourists arriving on the island. In recent years, passenger traffic at Montego Bay International Airport has grown in conjunction with the increased traffic overall at the Kingston airport, which services mostly business and other traffic. The Jamaican government has discussed plans to build a third international commercial airport, most likely on the southern coast at Vernamfield, to meet the long-term requirements for the growth of air transport, which may impact passenger traffic in the medium and long term at the Montego Bay and Kingston airports. Because the Montego and Kingston airports serve different demands and we do not expect the Jamaican government’s Vernamfield airport plan to be executed in the immediate future, we expect passenger traffic at our Montego Bay airport to grow.

A total of thirty-four international airlines operate at the airport, providing year-round and seasonal services. Our principal airlines are American Airlines, Southwest Airlines, Delta Airlines, and JetBlue. Airlines serving the Montego Bay airport provide service from over 60 airport destinations. Of these, Toronto, New York, Atlanta and Ft. Lauderdale are the most popular.

Montego Bay International Airport operates eighteen hours daily between 6:00 a.m. and 12:00 midnight. However, it is equipped to operate 24 hours daily if necessary. The airport has one runway measuring 2,662 meters. The runway capacity at this airport is 33 air traffic movements per hour. The airport also has an ILS that assists pilots in poor weather. The airport’s facilities include a main commercial terminal with a large parking facility and a general aviation building. The airport’s main commercial terminal has a total area of approximately 6,000 square meters, as well as an additional 5,657 square meters of parking facilities. The general aviation building has an additional area of 300 square meters. The commercial terminal has 17 gates and 5 remote parking positions.

In July 2017, the main food and beverage operator, Express Catering, finalized a deal with the Starbucks brand pursuant to which it opened a café off-airport. The deal also contemplated construction of three Starbucks locations in the airport to serve all passengers. The main Starbucks is located in the terminal building and opened in March 2018. Additionally, two kiosks were opened in 2019.

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The following table sets forth revenues, passenger traffic and air traffic movement data for the Montego Bay airport in 2017, 2018 and 2019:

	January 1 to December 31, 2017		January 1 to December 31, 2018		January 1 to December 31, 2019
Revenues (in thousands of pesos):
Sum of Aeronautical and Non-Aeronautical Revenues	Ps.	1,786,556	Ps.	1,963,552	Ps.	2,097,489
Passenger Traffic (in thousands):
Terminal passengers		4,226		4,483		4,690
International passengers		4,217		4,474		4,681
Domestic passengers		9		9		9
Transit passengers		59		55		59
Air Traffic Movements (1) :
Peak air traffic movements per hour (2)		21		21		21
Runway capacity (3)		33		33		33
Total air traffic movements (in thousands):		41		41		43
Commercial aviation		28		30		34
Charter aviation		2		2		0
General aviation and other		12		9		9
Average passengers per air traffic movement		101		109		110

(1) Includes departures and landings.

(2) Includes commercial and general aviation operations (demand).

(3) Air traffic movements per hour (capacity).

In 2017, 2018, and 2019 approximately 6.9 thousand, 7.5 thousand and 7.2 metric tons of cargo were transported through the airport.

Third parties operate a total of seven lounges in the Montego Bay airport: five hotel lounges and one general lounge in the arrivals area and one general lounge in the departures area. In 2015, the general pay per use passenger lounge operated by Club Mobay was expanded by 283.3 square meters; the lounge was further expanded in January 2018 by 245 square meters and now covers 1,580 square meters with a capacity of 399 seats.

Kingston International Airport

In October 10, 2019, we took control and began to operate NMIA in the city of Kingston, Jamaica. As a result of our taking over control of NMIA through our subsidiary, PACKAL, our summary consolidated financial and operating information for the fiscal year ended December 31, 2019 includes the consolidation of PACKAL financial and operating information for the period from October 10 to December 31, 2019. Therefore, financial and operating information related to the Kingston airport for the fiscal year ended December 31, 2019 may not be directly comparable with financial and operating information for our Mexican airports for 2019 or for the Kingston airport for prior fiscal years.

The passenger profile of the Kingston International Airport is business and Visiting Friends and Relatives (“VFR”). In 2019, the Kingston airport served 1.8 million terminal passengers, making it the seventh busiest airport in the Caribbean region, excluding Cuba, in terms of commercial aviation passenger traffic, according to Airports Council International. From October 10, 2019 (when we began to consolidate PACKAL´s operating information) to December 31, 2019, the airport served 408.7 thousands terminal passengers

In recent years, passenger traffic at Kingston International Airport has grown in conjunction with the increased traffic overall at the Kingston airport, which services mostly business and other traffic.

A total of eight international airlines operate at the airport, providing year-round and seasonal services. Kingston International Airport operates 18 hours daily between 6:00 a.m. and 12:00 midnight. However, it is equipped to operate 24 hours daily if necessary. The airport has one runway measuring 2,662 meters. The runway capacity at this airport is 33 air traffic movements per hour. The airport also has an ILS that assists pilots in poor weather. The airport’s facilities include a main commercial terminal with a large parking facility and a general aviation building.

Non-Airport Subsidiaries

As a holding company, we operate each of our thirteen airports through an operating subsidiary. In addition to these airport subsidiaries, we also have three employee service companies as operating subsidiaries. Our employee service companies, which provide part of the labor force for our airports but do not directly employ any personnel, are (i) Servicios a la Infraestructura Aeroportuaria del Pacífico, S.A. de C.V. (“SIAP”), (ii) Corporativo de Servicios Aeroportuarios, S.A. de C.V. (“CORSA”) and (iii) Puerta Cero Parking, S.A. de C.V. (“PCP”), and (iv) Aerocomercializadora del Pacífico, S.A. de C.V. (“ADP”). We also have a non-profit foundation, Fundación Grupo Aeroportuario del Pacífico, A.C. (“Fundación GAP”).

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SIAP

SIAP was incorporated as a subsidiary in June 1998 to provide technical assistance and corporate services to our airport operating subsidiaries. SIAP was set up as part of the Mexican government’s privatization plan for the airports operated by us. SIAP invoices our airports for three types of services:

• SIAP employs the senior management at our corporate headquarters and at our airports, and charges our subsidiaries for the services rendered according to each subsidiary’s individual performance;

• As part of the privatization plan that was implemented by the Mexican government in 1998, our strategic shareholder has the right and obligation to enter into various agreements with us and the Mexican government, including a participation agreement and a shareholders’ agreement. As a result of the participation agreement requirement, we entered into a technical assistance agreement with AMP, which was renewed for an additional five-year period through August 26, 2019. On that date, the technical assistance agreement with AMP was automatically renewed for an additional five-year term, in accordance with the agreement. Under this agreement, AMP receives an annual fee to provide SIAP with consulting services and technological and industry knowledge and expertise to manage our airports. SIAP charges our subsidiaries a technical assistance fee, which is then used to pay AMP. The technical assistance fee is a component of our maximum tariffs and is collected through the maximum tariffs charged. See also “Item 5, Operating and Financial Review and Prospects – Operating Costs – Technical Assistance Fee ”); and

• SIAP employs non-unionized personnel to perform services at our airports according to their capabilities and expertise and collects fees on a monthly basis for the services performed.

CORSA

CORSA was incorporated as a subsidiary on November 8, 2007, and began operations in January 2008. CORSA employs unionized personnel to perform services at our airports according to their capabilities and expertise and collects fees on a monthly basis for the services performed.

PCP

PCP was incorporated as a subsidiary on November 28, 2007, and began operations in January 2008. PCP provides operating and administrative services for airport parking lots. PCP employs both unionized and non-unionized personnel and collects fees on a monthly basis for the services performed.

ADP

We incorporated ADP as a subsidiary on February 14, 2018 to provide hotel infrastructure and other commercial services. ADP thus far remains inactive.

Fundación GAP

We established this non-profit foundation in May 2013 with the aim of improving social welfare in the communities near our airports. The foundation’s focus is on children’s education, as well as other charitable activities. See “Item 4, Information on the Company – Business Overview – Corporate Social Responsibility – Community Initiatives and Philanthropic Efforts – Fundación GAP.”

Principal Customers

Principal Aeronautical Services Customers

Airline Customers

As of December 31, 2019, eighteen international airlines and seven Mexican airlines operated passenger flights at our twelve Mexican airports. Volaris is our principal airline customer in terms of total passengers at our Mexican and airports, with Aeromexico Group and VivaAerobus providing the second and third largest number of total passengers. In 2017, 2018 and 2019 revenues from Volaris and the passengers it moved through our airports totaled Ps.2,263.2 million, Ps.2,694.1 million and Ps.3,270.9 million respectively, of which Ps.2,043.7 million, Ps.2,429.1 million and Ps.2,963.3 million respectively, were paid to the airports in the form of passenger charges, representing 22.1%, 22.7% and 24.6% respectively, of the sum of our aeronautical and non-aeronautical revenues for 2017, 2018 and 2019. Revenues from the Aeroméxico Group and the passengers it moved through our airports were Ps.1,080.5 million, Ps.1,161.0 million and Ps.1,095.7 million, during 2017, 2018 and 2019, respectively, of which Ps.955.0 million, Ps.1,028.8 million and Ps.975.5 million, respectively, were paid to the airports for the passengers they moved in the form of passengers charges, representing 10.3%, 9.6%, and 8.1% respectively, of the sum of our aeronautical and non-aeronautical revenues for 2017, 2018 and 2019. Revenues from VivaAerobus and the passengers they moved through our airports were Ps.392.7 million, Ps.662.6 million and Ps.737.4 million in 2017, 2018 and 2019, respectively, of which Ps.358.3 million, Ps.605.7 million and Ps.672.3 million respectively, were paid to the airports in the form of passenger charges. Such passenger charges represented 3.9%, 5.7% and 5.6%, respectively, of the sum of our aeronautical and non-aeronautical revenues for 2017, 2018 and 2019.

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In 2017, revenues from American Airlines and the passengers it moved through the Montego Bay airport totaled Ps.249.9 million, of which Ps.166.6 million was paid to MBJA in the form of passenger charges. Revenues from American Airlines and its passengers represented 13.5% of the sum of aeronautical and non-aeronautical revenues for the Montego Bay airport. In 2018, revenues from American Airlines and the passengers it moved through the Montego Bay airport totaled Ps.295.3 million, of which Ps.162.9 million was paid to MBJA in the form of passenger charges. Revenues from American Airlines and its passengers represented 14.7% of the sum of aeronautical and non-aeronautical revenues for the Montego Bay airport. In 2019, revenues from American Airlines and the passengers it moved through the Montego Bay airport totals Ps.275.9million, of which Ps.186.6million was paid to MBJA in the form of passenger charges, representing 8.9% of the sum of aeronautical and non-aeronautical revenues for the Montego Bay airport. However, passenger charges from American Airlines do not represent a significant portion of our total revenues across all airports. In 2017, 2018 and 2019 passenger charges collected by American Airlines at MBJA accounted for 1.3%, 1.2% and 1.1% respectively, of total revenues in our airports (1.5%, 1.3% and 1.3%respectively, of the sum of aeronautical and non-aeronautical revenues generated in our airports in 2017, 2018, and 2019).

In addition to passenger charges (revenues generated by the services provided by airports to passengers), we also earned revenues from aircraft landing and parking charges and the leasing of space to these airlines.

Mexican Aeronautical Services Agreement

As a result of certain disputes with our airline customers in Mexico, beginning in 2003 we entered into an agreement with the Mexican National Air Transportation Chamber of Commerce and the SCT pursuant to which we resolved certain existing disputes with our airline customers and entered into: (i) contracts governing charges for aeronautical services; (ii) lease contracts for property used by the airlines; and (iii) contracts governing collection of passenger charges. In March 2012, we renewed the agreement, which represented: (i) virtually all of the relevant contracts governing the collection of passenger charges; (ii) a substantial majority of the agreements for the leasing of space in our terminals; and (iii) a substantial majority of the contracts governing our aeronautical services. This contract expired on December 31, 2014. We continue to maintain a good relationship with the Mexican National Air Transportation Chamber of Commerce and the SCT following the expiration of the aeronautical services agreement.

Complementary Services Customers

Our principal complementary services clients are our three principal providers of baggage handling services: Aveespress, S.A. de C.V., Menzies Aviation, S.A. de C.V. and Administradora Especializada en Negocios, S.A. de C.V. (a subsidiary of Aeroméxico Group), which provided Ps.37.0 million, Ps.36.6 million and Ps.26.2 million in revenues, respectively, each in the form of access fees, in 2019. Our primary catering clients are Aerococina, S.A. de C.V. and Gate Gourmet & Maasa México, S. de R.L. de C.V., which respectively provided Ps.14.0 million and Ps.4.5 million of revenues in the form of access fees in 2019.

We receive a fee from our complementary services clients equivalent to 10% to 15% of their reported sales.

Principal Non-Aeronautical Services Customers

As of December 31, 2019, we were party to approximately 1,158 contracts – 20% more than the 964 contracts we were party to as of December 31, 2018 – with providers of commercial services in the commercial spaces in our Mexican airports, including retail store operators, duty-free store operators, food and beverage providers, timeshare developers, financial services providers, car rental companies, telecommunications providers, VIP lounges, advertising, travel agencies, tourist information and promotion services. The increase in the number of contracts is due to the consolidation of the Kingston airport and the opening of various commercial areas due to the expansions in our airports. In 2019, our largest commercial customers in terms of revenues paid to us were Dufry México, S.A. de C.V. (duty-free stores; Ps.306.7 million in revenues for 2019 compared to Ps.268.1 million in 2018), Aerocomidas, S.A. de C.V. (food and beverages; Ps.138.7 million in revenues for 2019 compared to Ps.123.5 million in 2018), Operadora Aeroboutiques, S.A. de C.V. (retail; Ps.95.9 million in revenues for 2019 compared to Ps.100.6 million in 2018), and Servicios Inmobiliarios Alsea, S.A. de C.V. (food and beverages Ps.52.4 million in revenues for 2019 compared to Ps.52.6 million in 2018). In Jamaica, MBJA’s largest commercial customer in terms of revenues paid to MBJA were World Duty Free (duty free stores; U.S.$10.9 million in revenue for 2019, compared to U.S.$9.3 million in 2018) and Express Catering (food and beverages; U.S.$3.4 million in revenue for 2019, compared to U.S.$2.8 million in 2018).

Seasonality

Our business is subject to seasonal fluctuations. In general, demand for air travel is typically higher during the summer months and during the winter holiday season, particularly in international markets, because there is more vacation travel during these periods. Our results of operations generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal, including economic conditions, war or threat of war, terrorism or threat of terrorism, weather, air traffic control delays, health crises and general economic conditions, as well as the other factors discussed above. As a result, our results of operations for a quarterly period are not necessarily indicative of results of operations for an entire year, and historical results of operations are not necessarily indicative of future results of operations.

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Competition

Excluding our airports servicing tourist destinations, our airports generally are natural monopolies in the geographic areas that they serve and generally do not face significant competition. However, the Mexican and Jamaican governments could grant additional concessions to operate existing government-managed airports, authorize the construction of new airports or allow existing privately held domestic airports to become international airports and permit them to receive regular domestic and international flights, all of which could lead to increased competition for our airports.

For instance, our Los Cabos airport may experience greater competition in the future from a small private airport near Cabo San Lucas, which received a permit to operate public service in March 2008 from the SCT. On November 4, 2009, this airport received authorization to operate regular commercial routes for domestic and international flights. Consequently, we implemented commercial strategies to improve our level of service in order to ensure that we remain the best airport option for airlines serving the San Jose del Cabo and Cabo San Lucas corridor. Also, in order to serve the private aviation market, we started operations at our new state-of-the-art Fixed Base of Operations in the Los Cabos airport. This allowed us to increase our capacity, and we redesigned our fee structure in order to make our service the most attractive in the region.

On September 2, 2014, the federal government announced plans to alleviate congestion at the Mexico City International Airport by building a new international airport in Texcoco with double the capacity of the current airport. Construction began in 2015 and operations were expected to start in 2022. However, in January 2019, the new Mexican administration that took office on December 1, 2018 cancelled the construction of the Texcoco airport project and announced plans to replace it with two different airport infrastructure projects. Specifically, the new Mexican administration announced that it would seek to alleviate congestion at the existing airport by (i) converting a military air force base located in San Lucia, approximately 40 kilometers (24.9 miles) outside of Mexico City, into a commercial airport and (ii) expanding the Toluca International Airport, which is approximately 60 kilometers (37.3 miles) outside of Mexico City. There is still uncertainty about whether or when these renovations will be completed and what impact congestion may have on the existing Mexico City International Airport. This change could limit growth in the routes to and from Mexico City from our airports, as the expansion of the air force base is expected to be ready in no less than three years, and the current airport has limited availability for traffic growth.

ASA currently operates seven small airports in Mexico’s Pacific and Central regions. We believe that these airports collectively account for only a small fraction of the passenger traffic in these regions.

In recent years, the Jamaican government has discussed plans to build a third international commercial airport in Jamaica, most likely on the southern coast at Vernamfield, to meet long-term requirements for the growth of air transport. We do not expect the Jamaican government’s Vernamfield airport plan to be executed in the near term. Also see “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of our Business – The Mexican and Jamaican governments could grant new concessions that compete with our airports.”

The relative attractiveness of the locations we serve is dependent on many factors, some of which are beyond our control. These factors include the general state of the Mexican economy and the attractiveness of other commercial and industrial centers in Mexico that may affect the attractiveness of Guadalajara, Tijuana and other growing industrial centers in our group, such as Hermosillo, Leon, Aguascalientes and Mexicali.

Because our Puerto Vallarta, Los Cabos, La Paz, Manzanillo and Montego Bay airports are substantially dependent on tourism, these airports face competition from competing tourist destinations. We believe that the main competitors to these airports are those airports serving vacation destinations in Mexico, such as Acapulco and Cancun, and abroad, such as Hawaii, Puerto Rico, Florida, Cuba, the Dominican Republic, other Caribbean islands and Central America. In addition, with respect to Puerto Vallarta, Los Cabos, La Paz, Manzanillo and Montego Bay, factors beyond our control include promotional activities and pricing policies of hotel and resort operators, weather conditions, natural disasters (such as hurricanes and earthquakes), security concerns, health crises and the development of new resorts that may be considered more attractive. There can be no assurance that the locations we serve will continue to attract the same level of passenger traffic in the future.

Corporate Social Responsibility

Sustainability and Environmental Responsibility

Environmental Management in Mexico

We maintain an environmental management system according to ISO 14001:2015 requirements, which provides a reference point for best practices and allows us to measure environmental performance and efficiency. This system is in place and has been independently certified in all of our airports.

All of our airports in Mexico are certified under the ISO 9001:20015.

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Additionally, our Master Development Programs approved for the 2020-2024 period included measures prioritizing the reduction of our airports’ environmental impacts through (i) wastewater and sewage separation; (ii) improvements to residual water treatment plants; and (iii) storage of hazardous and other special wastes. In 2017, 2018 and 2019 we invested Ps.70.5 million, Ps.37.0 million and Ps.19.2million respectively, in these projects.

In 2015, we established the following objectives for our environmental programs: (i) to reduce consumption of water per passenger; (ii) to increase the use of treated residual water; and (iii) to maintain our electricity consumption levels. The following table sets forth certain performance indicators tracked by our environmental management systems.

Environmental Management Performance Indicators for Mexican Airports

	Year ended December 31,
	2017	2018		2019
Water consumption (in liters per passenger)	16	15.2		16.4
Energy consumption (in kilowatt hours per passenger)	2	1.9		1.9
Greenhouse gas (GHG) emissions (in kilograms of CO2    equivalent per passenger) (1)	1.2		1.01		1.03
Hazardous waste generation (in kilograms per passenger)	0.0005	0.0004		0.0003
Special waste generation (in kilograms per passenger)	0.13	0.13		0.16

(1) 2016 figures calculated with the Emission Factor published by SEMARNAT for CFE electricity generation in 2015.

Environmental Management in Jamaica

Environmental Management by MBJA: To ensure continuous improvement in environmental performance, and to meet the environmental performance requirements of the MBJA Concession Agreement and the International Finance Corporation (“IFC”) Performance Standards, MBJA has in place an Environmental Management Plan (“EMP”).

MBJA’s EMP guides business planning across departments to facilitate compliance with local regulations, the IFC Performance Standards and industry best practices, and represents MBJA’s commitment to integrating environmental management measures into planning, design, construction and operation of the airport. The EMP prescribes actions for the mitigation of the environmental impacts of MBJA’s operations and includesmanagement plans for fuel and other hazardous materials storage, storm water run-off, ground water, preexisting contaminated sites, solid waste, aviation noise and wildlife hazard. MBJA’s EMP is managed by the Environment, Health and Safety Manager.

MBJA continues to assess its environmental performance through independent audits and investigations with the goal of implementing practical recommendations to ensure continued improvement in its environmental performance and stewardship. MBJA’s EMP was certified by the JCAA in 2017.

Environmental Management by PACKAL: To ensure continuous improvement in environmental performance, and to meet the environmental performance requirements of the PACKAL Concession Agreement, PACKAL has in place an Environmental Policy.

PACKAL’s policy guides business planning across departments to facilitate compliance with local regulations and represents PACKAL’s commitment to integrating environmental management measures into planning, design, construction and operation of the airport. The policy prescribes actions for the mitigation of the environmental impacts of PACKAL’s operations and includesmanagement plans for fuel and other hazardous materials storage, waste water treatment plant, preexisting contaminated sites, solid waste, aviation noise, air quality and wildlife hazard. PACKAL’s Policy is managed by the Environment and Quality Manager.

PACKAL continues to assess its environmental performance through independent audits and investigations with the goal of implementing practical recommendations to ensure continued improvement in its environmental performance and stewardship. PACKAL’s policy was certified by the JCAA in 2019.

Solar energy

We are analyzing the implementation of solar photovoltaic technology over the carports in our parking lots in all our airports, except for the Los Cabos airport, in order to generate electricity for internal consumption. We expect begin with these projects in 2020.

Additionally, we have the interest to build solar plants in the Guadalajara, Los Cabos and Montego Bay airports. We expect to begin these projects in 2021, concluding in 2022.

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Accreditations

Our Aguascalientes, Guanajuato, Guadalajara, Hermosillo, La Paz, Los Mochis, Manzanillo, Mexicali, Morelia and Tijuana airports are “Environmental Quality” certified by the Federal Office for the Protection of the Environment (Procuraduría Federal de Protección al Ambiente), or “PROFEPA”. Also, our Aguascalientes, Guadalajara, Los Mochis and Morelia airports are certified on the higher level of “Environmental Performance” by PROFEPA. During 2019, we start the process to get the “Environmental Quality” certification at our Los Cabos and Puerto Vallarta airports.

Our Puerto Vallarta, Aguascalientes and Guadalajara airports have Level 2 Airport Carbon Accreditation (“ACA”) from the Latin America and Caribbean Region of the Airports Council International (the “ACI-LAC”) and our Tijuana, Guanajuato, Hermosillo, La Paz, Los Mochis and Los Cabos airports have a Level 1 ACA from the ACI-LAC. We plan to have all of our airports enrolled in this program by 2020.

Employee Health and Safety

With the goal of guaranteeing occupational health and safety, as well as institutionalizing the prevention of occupational hazards, we have begun implementing a self-administered program, promoted by the Ministry of Labor and Social Welfare (Secretaría del Trabajo y Previsión Social), or “STPS,” and based on national and international standards and regulations, to promote the operation of a safe and clean airport network in Mexico. The voluntary compliance program comprises three levels of recognitions: (i) for compliance with health and safety regulations, (ii) for actions that promote continuous improvement in health and safety standards, and (iii) for successful management of health and safety standards. Under this program, we have obtained the following levels of certification: Level 1 (Los Mochis, La Paz and Morelia airports), Level 2 (Manzanillo), and Level 3 (Guadalajara and Puerto Vallarta airports).

A key component of the voluntary compliance program is the Safety and Hygiene Commission, which we have established in each of our airports. These commissions conduct investigations and reviews of the work area, verifying the implementation of the voluntary compliance program and recommending additional improvements to create optimal working conditions depending on the airport’s needs. To accomplish our voluntary compliance program goals and to raise awareness among our workers, our workers also received a Safety and Hygiene course about the importance of preventing occupational hazards to mitigate accidents and occupational diseases, generate healthy environments, and comply with the health and safety regulations of the Ministry of Labor and Social Welfare.

In conjunction with these commissions, we have also formed brigades to help minimize the impact and risk, through evacuation and first aid plans, of any kind of natural phenomenon that could negatively affect the safety of our employees or our operations.  

In addition, as part of our company policies, we provide an annual general medical review for certain employees. As part of our philosophy of well-being and quality of life, we also allocate approximately Ps.19 million per year to organize cultural and sports activities, thus encouraging physical activity. Together, these measures help provide a suitable workplace for our employees, as well as the relevant safety tools and equipment to prevent accidents and diseases to the extent possible.

Workplace Culture

Our policy is to provide the same job opportunities to all qualified applicants and to provide employees with a work environment free of harassment or discrimination, where each employee behaves respectfully towards their co-workers, promoting a spirit of collaboration regardless of gender, age, religion or hierarchical level.

We provide financial aid for our employees and scholarships for our employees’ dependents. In 2017, 2018 and 2019, we invested Ps.1.9 million, Ps.2.1 million and Ps.2.4 million, respectively, in these programs.

Since 2009, we have been evaluated by Expansión Magazine as a “Super Company” in Mexico with respect to workplace culture and professional climate. Since 2013, we have been ranked among the top ten companies in Mexico according to this publication’s annual evaluations of workplace culture. On November 24, 2017, we were awarded the highest recognition as a “Safe Company” by the Ministry of Labor and Social Prevention (for registering a rate of 0.21 accidents per 100 workers, that is, 90.4 percent below the national average of 2.2). Likewise, we were awarded with the certification for best corporate practices by the Mexican Institute of Best Corporate Practices, with recognition by the Mexican Stock Exchange.

With respect to labor matters, we have a social policy in place whereby we negotiate contracts and salary increases with our workers’ unions with the aim of increasing the social welfare of each of our workers within the context of equality, productivity and a commitment to merging our workers’ individual objectives with those of our business. Salaries for our non-union workers are reviewed based on their performance evaluation and the degree to which their individual and business objectives are met.

Training programs are available at all levels of our organization. The Management Skills, Leadership and Execution program is available for our senior management. The Succession and Career Development Plan was prepared for our key personnel, which defines specific objectives and promotion requirements. Through this program, we have achieved a turnover rate of less than 3% per year for key personnel. The career professionalization program is a model of professional growth for our operations and maintenance workers at our airports. The

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objective of the program is to promote the growth and skills of our employees in those areas, thus creating flexibility for the operation of our airports. Our new Workplace Culture program is oriented towards the generation of work habits, productive practices and organizational values, with the goal of developing competencies that allow, in turn, increased productivity and competitiveness within GAP, thus allowing the Company to raise the level of life of the workers and their families, promoting their integral development.

The company's benefits package is maintained at very competitive levels compared to the labor market in each of the regions where our airports are located, thus reducing turnover.

Supply Chains and Sourcing

In our bidding process for suppliers, we include our code of ethics as part of the initial information package with the intention that our suppliers comply with our ethical standards. The terms and conditions of our contract with suppliers then include provisions designed to ensure that our suppliers comply with labor laws and regulations, including requirements to monitor legal and regulatory compliance in the areas of employer responsibilities and occupational health and safety.

In our supplier development program, suppliers are strategically selected by us based on the contracting amounts, technical complexity of their work or impact on the quality of the service provided by us. Once the provider is selected, visits and face-to-face monitoring are carried out at its facilities in order to verify, among other things, the supplier’s policies, guidelines and processes comply with legal and regulatory requirements, as well as the management’s approach to staff development and the safety of the work environment. Once a contracted supplier has completed their work, we evaluate their performance to determine whether they should be invited to participate in future bids.

Community Initiatives and Philanthropic Efforts

Fundación GAP

In May 2013, we established a non-profit foundation, Fundación GAP with the aim of improving social welfare in the communities near our airports. The foundation’s focus is education, and it engages in other charitable activities, as well.

In September 2014, we inaugurated the first Fundación GAP School near our Guadalajara airport. The first year began with a class of first-grade students, and we have been adding a new class each consecutive year. In 2018, we reached 300 students for grades one through five. Additionally, in 2016 we opened another school near our Los Cabos airport, which began activities with another 60 students, reaching 180 students in 2018. In 2018, we opened a third school near our Guadalajara airport, with 60 students. In 2019, we reached 452 students in Guadalajara and 240 students in Los Cabos.

In 2019, Fundación GAP opened four community centers in Guadalajara, Los Cabos, Aguascalientes and Puerto Vallarta. The goal of these community centers is to support and promote our employees and their families by helping them gain access to life changing professional and economic opportunities through education. At these centers, our employees have access to free elementary, secondary and high school educations, as well as to technical training courses designed to strengthen the professional skills and knowledge that they use on the job. In 2019, we taught 323 students at these community centers.

Our board of directors annually reviews our donation to the foundation. For 2019, our board of directors authorized a Ps.24 million donation, and over past five years GAP has authorized more than Ps.74 million in donations. The foundation is supervised by a board of trustees, which is presided over by Mrs. Díez Barroso.

Philanthropic Efforts

• Through the Fundación GAP schools, we provided 452 low-income families in Guadalajara and 240 low-income families in Los Cabos with an excellent free education for their children.

• For the eleventh consecutive year, we obtained the Socially Responsible Company Distinction awarded by the Mexican Center for Philanthropy (Centro Mexicano para la Filantropía), or “CEMEFI,” to companies committed to active and voluntary contribution to social, economic and environmental issues.

• Fundación GAP awarded the prize “Premio Emprendedor Social Coparmex Jalisco 2019”, to Grincha, a social entrepreneur company that elaborates protein from crickets, making products high in nutritious with low environmental impact. The award is a recognition of social entrepreneurs and includes a monetary prize that varies by year. A committee from Coparmex (Confederación Patronal de la República Mexicana or the Mexican Employers’ Association) selects the finalists based on social projects. Once the finalists are selected, we select the yearly winner based on the finalists’ ability to effect the greatest social impact.

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REGULATORY FRAMEWORK

Sources of Mexican Regulation

Principal Laws Governing Our Mexican Operations

The following are the principal laws, regulations and instruments (each as subsequently amended) that govern our business and the operation of our Mexican airports:

• The Mexican General Law of Commercial Corporations (Ley General de Sociedades Mercantiles), enacted August 4, 1934;

• the Mexican Airport Law (Ley de Aeropuertos), enacted December 22, 1995;

• the regulations under the Mexican Airport Law (Reglamento de la Ley de Aeropuertos), enacted February 17, 2000;

• the Mexican Communications Law (Ley de Vías Generales de Comunicación), enacted February 19, 1940;

• the Mexican Civil Aviation Law (Ley de Aviación Civil), enacted May 12, 1995;

• the Mexican Federal Duties Law (Ley Federal de Derechos), enacted December 31, 1981, and revised on an annual basis;

• the Mexican National Assets Law (Ley General de Bienes Nacionales), enacted May 20, 2004;

• the Mexican Securities Market Law (Ley del Mercado de Valores), enacted December 30, 2005; and

• the concessions that entitle our subsidiaries to operate our twelve Mexican airports, which were granted on June 29, 1998, and amended on November 15, 1999.

The Mexican Airport Law and the regulations under the Mexican Airport Law establish the general framework regulating the construction, operation, maintenance and development of Mexican airport facilities. The Mexican Airport Law’s stated intent is to promote the expansion, development and modernization of Mexico’s airport infrastructure by encouraging investment and competition.

Under the Mexican Airport Law, a concession granted by the SCT is required to operate, maintain and develop a public service airport in Mexico. A concession generally must be granted pursuant to a public bidding process, except for: (i) concessions granted to (a) entities considered part of “the federal public administration” as defined under Mexican law and (b) any private company the principal shareholder of which is a state or municipal government; (ii) concessions granted to operators of private airports (that have operated privately for five or more years) wishing to begin operating their facilities as public service airports and complying with certain requirements; and (iii) complementary concessions granted to existing concession holders that comply with certain requirements. Complementary concessions may be granted only under certain limited circumstances, such as where an existing concession holder can demonstrate, among other things, that the award of the complementary concession is necessary to satisfy passenger demand.

On June 29, 1998, the SCT granted twelve concessions to operate, maintain and develop the twelve principal airports in Mexico’s Pacific and Central regions to our subsidiaries. Because our subsidiaries were considered entities of the federal public administration at the time the concessions were granted, the concessions were awarded without a public bidding process. However, our privatization, through which our strategic shareholder acquired 15% of our capital stock, was conducted through a public bidding process. Each of our Mexican concessions was amended on November 15, 1999, in order to, among other things, incorporate each airport’s maximum rates and certain other terms as part of the concession.

On February 17, 2000, the regulations under the Mexican Airport Law were issued. We believe we are currently complying with the material requirements of the Mexican Airport Law and its regulations. Non-compliance with these regulations could result in fines or other sanctions being assessed by the SCT and are among the violations that could result in termination of a concession if they were to occur three or more times.

The Mexican National Assets Law, among other things, establishes regulations relating to concessions granted with respect to property held in the public domain, including the airports that we operate. The Mexican National Assets Law requires concessionaires of real property held in the public domain and used for administrative or non-public purposes to pay a tax, and establishes grounds for revocation of concessions for failure to pay applicable taxes, but does not specify which taxes must be paid, including whether certain taxes to municipalities must be paid by a concessionaire.

Under the Mexican Federal Duties Law, each of our subsidiary concession holders is required to pay the Mexican government a concession tax based on its gross annual revenues (excluding revenues from improvements to concession assets) from the use of public domain assets pursuant to the terms of its concession. Currently, this concession tax is set at a rate of 5% and may be revised annually by the Mexican Congress. Our Mexican concessions provide that we may request an amendment of our maximum rates if there is a change in this concession tax.

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Reforms to the Mexican Airport Law and Civil Aviation Law

The SCT intended to establish a new regulatory agency, expected to be authorized to monitor our activities and those of the other airport groups, enforce applicable regulations, propose amendments to concessions, set maximum rates, resolve disputes between concession holders and airport users (such as airlines) and collect and distribute information relating to the airport sector. An initiative was introduced in Mexico’s Congress on February 26, 2009, to establish such an agency and reform a substantial part of the current Mexican Airport Law, but it was rejected by the legislature on April 20, 2010. On December 14, 2011, a new bill was introduced in Mexico’s Congress to amend the Mexican Airport Law. Among other items, the bill proposes to give the SCT additional authority to plan and apply the standards, policies and programs for the Mexican airport system, to oversee the correct operation of civil aviation in Mexico, and to establish rules for airport service providers and the general basis for flight schedules, so as to guarantee the competitiveness of Mexico’s airports. On January 26, 2015, Congress published changes to the Mexican Airport Law and Civil Aviation Law, however, these changes are less extensive than those proposed in the 2011 bill. Among other things, the amendment includes provisions that seek to ensure a competitive market for suppliers of complementary services. The principal effect on airport concessionaires such as us is the requirement for concession holder not limit the number of providers of complementary services and fixed base operations in its airports, except for reasons of space availability, operational efficiency and safety. If a concession holder denies entry to any complementary service provider for a reason other than the above, which service provider may file a complaint with the SCT. On November 8, 2017, changes to the Mexican Airport Law took effect, which modified various regulations, primarily impacting airlines. One of the changes contemplated is the payment of indemnification for passengers delayed for longer than two hours. The new law further clarifies that the payment will be made if the airport concessionaire or airline is at fault for the delay. As of the date hereof, there is no process in place to determine who is responsible for delays. See “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – We cannot predict how the laws and regulations governing our business will be applied.”

Federal Economic Competition Commission

As a result of certain 2013 amendments to Mexico’s Constitution, on July 6, 2014, a new Federal Economic Competition Law (Ley Federal de Competencia Económica) went into effect, which, among other things, extinguished the former Federal Competition Commission and created the Federal Economic Competition Commission (Comisión Federal de Competencia Económica), or “COFECE,” as an autonomous agency to be the competition authority for all industries except telecommunications and broadcasting. The law grants broader powers to COFECE, including the ability to regulate essential facilities, order the divestment of assets and eliminate barriers to competition. The law also sets forth important changes in connection with mergers and anti-competitive behavior, increases liabilities and the amount of fines that may be incurred for violations of the law, and limits the availability of legal defenses against the application of the law. If COFECE determines that a specific service or product is an essential facility, it has the ability to regulate access conditions, prices, tariffs or technical conditions for or in connection with the specific service or product. As of the date of filing, COFECE has not made any determination that the services we render are considered an essential facility. See “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – Changes to Mexican laws, regulations, and decrees applicable to us could have a material adverse impact on our operations.”

Role of the SCT

The SCT is the principal regulator of airports in Mexico and is authorized by the Mexican Airport Law to perform the following functions:

• plan, formulate and establish the policies and programs for the development of the national airport system;

• construct, administer and operate airports and airport-related services for the public interest;

• grant, modify and revoke concessions for the operation of airports;

• establish air transit rules and rules regulating take-off and landing schedules through the Mexican Air Traffic Control Authority;

• take all necessary action to create an efficient, competitive and non-discriminatory market for airport-related services, and set forth the minimum operating conditions for airports;

• establish safety regulations;

• close airports entirely or partially when safety requirements are not being satisfied;

• monitor airport facilities to determine their compliance with the Mexican Airport Law, other applicable laws and the terms of the concessions;

• maintain the Mexican aeronautical registry for registrations relating to airports;

• impose penalties for failure to observe and perform the rules under the Mexican Airport Law, the regulations thereunder and the concessions;

• approve any transaction or transactions that directly or indirectly may result in a change of control of a concession holder;

• approve the Master Development Programs prepared by each concession holder every five years;

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• determine each airport’s maximum rates;

• approve any agreements entered into between a concession holder and a third party providing airport or complementary services at its airport; and

• perform any other function specified by the Mexican Airport Law.

In addition, under the Mexican Organic Law of the Federal Public Administration (Ley Orgánica de la Administración Pública Federal), the Mexican Airport Law and the Mexican Civil Aviation Law, the SCT is required to provide air traffic control, radio assistance and aeronautical communications at Mexico’s airports. The SCT provides these services through the Mexican Air Traffic Control Authority, which is a division of the SCT. Since 1978, the Mexican air traffic control authority has provided air traffic control for Mexico’s airports.

Mexican Airport Concessions

Scope of Concessions

We hold concessions granted to us by the Mexican government to operate, maintain and develop twelve airports in the Pacific and Central regions of Mexico in accordance with the Mexican Airport Law. As authorized under the Mexican Airport Law, each of the concessions is held by our subsidiaries for an initial 50-year term, each of which terms began on November 1, 1998. This initial term of each of our Mexican concessions may be renewed for one or more terms for up to an additional 50 years, subject to the concession holder’s acceptance of any new conditions imposed by the SCT and to its compliance with the terms of its concession. Each of the concessions held by our subsidiary concession holders allows the relevant concession holder, during the term of the concession, to: (i) operate, maintain and develop its airport and carry out any necessary construction in order to render airport, complementary and commercial services as provided under the Mexican Airport Law and the regulations thereunder; and (ii) use and develop the assets that comprise the airport that is the subject of the concession (consisting of the airport’s real estate and improvements but excluding assets used in connection with fuel supply and storage). These assets are government-owned assets, subject to the Mexican National Assets Law. Upon expiration of a concession, these assets, together with any improvements thereto, automatically revert to the Mexican government.

Concession holders are required to provide airport security, which must include contingent and emergency plans in accordance with the regulations under the Mexican Airport Law. The security regulations must be implemented in accordance with the requirements set forth in the National Program for Airport Security (Plan Nacional de Seguridad Aeroportuaria). In addition, the regulations pertaining to the Mexican Airport Law specify that an airport concession holder is responsible for inspecting passengers and their carry-on baggage before they reach the departure gates, while the transporting airline is responsible for the inspection of checked baggage and cargo. If public order or national security is endangered, the responsible federal authorities are authorized to act to protect the safety of aircraft, passengers, cargo, mail, installations and equipment.

The shares of a concession holder and the rights under a concession may be subject to a lien only with the approval of the SCT. No agreement documenting liens approved by the SCT may allow the beneficiary of a pledge to become a concession holder under any circumstances.

A concession holder may not assign any of its rights or obligations under its concession without the authorization of the SCT. The SCT is authorized to consent to an assignment only if the proposed assignee satisfies the requirements to be a concession holder under the Mexican Airport Law, undertakes to comply with the obligations under the relevant concession and agrees to any other conditions that the SCT may require.

General Obligations of Concession Holders

The concessions impose certain obligations on the concession holders, including, among others: (i) the obligation to pay the concession tax described above; (ii) the obligation to deliver concession services in a continuous, public and non-discriminatory manner; (iii) the obligation to maintain the airports in good working condition; and (iv) the obligation to make investments with respect to the infrastructure and equipment in accordance with the Master Development Programs and the concessions.

Each concession holder and any third party providing services at an airport is required to carry insurance in specified amounts and covering specified risks, such as damage to persons and property at the airport, in each case as specified by the SCT. To date, the SCT has not specified the required amounts of insurance. We may be required to obtain additional insurance once these amounts are specified. We and our subsidiary concession holders are jointly and severally liable to the SCT for the performance of all obligations under the concessions held by our subsidiaries. Each of our subsidiary concession holders is responsible for the performance of the obligations set forth in its concession and in the Master Development Programs, including the obligations arising from third-party contracts, as well as for any damages to the Mexican government-owned assets that they use and to third-party airport users. In the event of a breach of the concession held by any one of our subsidiaries, the SCT is entitled to revoke the concessions held by all of our subsidiaries.

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Substantially all of the contracts entered into prior to August 25, 1999, by ASA with respect to each of our airports were assigned to the relevant concession holder for each airport. As part of this assignment, each concession holder agreed to indemnify ASA for any loss suffered by ASA due to the concession holder’s breach of its obligations under an assigned agreement.

Classification of Services Provided at Airports

The Mexican Airport Law and the regulations thereunder classify the services that may be rendered at an airport into the following three categories:

• Airport Services. Airport services may be rendered only by the holder of a concession or a third party that has entered into an agreement with the concession holder to provide such services. These services include the following:

• the use of airport runways, taxiways and aprons for landing, aircraft parking and departure;

• the use of hangars, passenger walkways, airport buses and car parking facilities;

• the provision of airport security services, rescue and firefighting services, ground traffic control, lighting and visual aids;

• the general use of terminal space and other infrastructure by aircraft, passengers and cargo; and

• the provision of access to an airport to third parties providing complementary services (as defined in the Mexican Airport Law) and third parties providing permanent ground transportation services (such as taxis).

• Complementary Services. Complementary services may be rendered by an airline, by the airport operator or by a third party under agreements with airlines and the airport operator. These services include: ramp and handling services, passenger check-in, aircraft security, catering, cleaning, maintenance, repair and fuel supply and related activities that provide support to air carriers.

• Commercial Services. Commercial services are services that are not considered essential to the operation of an airport or aircraft, and include, among other things, retailers, restaurants, banks and advertisers to which we lease space.

A third party providing complementary or commercial services to an airport is required to do so only pursuant to a written agreement with the relevant concession holder. On November 1, 2012, we entered into an agreement with a third party with respect to the provision of airbus and passenger walkway services in all of our airports. Accordingly, we will no longer provide these services directly. As of the date of this report, this is the only agreement with a third party regarding the provision of regulated services. All agreements relating to airport or complementary services are required to be approved by the SCT. The Mexican Airport Law provides that the concession holder is jointly liable with these third parties for compliance with the terms of the relevant concession with respect to the services provided by such third parties. All third-party service providers are required to be corporations incorporated under Mexican law.

Airport and complementary services are required to be provided to all users in a uniform and regular manner, without discrimination as to quality, access or price. Concession holders are required to provide airport and complementary services on a priority basis to military aircraft, disaster support aircraft and aircraft experiencing emergencies. Airport and complementary services are required to be provided at no cost to military aircraft and aircraft performing national security activities. The concession holders have not and do not provide complementary services, as these services are provided by third parties.

In the event of force majeure, the SCT may impose additional regulations governing the provision of services at airports, but only to the extent necessary to address the force majeure event. The Mexican Airport Law allows the airport administrator appointed by a concession holder to suspend the provision of airport services in the event of force majeure. See “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – The Mexican government may terminate or reacquire our Mexican concessions under various circumstances, some of which are beyond our control.”

A concession holder is also required to take all necessary measures to create a competitive market for complementary services. A concession holder may not limit the number of providers of complementary services in its airport, except in instances where space, efficiency and/or safety considerations warrant such limitation. If a concession holder denies entry to any complementary services provider for reasons other than the above, such service provider may file a complaint with the SCT, which shall determine within 60 days of the filing of the complaint whether entry of the service provider into the airport shall be authorized.

Master Development Programs

Each concession holder is required to submit to the SCT a Master Development Program describing, among other things, the concession holder’s construction and maintenance plans.

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Each Master Development Program is required to be updated every five years and resubmitted for approval to the SCT. Upon such approval, the Master Development Program is deemed to constitute a part of the relevant concession. Any major construction, renovation or expansion of an airport may only be made with the approval of the SCT, typically provided pursuant to a concession holder’s Master Development Programs.

Information required to be presented in the Master Development Programs includes:

• airport growth and development expectations;

• fifteen-year projections for air traffic demand (including passenger, cargo and operations);

• construction, conservation, maintenance, expansion and modernization programs for infrastructure, facilities and equipment;

• a binding five-year detailed investment program and planned major investments for the following ten years;

• descriptive airport plans specifying the distinct uses for the corresponding airport areas;

• any financing sources; and

• environmental protection measures.

Each concession provides for a 24-month period for the preparation and submission of the concession holder’s Master Development Program, and requires the concession holder to engage recognized independent consultants to conduct polls among airport users with respect to current and expected quality standards and to prepare air traffic projections and assess investment requirements. The concession holder must submit a draft of the Master Development Program to an operations committee (Comité de Operación y Horarios), composed of each of the airport’s principal users, for their review and comments six months prior to its submission for approval to the SCT. Further, the concession holder must submit, six months prior to the expiration of the five-year term, the new Master Development Program to the SCT. The SCT may request additional information or clarification as well as seek further comments from airport users. The Ministry of Defense (Secretaría de Defensa Nacional) may also opine on the Master Development Programs.

Any major construction project, renovation or expansion relating to an airport can only be done pursuant to the Master Development Program of the concession holder or with the approval of the SCT. We are required to spend the full amounts set forth in each investment program under our Master Development Programs.

Changes to a Master Development Program, including the related investment program, require the approval of the SCT, except for emergency repairs and minor works that do not adversely affect an airport’s operations.

Once capital expenditures related to the Master Development Programs are established, they are adjusted annually according to increases in the Mexican PPI’s construction price index, and the concessionaire is obligated to meet the adjusted amounts.

On December 12, 2019, the SCT approved new maximum tariffs and Master Development Programs for the five-year period from 2020-2024 for each of our Mexican airports. The combined maximum tariffs are expressed in workload units for each airport, and were determined by the SCT based on traffic projections, operating costs and capital investments included in the Master Development Programs, as well as in accordance with pre-determined parameters for the calculation of the maximum tariff set forth in the concession for each airport.

We allocated 86.8% of our committed investments for the 2020-2024 period to our Guadalajara, Puerto Vallarta, Tijuana and Los Cabos airports. The investments of the new Master Development Programs for the 2020-2024 period represent the fifth investment period within the terms of the concession, assume an increase of over 215.0% for the period 2015-2019 and reflect the highest investment amounts committed to date.

Our Master Development Programs are approved by the SCT for periods of five years, as stated in our Mexican concessions. We are required to comply with the five-year period investment obligations under the Master Development Programs, and the SCT may apply sanctions if we do not so comply. Recently, the SCT has reviewed our compliance on an annual basis. The SCT may choose to do this revision officially and apply sanctions on an annual basis if it determines that we have failed in our investment obligations. In March 2018, 2019 and 2020, the SCT certified our compliance with our Master Development Programs through 2017, 2018 and 2019, respectively.

Mexican Aeronautical Services Regulation

The Mexican Airport Law directs the SCT to establish price regulations for services for which there is no competitive market, as determined by the Mexican Antitrust Commission. In 1999, the Mexican Antitrust Commission issued a ruling stating that competitive markets generally do not exist for airport services and airport access provided to third parties rendering complementary services. This ruling authorized the SCT to establish regulations governing the prices that may be charged for airport services and access fees that may be charged to third parties rendering complementary services in our airports. On November 15, 1999, a new regulation, the Rate Regulation (Regulación Tarifaria), was incorporated within the terms of each of our Mexican concessions. This regulation provides a framework for the setting by the

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SCT of five-year maximum rates. See “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – Changes to Mexican laws, regulations and decrees applicable to us could have a material adverse impact on our results of operations.”

Regulated Revenues

The majority of our revenues are derived from providing aeronautical services, which generally are related to the use of airport facilities by airlines and passengers and principally consist of a fee for each departing passenger, aircraft landing fees based on an aircraft’s weight and arrival time, an aircraft parking fee, a fee for the transfer of passengers from an aircraft to the terminal building, a security charge for each departing passenger and the leasing of space to, and collection of access fees from, third parties that provide complementary services at our airports.

Since January 1, 2000, all of our revenues from aeronautical services have been subject to a price regulation system established by the SCT. Under this price regulation system, the SCT establishes a maximum rate for each airport for every year in a five-year period. The maximum rate is the maximum amount of revenues per workload unit that may be earned at an airport each year from regulated revenue sources. Under this regulation, a workload unit is equivalent to one passenger, or 100 kilograms (220 pounds) of cargo, including those transported in passenger airplanes. The combined maximum tariffs are expressed in workload units for each airport and were determined based on: (i) projected workload units; (ii) capital investments; and (iii) the operating expenses authorized for the five-year period in the Master Development Programs.

The maximum tariffs for the five-year period are expressed in constant pesos and are adjusted by the rate of inflation according to the Mexican PPI, excluding petroleum, and by the efficiency factor at the end of any given year. Since the inflation rate for each applicable year, as measured in terms of the variation of the Mexican PPI, excluding petroleum, is not known at the beginning of the application of the maximum tariffs negotiated with the Mexican Directorate General of Civil Aviation, the adjustment for inflation is not included in the maximum rates set at the beginning of each five-year period. These adjusted tariffs will be applicable once they are published.

We are able to set the specific prices for each aeronautical service every six months (or more frequently if accumulated inflation since the last adjustment exceeds 5%), as long as the combined revenues from regulated services at an airport do not exceed the maximum rate per workload unit at that airport. Each year, the SCT certifies that our regulated revenues divided by workload units are equal to or below the established maximum rate for the period. The SCT has reviewed our maximum rates and certified that we did not collect revenues in excess of the permitted level in 2016, 2017 and 2018. The review for 2019 will take place during the second quarter of 2020. Since our aggregate revenues resulting from regulated services are not otherwise restricted, increases in passenger and cargo traffic permit greater revenues overall within each five-year interval for which maximum rates are established.

In 2017, 2018 and 2019, approximately 66.5%, 69.6% and 65.0%, respectively, of our Mexican airports’ total revenues were earned from aeronautical services subject to price regulation under our maximum rates (75.4%, 75.4% and 74.9%, respectively, of the sum of aeronautical and non-aeronautical revenues).

Our revenues from non-aeronautical services, including revenues that we earn from most commercial activities in our terminals, are not regulated under our maximum-rate price regulation system and are therefore not subject to a ceiling under any regulation. For a description of how we classify our revenues into aeronautical and non-aeronautical services, see “Item 5, Operating and Financial Review and Prospects – Overview – Classification of Revenues.”

Maximum Rates

Each airport’s maximum rate is determined by the SCT based on a general framework established in our Mexican concessions. This framework reflects, among other factors, projections of an airport’s revenues, operating costs and capital expenditures, as well as the estimated cost of capital related to regulated services and projected annual efficiency adjustments determined by the SCT. The schedule of maximum rates for each airport is established every five years.

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Maximum Rates for 2020 through 2024

On December 12, 2019, the SCT set new airport maximum rates for the five-year period from January 1, 2020 through December 31, 2024 expressed in constant pesos as of December 31, 2017. On January 2, 2020, these rates were published in the Official Gazette of the Federation (Diario Oficial de la Federación). These maximum rates are subject to adjustment only as described above or under the limited circumstances described below under “Special Adjustments to Maximum Rates.” The following table sets forth the maximum rates for each of our airports under the Master Development Programs that went into effect as of January 1, 2020:

Current Maximum Rates (1)

	Year ended December 31,
	2020		2021		2022		2023		2024
Guadalajara		196.00		194.63		193.27		191.92		190.58
Tijuana		161.17		160.04		158.92		157.81		156.71
Los Cabos		284.25		282.26		280.29		278.33		276.38
Puerto Vallarta		279.61		277.65		275.71		273.78		271.86
Guanajuato		220.80		219.25		217.72		216.20		214.69
Hermosillo		169.11		167.93		166.75		165.58		164.42
Mexicali		161.62		160.49		159.37		158.25		157.14
La Paz		186.05		184.75		183.46		182.18		180.90
Morelia		258.64		256.83		255.03		253.24		251.47
Aguascalientes		174.90		173.68		172.46		171.25		170.05
Los Mochis		192.07		190.73		189.39		188.06		186.74
Manzanillo		231.12		229.50		227.89		226.29		224.71

(1) Expressed in constant pesos as of December 31, 2017, and applying the efficiency factor described below under “Methodology for Determining Future Maximum Rates.”

Methodology for Determining Future Maximum Rates

The Rate Regulation provides that each airport’s annual maximum rates are to be determined in five-year intervals based on the following variables:

• Projections for the following fifteen years of workload units, operating costs and expenses related to services subject to price regulation and pre-tax earnings from services subject to price regulation. The concessions provide that projections for workload units and expenses related to regulated services are to be derived from the terms of the relevant concession holder’s Master Development Program for the following fifteen years;

• Projections for the following fifteen years of capital expenditures related to regulated services, based on air traffic forecasts and quality standards for services to be derived from the Master Development Programs;

• Reference values, which initially were established in the concessions and are designed to reflect the net present value of the regulated revenues minus the corresponding regulated operating costs and expenses (excluding amortization and depreciation), and capital expenditures related to the provision of regulated services plus a terminal value;

• A discount rate to be determined by the SCT. The concessions provide that the discount rate shall reflect the cost of capital to Mexican and international companies in the airport industry (on a pre-tax basis), as well as Mexican economic conditions. The concessions provide that the discount rate shall be at least equal to the average yield of long-term Mexican government debt securities quoted in the international markets during the 24 months prior to the date of the negotiations plus a risk premium to be determined by the SCT based on the inherent risk of the airport business in Mexico; and

• An efficiency factor to be determined by the SCT. The maximum rates applicable to our airports reflect a projected annual efficiency improvement of 0.70% for the five-year period from January 1, 2020, through December 31, 2024.

Our Mexican concessions specify a discounted cash flow formula to be used by the SCT to determine the maximum rates that, given the projected earnings before interest, taxes, depreciation and amortization, capital expenditures and discount rate, would result in a net present value equal to the reference values established in connection with the last determination of maximum rates. The maximum rates ultimately established by the SCT historically have resulted from a negotiation between the SCT and us regarding these variables. Once the maximum rates are established, they must be adjusted each year by the efficiency factor and by the Mexican PPI, excluding petroleum. Also, once the maximum rates are established based in part on the capital expenditures included in our Master Development Programs, the capital expenditures must be adjusted according to the Mexican PPI’s construction price index.

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The concessions provide that each airport’s reference values and discount rate and the other variables used in calculating the maximum rates do not in any manner represent an undertaking by the SCT or the Mexican government as to the profitability of any concession holder. Therefore, whether or not the maximum rates (or the amounts up to the maximum rates that we are able to collect) multiplied by workload units at any airport generate a profit or exceed our profit estimates, or reflect the actual profitability, discount rates, capital expenditures or productivity gains at that airport over the five-year period, we are not entitled to any adjustment to compensate for any shortfall.

To the extent that such aggregate revenues per workload unit exceed the relevant maximum rate, the SCT may proportionately reduce the maximum rate in the immediately subsequent year and assess penalties equivalent to 1,000 to 50,000 times the general minimum wage in Mexico. On January 1, 2020, the daily general minimum wage in Mexico was Ps.123.22. As a result, the maximum penalty at such date could have been approximately Ps.6.1 million (approximately U.S.$326.7 thousand) per airport.

As established by the SCT, the calculation of workload units does not include transit passengers for subsequent years. The current workload unit calculation is therefore equal to one terminal passenger or 100 kilograms (220 pounds) of cargo.

Special Adjustments to Maximum Rates

Once determined, each airport’s maximum rates are subject to special adjustment only under the following circumstances:

• Change in law or natural disasters. A concession holder may request an adjustment in its maximum rates if a change in law with respect to quality standards or safety and environmental protection results in operating costs or capital expenditures that were not contemplated when its maximum rates were determined. In addition, a concession holder may also request an adjustment in its maximum rates if a natural disaster affects demand or requires unanticipated capital expenditures. There can be no assurance that any request on these grounds would be approved.

• Macroeconomic conditions. A concession holder may request an adjustment in its maximum rates if, as a result of a decrease of at least 5% in Mexican GDP in a twelve-month period, the workload units processed in the concession holder’s airport are less than those projected when its Master Development Program was approved. To grant an adjustment under these circumstances, the SCT must have already allowed the concession holder to decrease its projected capital improvements under its Master Development Program as a result of the decline in passenger traffic volume. There can be no assurance that any request on these grounds would be approved.

• Increase in concession tax under Mexican Federal Duties Law. An increase in duty payable by a concession holder under the Mexican Federal Duties Law entitles the concession holder to request an adjustment in its maximum rates. There can be no assurance that any request on these grounds would be approved.

• Failure to make required investments or improvements. The SCT annually reviews each concession holder’s compliance with its Master Development Program (including the provision of services and the making of capital investments). If a concession holder fails to satisfy any of the investment commitments contained in its Master Development Program, the SCT is entitled to decrease the concession holder’s maximum rates and assess penalties.

• Excess revenues. In the event that revenues subject to price regulation per workload unit in any year exceed the applicable maximum rate, the maximum rate for the following year will be decreased to compensate airport users for overpayment in the previous year. Under these circumstances, the SCT is also entitled to assess penalties against the concession holder.

Other Regulation of Mexican Concessions and Concession Assets

Ownership Commitments and Restrictions

The Mexican concessions require us to retain a 51% direct ownership interest in each of our twelve Mexican concession holders throughout the term of these concessions. Any acquisition by us or by one of our Mexican concession holders of any additional airport concessions or of a beneficial interest of 30% or more of another concession holder requires the consent of the Mexican Antitrust Commission. In addition, the Mexican concessions prohibit us and our concession holders, collectively or individually, from acquiring more than one concession for the operation of an airport along each of Mexico’s southern and northern borders.

Air carriers are prohibited under the Mexican Airport Law from controlling or beneficially owning 5% or more of the shares of a holder of an airport concession. We, and each of our subsidiaries, are similarly restricted from owning 5% or more of the shares of any air carrier.

Foreign governments acting in a sovereign capacity are prohibited from owning any direct or indirect equity interest in a holder of an airport concession.

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Reporting, Information and Consent Requirements

Mexican concession holders and third parties providing services at airports are required to provide the SCT access to all airport facilities and information relating to an airport’s construction, operation, maintenance and development. Each Mexican concession holder is obligated to maintain statistical records of operations and air traffic movements in its airport and to provide the SCT with any information that it may request. Each Mexican concession holder is also required to publish its annual audited financial statements in a principal Mexican newspaper within the first four months of each year.

The Mexican Airport Law provides that any person or group directly or indirectly acquiring control of a concession holder is required to obtain the consent of the SCT for such control acquisition. For purposes of this requirement, control is deemed to be acquired in the following circumstances:

• if a person acquires 35% or more of the shares of a concession holder;

• if a person has the ability to control the outcome of meetings of the shareholders of a concession holder;

• if a person has the ability to appoint a majority of the members of the board of directors of a concession holder; or

• if a person by any other means acquires control of an airport.

Pursuant to the regulations under the Mexican Airport Law, any company acquiring control of a Mexican concession holder is deemed to be jointly and severally liable with the concession holder for the performance of the terms and conditions of the concession.

The SCT requires notification upon any change in a concession holder’s chief executive officer, board of directors or management. A concession holder is also required to notify the SCT at least 90 days prior to the adoption of any amendment to its bylaws concerning the dissolution, corporate purpose, merger, transformation or spin-off of the concession holder.

Termination of Concessions

Under the Mexican Airport Law and the terms of the concessions, a concession may be terminated upon any of the following events:

• the expiration of its term;

• its surrender by the concession holder;

• the revocation of the concession by the SCT;

• the reversion (rescate) of the Mexican government-owned assets that are the subject of the concession (principally real estate, improvements and other infrastructure);

• the inability to achieve the purpose of the concession, except in the event of force majeure;

• the dissolution, liquidation or bankruptcy of the concession holder; or

• the failure by the concession holder to satisfy the shareholding obligations set forth in the concession.

Following a concession’s termination, the concession holder remains liable for the performance of its obligations during the term of the concession.

Revocation of Concessions

A concession may be revoked by the SCT under certain conditions, including:

• the failure by a concession holder to operate, maintain and develop an airport pursuant to the terms established in the concession;

• the failure by a concession holder to maintain insurance as required under the Mexican Airport Law;

• the assignment, encumbrance, transfer or sale of a concession, any of the rights thereunder or the assets underlying the concession in violation of the Mexican Airport Law;

• any alteration of the nature or condition of an airport’s facilities without the authorization of the SCT;

• use, with a concession holder’s consent or without the approval of air traffic control authorities, of an airport by any aircraft that does not comply with the requirements of the Mexican Civil Aviation Law, that has not been authorized by the Mexican Air Traffic Control Authority, or that is involved in the commission of a felony;

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• knowingly appointing a chief executive officer or board member of a concession holder that is not qualified to perform his functions under the law as a result of having violated criminal laws;

• the failure by the concession holder to pay the Mexican government the airport concession tax;

• failure to own at least 51% of the capital stock of subsidiary concession holders;

• violation of the safety regulations established in the Mexican Airport Law and other applicable laws;

• total or partial interruption of the operation of an airport or its airport or complementary services without just cause;

• the failure to maintain an airport’s facilities;

• the provision of unauthorized services;

• the failure to indemnify a third party for damages caused by the provision of services by the concession holder or a third-party service provider;

• charging prices higher than those registered with the SCT for regulated services or exceeding the applicable maximum rate;

• any act or omission that impedes the ability of other service providers or authorities to carry out their functions within an airport; or

• any other failure to comply with the Mexican Airport Law, its regulations and the terms of a concession.

The SCT is entitled to revoke a concession without prior notice as a result of the first six events described above. Regarding the other violations listed above, violations may result in revocation of a concession only if sanctions have been imposed at least three times with respect to the same violation.

Pursuant to the terms of our Mexican concessions, in the event the SCT revokes one of our Mexican concessions, it is entitled to revoke all of our Mexican concessions.

According to the Mexican National Assets Law, the surface area of our airports and improvements on such space are government-owned assets. A concession concerning government-owned assets may be “rescued,” or reverted to the Mexican government prior to the concession’s expiration, when considered necessary for the public interest. In exchange, the Mexican government is required to pay compensation as determined by expert appraisers. Following a declaration of reversion (rescate), the assets that were subject to the concession are automatically returned to the Mexican government.

In the event of war, public disturbances or threats to national security, the Mexican government may assume the operation (requisa) of any airport and any airport assets, as well as any airport and complementary services. Such government action may exist only during the duration of the emergency. Except in the case of war, the Mexican federal government is required to compensate all affected parties for any damages or losses suffered as a result of such government action. If the Mexican government and a concession holder cannot agree as to the appropriate amount of damages or losses, the amount of damages must be determined by experts jointly appointed by both parties and the amount of losses must be determined based on the average net income of the concession holder during the previous year.

The Mexican Airport Law provides that a sanction of up to 200,000 times the general daily minimum wage in Mexico may be assessed for a failure to comply with the law or terms of a concession. Such sanction may be duplicated in the event of reiterative failures to comply. As a result, the maximum penalty on January 1, 2020, was Ps.24.6 million (U.S.$1.3 million) for an individual failure to comply.

Consequences of Termination or Revocation of a Concession

Upon termination, whether as a result of expiration or revocation, the real estate and fixtures that were the subject of the concession automatically revert to the Mexican government. In addition, upon termination, the Mexican federal government has a preemptive right to acquire all other assets used by the concession holder to provide services under the concession at prices determined by expert appraisers appointed by the SCT. Alternatively, the Mexican government may elect to lease these assets for up to five years at fair market rates as determined by expert appraisers appointed by the Mexican government and the concession holder. In the event of a discrepancy between appraisals, a third expert appraiser must be jointly appointed by the Mexican government and the concession holder. If the concession holder does not appoint an expert appraiser, or if such appraiser fails to determine a price, the determination of the appraiser appointed by the Mexican government will be conclusive. If the Mexican government chooses to lease the assets, it may thereafter purchase the assets at their fair market value, as determined by an expert appraiser appointed by the Mexican government.

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The Mexican Communications Law, however, provides that upon expiration, termination or revocation of a concession, all assets necessary to operate the airports will revert to the Mexican government, at no cost and free of any liens or other encumbrances. There is substantial doubt as to whether the provisions of our Mexican concessions would prevail over those of the Mexican Communications Law. Accordingly, there can be no assurance that upon expiration or termination of our Mexican concessions the assets used by our subsidiary concession holders to provide services at our airports will not revert to the Mexican government, free of charge, together with government-owned assets and improvements permanently attached thereto.

Grants of New Mexican Concessions

The Mexican government may grant new concessions to manage, operate, develop and construct airports. Such concessions may be granted through a public bidding process in which bidders must demonstrate their technical, legal, managerial and financial capabilities. The Federal Competition Commission has the power, under certain circumstances, to prohibit a party from bidding and to cancel an award after the process has concluded. In addition, the government may grant concessions without a public bidding process to the following entities:

• any person who holds a permit to operate a civil aerodrome and intends to transform the aerodrome into an airport so long as: (i) the proposed change is consistent with the national airport development programs and policies, (ii) the civil aerodrome has been in continuous operation for the previous five years and (iii) the permit holder complies with all requirements of the concession;

• a current concession holder when necessary to meet increased demand so long as: (i) a new airport is necessary to increase existing capacity, (ii) the operation of both airports by a single concession holder is more efficient than other options and (iii) the concession holder complies with all requirements of the concession;

• a current concession holder when it is in the public interest for its airport to be relocated;

• entities in the federal public administration; and

• commercial entities in which local or municipal governments have a majority equity interest if the entities’ corporate purpose is to manage, operate, develop and/or construct airports.

Mexican Environmental Regulation

Legislative Framework

Our operations are subject to Mexican federal, state and municipal laws and regulations relating to the protection of the environment. The major federal environmental laws applicable to our operations are: (i) the General Law of Ecological Balance and Environmental Protection (Ley General de Equilibrio Ecológico y Protección Ambiental, or the “General Environmental Law”) and its regulations, which are administered by the Ministry of the Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales) and enforced by the Ministry’s enforcement branch, the Federal Office for the Protection of the Environment (Procuraduría Federal de Protección al Ambiente); (ii) the General Law for the Prevention and Integral Management of Waste (Ley General para la Prevención y Gestión Integral de los Residuos, or the “Law on Waste”), which is also administered by the Ministry of the Environment and Natural Resources and enforced by the Federal Office for the Protection of the Environment; and (iii) the National Waters Law (Ley de Aguas Nacionales) and its regulations, which are administered and enforced by the National Waters Commission (Comisión Nacional del Agua), also a branch of the Ministry of the Environment and Natural Resources.

Under the General Environmental Law, regulations have been enacted concerning air pollution, environmental impact, land use, soil contamination, noise control, hazardous waste, environmental audits and natural protected areas. The General Environmental Law also regulates, among other things, vibrations, thermal energy and visual pollution, although the Mexican government has not yet issued enforceable regulation on the majority of these matters. The General Environmental Law also provides that companies that contaminate soils are responsible for their clean-up. Further, according to the Law on Waste, owners and/or possessors of property with soil contamination are jointly and severally liable for the remediation of such contaminated sites, irrespective of any recourse or other actions such owners and/or possessors may have against the contaminating party, and aside from the criminal or administrative liability to which the contaminating party may be subject. Restrictions on the transfer of contaminated sites also exist. The Law on Waste also regulates the generation, handling and final disposal of hazardous waste.

Pursuant to the National Waters Law, companies that discharge waste waters into national water bodies must comply with, among other requirements, maximum permissible contaminant levels in order to preserve water quality. Periodic reports on water quality must be provided to competent authorities. Liability may result from the contamination of underground waters or recipient water bodies. The use of underground waters is subject to restrictions pursuant to our Mexican concessions and the National Waters Commission.

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In addition to the foregoing, Mexican Official Norms (Normas Oficiales Mexicanas), or “NOMs,” which are technical standards issued by competent regulatory authorities pursuant to the General Normalization Law (Ley General de Metrología y Normalización) and the General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio Ecológico y la Protección al Ambiente), establish limits on air emissions, waste water discharges, the generation, handling and disposal of hazardous waste and noise control, among other matters.

The General Environmental Law and Law on Waste establish the main policies for soil remediation. Remediation standards and procedures are gradually beginning to be implemented through NOMs.

Although not enforceable, the internal administrative criteria on soil contamination of the Federal Office for the Protection of the Environment are widely used as guidance in cases where soil remediation, restoration or clean-up is required.

The Ministry of the Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales) and the Federal Office for the Protection of the Environment (Procuraduría Federal de Protección al Ambiente) are the responsible regulators. The Federal Office for the Protection of the Environment can bring administrative, civil and criminal proceedings against companies that violate environmental laws, and it also has the power to close non-complying facilities and impose a variety of sanctions. Companies in Mexico are required to obtain proper authorizations, licenses, concessions or permits from competent environmental authorities for the performance of activities that may have an impact on the environment or that may constitute a source of contamination. Companies in Mexico are also required to comply with a variety of reporting obligations that include, among others, providing the Ministry of the Environment and Natural Resources, the Federal Office for the Protection of the Environment and the National Waters Commission, as applicable, with periodic reports regarding compliance with various environmental laws.

Prior to the opening of Mexico’s airports to private investment, the Federal Office for the Protection of the Environment required that environmental audits had to be performed at each of our airports. Based on the results of these audits, the Federal Office for the Protection of the Environment issued recommendations for improvements and corrective actions to be taken at each of our airports. In connection with the transfer of the management of our airports from our predecessor, we entered into environmental compliance agreements with the Federal Office for the Protection of the Environment on January 1, 1999, and July 12, 2000, pursuant to which we agreed to comply with a specific action plan and adopt specific actions within a determined time frame.

The Federal Office for the Protection of the Environment has confirmed that we have complied with all of the relevant environmental requirements derived from the aforementioned environmental audits and has issued compliance certificates for all of our airports. These certificates, which are known as Environmental Quality Certificates (Certificados de Calidad Ambiental) certify compliance with applicable Mexican environmental laws, regulations and applicable NOMs and must be renewed periodically.

In June 2013, a decree was published in the Official Gazette of the Federation (Diario Oficial de la Federación) issuing the Federal Environmental Responsibility Law (Ley Federal de Responsabilidad Ambiental). As part of the Federal Environmental Responsibility Law, various provisions were amended, added and revoked of the General Law of Ecological Equilibrium and Protection of the Environment, the General Law of Wildlife, the General Law for the Comprehensive Prevention and Waste Management, the General Law for Sustainable Forest Development, the National Water Act and the Federal Criminal Code, among others, to the effect that any person or company whose acts or omissions directly or indirectly causes harm to the natural environment, is obligated to repair the environmental damage, or when reparation is not possible, to compensate for the harm, and undertake any necessary actions to avoid increasing the harm. A second general aspect of this reform is the creation of expanded standing so that individuals, including Mexican environmental non-profits, may initiate lawsuits for the protection of property that they do not directly own.

During 2018, a new carbon dioxide (“CO2”) market will commenced operating in Mexico. The market will require that industries that generate above a certain amount of CO2 emissions, including airport concession owners, pay for rights to excess emissions. Commencing in 2019, the legislation requires that companies subject to it report their global emissions as verified by the Mexican Emissions Registry (Registro Nacional de Emisiones). We are subject to this legislation, and began reporting our emissions in 2018. In 2019, we began submitting our emissions reports for verification by the Mexican Emissions Registry. In addition, new water quality standards are being discussed, which would require greater water quality for all of our wastewater disposal. For more information see “Item 3, Key Information – Risk Factors – Risks Related to Mexico – Increased environmental regulation and enforcement in Mexico may affect us.”

Liability for Environmental Noncompliance

The legal framework of environmental liability applicable to our operations is generally outlined above. Under the terms of our Mexican concessions, the Mexican government has agreed to indemnify us for any environmental liabilities arising prior to November 1, 1998, and for any failure by ASA prior to November 1, 1998, to comply with applicable environmental laws and with its agreements with Mexican environmental authorities. Although there can be no assurance, we believe that we are entitled to indemnification for any liabilities related to the actions our predecessor was required to perform or refrain from performing under applicable environmental laws and under its agreements with environmental authorities. For further information regarding these liabilities, see Note 29 to our audited consolidated financial statements.

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The level of environmental regulation in Mexico has significantly increased in recent years, and the enforcement of environmental laws is becoming substantially more stringent. We expect this trend to continue and expect additional norms to be imposed by the North American Agreement on Environmental Cooperation entered into by Canada, the United States and Mexico in the context of USMCA, as well as by other international treaties on environmental matters. We do not expect that compliance with Mexican federal, state or municipal environmental laws currently in effect will have a material adverse effect on our financial condition or results of operations. However, there can be no assurance that environmental regulations or the enforcement thereof will not change in a manner that could have a material adverse effect on our business, results of operations, prospects or financial condition.

Mexican Safety Regulation

Our aeronautical operations are subject to national and international regulations regarding maintaining acceptable safety standards. Compliance with these safety regulations is overseen by the Mexican Directorate General of Civil Aviation, which conducts audits and inspections of each of our Mexican airports.

In 2013, the Mexican Government issued a Mexican Official Standard (Norma Oficial Mexicana), which created an obligation to implement the ICAO’s Safety Management System (“SMS”). The SMS is a systematic approach to managing safety, including the necessary organizational structures, accountabilities, policies and procedures. The ICAO encourages various types of product and service providers that design, manufacture, operate or support the operation of aircrafts to implement this system. The Civil Aviation Authority can bring administrative proceedings against providers that do not comply with SMS regulations, and it also has the power to impose a variety of sanctions or close non-complying facilities.

We began implementing this system as soon as the standard was issued. In 2015, after two years of work and having completed four stages, we obtained SMS certification for the Puerto Vallarta, Los Cabos and Tijuana airports, which were the first three airports to receive SMS certification in Mexico. In 2016 and 2017, we obtained SMS certification for each of our other Mexican airports. Currently, twelve of the sixteen SMS-certified airports are our airports.

In addition, the ICAO provides certification based on compliance with safety, regulatory and efficiency standards for aircraft operations at aerodromes and ensures that certified aerodromes are in compliance with relevant ICAO standards and recommended Civil Aviation Authority practices. Eleven of our twelve airports have obtained ICAO aerodrome certification. Currently, Guadalajara airport has completed three of five phases of the certification procedure. We completed the remaining phases and obtained the certification for the Guadalajara airport in 2019.

Sources of Jamaican Regulation

The following are the principal laws, regulations and instruments that govern our business in Jamaica and the operation of our Jamaican airports and the concessionaires:

• Civil Aviation Act, enacted June 1, 1966;

• Airports Authority Act, enacted July 31, 1974; and

• Airports (Economic Regulation) Act, enacted December 31, 2002.

• Income Tax Act, enacted January 1, 1955;

• Assets Tax (Specified Bodies) Act, enacted January 2, 2003; and

• General Consumption Tax Act, enacted October 22, 1991.

• The Employment Termination and Redundancy Act, enacted December 9, 1974; and

• Holiday with Pay Act, enacted March 27, 1947.

• The Natural Resources Conservation Authority Act, enacted July 5, 1991.

• Companies Act, enacted February 1, 2005; and

• the MBJA Concession Agreement that entitles MBJA to operate the Montego Bay International Airport, which was granted on April 3, 2003 and came into force on April 12, 2003.

• the NMIA Concession Agreement that entitles PACKAL to operate the Kingston International Airport, which was granted on October 10, 2018 and came into force on October 10, 2019.

Legislation specifically applicable to the operation of airport concessions and airports in Jamaica are the Civil Aviation Act, the Airports Authority Act and the Airports (Economic Regulation) Act, and each of their respective subsidiary legislation and regulations. In addition, our Jamaican airports are subject to all applicable laws and regulations related to the operation of a private limited liability company in Jamaica.

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The Civil Aviation Act and the regulations thereunder provide the general framework regulating air transportation and establish the JCAA, under the authority of the MTM, to oversee safety and security, provide air navigation services and regulate aviation industry prices. The Civil Aviation Act’s stated intent is to promote the development of air transport in Jamaica.

In 1974, the Airports Authority Act transferred to the AAJ, an independent government agency, the concessions for Jamaica’s two international airports – the Montego Bay and Kingston airports. The AAJ continues to own both airports, but has divested operational responsibility for the Montego Bay and Kingston airports through public bidding processes in 2003 and 2017, respectively.

The Airports (Economic Regulation) Act of 2002 establishes the framework for the economic regulation of Jamaica’s airports and governs the provision of services or facilities at the international airports for the purposes of landing, parking, fueling, servicing or taking off of aircraft and handling passengers, baggage and cargo at the airport. The Act allows the MTM to levy airport improvement fees, and authorizes the JCAA to regulate airport charges and deal with public interest issues such as anti-competitive behavior and accounting transparency. Airport operators must submit an application for permission to levy airport charges on airlines and passengers to the JCAA. Airport operators permitted to levy airport charges must also routinely provide the JCAA with their annual accounts and schedules of airport charges.

Jamaican Regulatory Agencies

The regulatory agencies overseeing the operation of airports and airport concessions are the MTM, JCAA and the AAJ.

The MTM’s primary responsibility is Jamaica’s land, marine and air transport and their related infrastructure. The MTM has regulatory responsibility for the safety of all modes of transportation, whether publicly or privately operated. This includes airports, aerodromes and airline operators. The following agencies and departments fall under the MTM and oversee the operation of airports and airport concessions:

• Jamaica Civil Aviation Authority. The JCAA is a statutory organization under the MTM, which regulates the Jamaican aviation industry, including oversight of safety and security, provision of air navigation services and regulation of aviation industry prices. The JCAA is the agency empowered to grant the Montego Bay and Kingston airports their required annual permits and licenses, except for the Aerodrome License, which is granted by the MTM, and to approve or reject the regulated charges proposed by MBJA and NMIA for the Montego Bay and Kingston airports, respectively.

• Airports Authority of Jamaica. The AAJ is an independent statutory body established by the Jamaican Airports Authority Act with responsibility for the nation’s commercial and civil airports. The AAJ owns the airport concession assets of our Jamaican airports and provides contract administration for the Concession Agreements granted to operate and manage the Montego Bay and Kingston airports situated on lands owned by it. Under the Concession Agreements, the AAJ conducts regular performance reviews and other contract administration oversight functions. In addition, the AAJ obligates the concession holders to hold a biannual airport forums to provide the airports’ stakeholders with the opportunity to provide progress reports and issues pertinent to them.

Jamaican Airport Concession Agreements

On April 3, 2003, MBJA entered into a 30-year concession agreement with the AAJ, which began on April 12, 2003, to operate the Montego Bay airport. MBJA pays both monthly and annual concession taxes to the Jamaican government to allow it to use and develop the assets subject to the concession.

On October 10, 2019, PACKAL entered into a 25-year concession agreement with the AAJ, with a single possible five-year extension, to operate the Kingston airport. PACKAL pays a monthly concession fee of 62.01% of total aeronautical and non-aeronautical revenues to the Jamaican government to allow it to use and develop the assets.  

At the end of each concession’s term, MBJA and PACKAL, respectively, will transfer these concession assets back to the AAJ. See “Item 5, Operating and Financial Review and Prospects – Overview – Operating Costs – Concession Taxes – Jamaican Concession Taxes.”

MBJA’s and PACKAL’s Obligations as Concessionaires

Under the terms of each of the Concession Agreements, the concession holder is responsible for the maintenance, operation and development of the airport, including the management of day-to-day operations in keeping with specific performance criteria and prescribed international standards, in order to render airport, complementary and commercial services. As such, each of MBJA’s and PACKAL’s general obligations as concession holder are thus to: operate and manage the airport in compliance with applicable law; provide airport, complementary and commercial services; report on accounts, financial records, traffic and performance levels; and carry out the capital investments proposed in the Capital Development Program and maintain and develop the tangible concession assets.

• Licensing Requirements. “Material License” in the Concession Agreements means any permission, consent, license or approval that the concession holder must hold or obtain by any applicable law in order to operate and manage the airport and provide airport services, including the Aerodrome License from the MTM, the Aerodrome Certificate from the JCAA and the JCAA’s permission to levy airport charges. A revocation of the JCAA’s permission to levy airport charges for cause attributable to the concession

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holder, or the failure to renew any other Material License within 30 days of revocation for cause attributable to the concession holder, is considered an event of default under the respective Concession Agreement.

• Required Services. The concessions require the concession holder to provide the following airport, complementary and commercial services at the Montego Bay and Kingston airport, respectively:

• handling of aircraft on land (including the movement, parking, maintenance and storage of aircraft and the supply of fuel, catering and other provisions to aircraft, but excluding directing aircraft from the landing strip and taxiways to the ramp);

• handling of passengers, baggage, cargo, mail and other freight, including transfer to and from aircraft,

• emergency and security facilities, equipment, personnel and services;

• information services, car parking and refreshments for passengers;

• ground transportation and transfer options;

• leasing and management of the airport site; and

• supply of consumer goods and services (including currency exchange services);

• Reporting Requirements. Under the terms of the concessions, the concession holder is obligated to:

• monitor and report on service levels achieved in respect of specified service areas;

• provide quarterly unaudited financial statements and an annual report and audited financial statements, together with copies of all related directors’ and auditors’ reports;

• provide semi-annual (or more frequently if required by and supplied to lenders on a more frequent basis) cash flow statement in respect of the Capital Development Program;

• provide preliminary proposals as to yearly financing arrangements and an annual business plan; and

• provide records of all passengers and freight using or passing through the airport as frequently as the AAJ may require (monthly for PACKAL).

• Capital Investment Requirements. Every five years, the concession holder is entitled to submit to the JCAA its proposal for increases to the maximum regulated charges applicable to their airport as justified by a Capital Development Program consisting of a proposal for increases in maximum regulated charges justified by five-year estimates for traffic growth and investment commitments (including capital expenditures for capital projects and required maintenance at the respective airport). Under the terms of the Concession Agreements, upon the JCAA’s approval of a proposal for price increases, the concession holder has a commitment to fulfill the estimated capital expenditures in the Capital Development Program.

The AAJ remains the owner of the land upon which the airport is sited, as well as the physical assets subject to the concession. The concession holder is required to maintain and manage the airport concession with the intent that AAJ or a successor operator would be able to take over the operation and management of the airport business at any time, including through the use of all reasonable endeavors to ensure that the AAJ or such other successor airport operator would have immediate access to all of its airport employees and assets. Following a termination of the concession, the concession holder is obligated to return to the AAJ the facilities and services ordinarily provided or reasonably incidental to the operation of the airport.

AAJ Consent Requirements

Under the Concession Agreements, the concession holder requires the consent of the MTM and the AAJ if it wishes to expand its services into any business, activity, facility or service not permitted by the definition of “core airport services” in the Concession Agreement, which consent shall not be unreasonably withheld.

MBJA and PACKAL also require the consent of AAJ to:

• hold any shares, participation or any other ownership interest in any other undertaking (except for investments, including deposits, in the ordinary course of treasury management of the airport business);

• enter into contracts or arrangements other than for the purpose of carrying on the airport business or other than on arm’s length terms;

• enter into contracts imposing obligations or liabilities upon the concession holder which will not be fully performed or discharged prior to the expiry of the concession period; and

• amend, vary or supplement (or grant a waiver in respect of) certain financing documents related to their respective Concession Agreement.

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AAJ’s Rights to Step In, Terminate or Grant a New Concession

As owner of the concession assets, the AAJ is entitled, upon seven days’ notice (or sooner in case of emergency) and for so long as may be required, to expel the concession holder from all or part of the airport site or to take over or take steps to carry on the operation and management of the airport or provision of airport services when:

• any concession holder event of default has occurred and is continuing and any cure period provided therefor has expired without the event or circumstance being cured;

• traffic at the airport will be materially disrupted and the concession holder is unable or unwilling to resolve the disruption promptly;

• members of the public are unable to use the airport or its facilities safely and the concession holder is unable or unwilling to resolve the problem promptly; or

• there is a material threat to national security or any other national emergency occurs (whether involving hostilities or otherwise).

Upon a step-in by the AAJ, the AAJ will account to the concession holder for any revenues collected during the step-in period. Where the AAJ exercises its right to step in pursuant to any uncured concession holder event of default or because traffic at the airport will be materially disrupted and concession holder is unable or unwilling for any reason to resolve the disruption, the concession holder is required to bear all costs and expenses associated with the AAJ exercise of step-in, but not consequential losses. The concession holder is not liable for costs if there is step-in by the AAJ because of a material threat to national security.

The AAJ may terminate the Concession Agreement with the concession holder upon an event of default on the part of the concession holder, after which the AAJ must provide notice of its intention to serve a written termination notice and conduct up to 30 days of good-faith consultations to avoid termination, during which the concession holder fails to cure the event of default. Regardless of cause for termination, a termination fee is due to the concession holder upon termination or revocation of the concession, and the Concession Agreement limits the AAJ’s liability to such termination fee. However, the payment terms of the termination fee depend upon the cause: upon an event of default on the AAJ’s part, the termination fee is payable by the AAJ within three months, with an option to extend for up to twelve months with default interest, while if the event of default is on the concession holder´s part, the termination fee is payable by the AAJ in installments within twelve months.

The Jamaican government may grant new concessions to manage, operate, develop and construct airports. In the Concession Agreement, the concession holder acknowledges that the AAJ may also wish, at the expiry or termination of the concession period, to invite persons to tender for the right to provide all or some of the airport services at the airports. The concession holder may participate in such tenders, if interested, except to the extent that there has been an event of default attributable to the insolvency of the concession holders shareholders, in which case the concession holder would be disqualified from participating. However, in preparation for such tendering process, and regardless of whether the concession holder intends to participate in the tender, the concession holder would be obligated to provide access to employees, assets, books and records related to the airport business, and may not in any way prejudice or frustrate the transfer of the airport business. The Concession Agreement sets out the hand back procedures to be observed as the end of the concession period approaches and the dispute resolution mechanism for addressing objections by either party regarding the hand back. Under the agreement, the concession holder commits to assisting and advising the AAJ or any successor operator (subject to payment of reasonable remuneration and reasonable costs and expenses) in providing and operating the airport for up to six months following completion of the handover, and must post a bond equivalent to the cost of the handback works for the six-month period.

Jamaican Aeronautical Services Regulation

In Jamaica, charges levied on airlines and passengers are regulated by the JCAA using a price cap mechanism based on a forecast return on assets. Permission for any increase in the levy of regulated charges, which include passenger charges, aircraft landing and parking charges, passenger walkway charges and airport security charges, must be granted by the JCAA. The first review period began with the concession on April 12, 2003 and concluded in November 2014 with the determination of new charges effective April 1, 2015. Thereafter, regulated aeronautical charges will be reviewed every five years. The following table sets the maximum rates for each of our Jamaican airports from 2020-20224:

	Year ended December 31,
	2020		2021		2022		2023		2024
Montego Bay		15.71		15.89		16.09		16.28		16.47
Kingston		22.47		24.06		25.72		27.51		29.41

(1) Expressed in U.S. dollars.

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According to the Airport Economic Regulation Act, that governs the tariff, if exceptional circumstances arise during a five-year period which may justify reconsideration of airport charges, the approved airport operator may submit an application to the Authority which shall, after conducting an investigation consider that application, taking into account the provisions in the concession agreement and could adjust the price cap or the capital expenditures.

The Airports (Economic Regulation) Act and the related Airport Expansion Fund Agreement require the airlines operating at the Montego Bay airport to collect the AIF fee of U.S.$5.00 per embarking international passenger, on behalf of the Government of Jamaica and to deposit the fees on a monthly basis in a trust account controlled by the MTM. Subject to the MTM’s approval, MBJA may use these funds for additional capital investments not included in the Capital Development Program, as well as for interest expenses relating to the financing thereof. MBJA is required to commit to such new investments in exchange for the right to use the AIF funds. The MTM approval of collection of AIF funds at the Montego Bay airport was renewed on February 25, 2015 for the period ending April 11, 2030, unless otherwise revoked. Having already completed all projects approved for funding by the AIF to date, MBJA is currently in discussions with MTM for further approval to fund capital investment projects from AIF funds collected after April 11, 2015.

The Airports (Economic Regulation) Act and the related Airport Expansion Fund Agreement require the airlines operating at the Kingston airport to collect the AIF fee of U.S.$10.00 per embarking international passenger, on behalf of the Government of Jamaica and to deposit the fees on a monthly basis in a trust account controlled by the MTM. All AIFs collected and all funds standing to the credit of the Expansion Account shall be the sole property and funds of the Government. The MTM approval of collection of AIF funds at the Kingston airport is valid from October 10, 2019 to December 31, 2030, unless otherwise revoked. PACKAL has no right or power to any funds collected with respect to the Expansion Account or the funds held to the credit thereof.

See “Item 5, Operating and Financial Review and Prospects – Overview – Classification of Revenues – Aeronautical Revenues.”

Other Regulation of Jamaican Concessions and Concession Assets

Jamaican Companies Act Restrictions

MBJA was incorporated as a limited liability company to enter into and carry out the terms of the concession with respect to the development, financing, management and operation of the Montego Bay airport. MBJA’s constitutive documents bar the transfer of shares in MBJA to passenger or cargo airlines or persons broadly connected to them, other than AAJ or the Jamaican government. Under the shareholders’ agreement between DCA and Vantage, any transfer of MBJA shares to non-affiliates is subject to a right of first refusal.

PACKAL was incorporated as a limited liability company to enter into and carry out the terms of the concession with respect to the development, financing, management and operation of the Kingston airport.

Reporting Requirements

Pursuant to the regulations under the Jamaican Civil Aviation Act, airport operators must report on compliance with operating procedures and safety measures. MBJA and PACKAL, as airports operators, are required to report to the JCAA any changes in conditions or other hazardous circumstances or occurrences at the airport, including: any reduction in the level of service or closure of any part of the movement area; any obstacle, obstruction or hazard; and any other condition that could affect aviation safety, as well as and what precautions are deemed warranted. MBJA and PACKAL are also obligated to provide reports to the JCAA on the results of internal audits of its safety management system, including inspections of the airport facilities and equipment and of the airport operator’s own administrative functions.

Both airports must report to the Jamaican government the number of passengers paying AIF and the amount of each transfer of AIF made during the previous month, as well as the payments related to the concession fee.

As a Jamaican registered companies, MBJA and PACKAL are also required to file an annual report with the Companies Office of Jamaica reporting any changes in the ownership or management structure and notifying the registrar of any share transactions and changes in the value of shares during the prior year.

Jamaican Environmental Regulation

Operations at our Jamaican airports are subject to Jamaican laws and regulations relating to the protection of the environment. The major environmental law applicable to these operations is the National Resources Conservation Authority Act, which establishes the National Resources Conservation Authority (now part of the National Environmental Protection Agency) and its subsidiary legislation and regulations. Under the act, regulations have been enacted concerning discharge of pollutants into Montego Bay Marine Park’s waters, the regulating of air emissions, discharge and treatment of wastewater and sludge, safe storage of fuels and responses to industrial emergencies involving hazardous materials.

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Other environmental laws of relevance to our Jamaican airports’ operations are: the Noise Abatement Act, aimed at controlling noise (but with no specific reference to aeronautical noise), the Beach Control Act, addressing access to the shoreline; the Watersheds Protection Act, addressing water resource and soil conservation practices; and the Wild Life Protection Act, specifying protected species of fauna. Other related regulations are the Town and Country Planning Act, Public Health Act, Garbage Collection and Disposal Regulations, National Solid Waste Management Act and the Water Resources Act and Clean Air Act. In addition, our airports are also subject to common law principles of tort liability in the event of a nuisance claim resulting from environmental factors.

The legal framework of environmental liability applicable to our Jamaican airports’ operations is generally outlined above. The level of environmental regulation in Jamaica has increased in recent years, and the enforcement of environmental laws is becoming more stringent. For example, the National Solid Waste Management Act and the Water Resources Act each carry certain penalties of JMD1 million (approx. U.S.$7,747). We expect this trend to continue, but we do not expect that compliance with Jamaican environmental laws currently in effect will have a material adverse effect on our Jamaican airports’ results of operations or our financial condition. However, there can be no assurance that environmental regulations or the enforcement thereof will not change in a manner that could have a material adverse effect on our business, results of operations, prospects or financial condition.

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ORGANIZATIONAL STRUCTURE

We have seventeen subsidiaries in Mexico: one operating subsidiary for each of our twelve Mexican airports; two subsidiaries (SIAP and CORSA) that provide administrative and operational services; one subsidiary (PCP) that provides parking services across our twelve Mexican airports; one non-profit foundation (Fundación GAP); and one operating subsidiary, (ADP), for hotel infrastructure and other commercial services that has thus far remained inactive. We have one Spanish subsidiary (DCA) that holds our 74.5% stake in our Jamaican operating subsidiary (MBJA) for the Montego Bay airport, and one Jamaican subsidiary, PAC Kingston Airport Limited (“PACKAL”), that holds our concession for the Kingston airport since September 2018. We also have a holding company subsidiary in Brazil, GA del Pacífico Participações do Brasil LTDA, established in 2010 but thus far remaining inactive and with no capital contributions.

The following table sets forth our subsidiaries as of December 31, 2019:

Name of Company	Jurisdiction of Organization	Percentage Owned (1)			Description
Aeropuerto de Guadalajara, S.A. de C.V.	Mexico		100	%	Holder of concession for Guadalajara International Airport
Aeropuerto de Tijuana, S.A. de C.V.	Mexico		100	%	Holder of concession for Tijuana International Airport
Aeropuerto de Puerto Vallarta, S.A. de C.V.	Mexico		100	%	Holder of concession for Puerto Vallarta International Airport
Aeropuerto de San José del Cabo, S.A. de C.V.	Mexico		100	%	Holder of concession for Los Cabos International Airport
Aeropuerto de Hermosillo, S.A. de C.V.	Mexico		100	%	Holder of concession for Hermosillo International Airport
Aeropuerto del Bajío, S.A. de C.V.	Mexico		100	%	Holder of concession for Guanajuato International Airport
Aeropuerto de Morelia, S.A. de C.V.	Mexico		100	%	Holder of concession for Morelia International Airport
Aeropuerto de La Paz, S.A. de C.V.	Mexico		100	%	Holder of concession for La Paz International Airport
Aeropuerto de Aguascalientes, S.A. de C.V.	Mexico		100	%	Holder of concession for Aguascalientes International Airport
Aeropuerto de Mexicali, S.A. de C.V.	Mexico		100	%	Holder of concession for Mexicali International Airport
Aeropuerto de Los Mochis, S.A. de C.V.	Mexico		100	%	Holder of concession for Los Mochis International Airport
Aeropuerto de Manzanillo, S.A. de C.V.	Mexico		100	%	Holder of concession for Manzanillo International Airport
Desarrollo de Concesiones Aeroportuarias,    S.L.U.	Spain		100	%	Management administration, maintenance, servicing of all types of infrastructure
MBJ Airports Limited	Jamaica		74.5	%	Holder of concession for Montego Bay International Airport
Servicios a la Infraestructura Aeroportuaria    del Pacífico, S.A. de C.V.	Mexico		100	%	Provider of administrative services to our other subsidiaries
Corporativo de Servicios Aeroportuarios,    S.A. de C.V.	Mexico		100	%	Provider of operational services to our other subsidiaries
Puerta Cero Parking, S.A. de C.V.	Mexico		100	%	Provider of car parking administration services to our other subsidiaries
GA del Pacífico Participações do Brasil    LTDA	Brazil		100	%	Holding company for other acquisitions ( incorporated in 2010; not operational through the date of this filing )
Fundación Grupo Aeroportuario del    Pacífico, A.C.	Mexico		100	%	Non-profit company incorporated in 2013 to manage charitable donations and social welfare activities
Aerocomercializadora del Pacifico, S.A. de C.V.	Mexico		100	%	Hotel infrastructure operation and other commercial services
PAC Kingston Airport Limited (PACKAL)	Jamaica		100	%	Holder of concession for Kingston International Airport

(1) We directly hold 99.99% of the shares in each of our Mexican operating subsidiaries. The remaining shares of SIAP are held by Aeropuerto de Guadalajara, S.A. de C.V., while the remaining shares of our other Mexican subsidiaries are held by SIAP. As a result, we directly or indirectly hold 100% of the shares of each of our subsidiaries except MBJA.

PROPERTY, PLANT AND EQUIPMENT

Our corporate headquarters are located in Guadalajara, Jalisco. We lease the office space for our corporate headquarters, located on the third, fifth and sixth floors of Torre Pacífico, from Guadalajara World Trade Center. In addition to our corporate offices in Guadalajara, we also lease office space in Colonia Polanco, in Mexico City from third parties.

Pursuant to the Mexican National Assets Law (Ley General de Bienes Nacionales), all real estate and fixtures in our Mexican airports are owned by the Mexican government. Each of our Mexican concessions is scheduled to terminate in 2048, although each concession may be extended one or more times for up to an aggregate of an additional 50 years. The option to extend a concession is subject to our acceptance of any changes to such concession that may be imposed by the SCT and our compliance with the terms of our current concessions. Upon expiration of our Mexican concessions, the concession assets automatically revert to the Mexican government, including improvements we may have made during the terms of the concessions, free and clear of any liens and/or encumbrances, and we will be required to indemnify the Mexican government for damages to these assets, except for those caused by normal wear and tear.

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Pursuant to MBJA’s Concession Agreement, the AAJ remains the owner of the land upon which the Montego Bayairport is sited, as well as the physical assets subject to the concession. MBJA’s concession for the Montego Bay airport is scheduled to terminate in 2033.Upon expiration of the Montego Bay airport concession, MBJA is obligated to hand back to the AAJ the facilities and services ordinarily provided or reasonably incidental to the operation of the airport.

Pursuant to PACKAL Concession Agreement, the AAJ remains the owner of the land upon which the Kingston airport sits, as well as the physical assets subject to the concession. PACKAL´s concession for the Kingston airport is scheduled to terminate in 2044. Upon expiration of the Kingston airport concession, PACKAL is obligated to hand back to the AAJ all the assets, including all the improvements made to the airport facilities during the term of the concessions, will automatically revert in favor of AAJ and the facilities and services ordinarily provided or reasonably incidental to the operation of the airport.

We maintain comprehensive insurance coverage that covers the principal assets of our airports and other property, subject to customary limits, against damage due to natural disasters, accidents, terrorism or similar events. Our Mexican airports carry a general Ps.3.0 billion insurance policy covering damage to our assets and infrastructure and a U.S.$500.0 million insurance policy covering personal and property damages to third parties. Our Mexican airports are covered by a Ps.500.0 million insurance policy covering damage to our property resulting from terrorist acts and a U.S.$150.0 million insurance policy covering personal and property damage to third parties resulting from terrorist acts. The Montego Bay airport carries a U.S.$351.0 million insurance policy covering property damage and business interruptions and losses and a U.S.$100.0 million insurance policy covering damage resulting from any single terrorist event. The Montego Bay airport also carries a U.S.$750.0 million annual insurance policy covering personal and property damage to third parties. The Kingston airport carries a U.S.$750.0 million insurance policy covering property damage and business interruptions and losses bodily injury. The Kingston airport also carries a U.S.$1.5 million annual insurance policy for loss or damage as a result of the death and/or personal injury suffered by any employee.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

The following discussion should be read in conjunction with, and is entirely qualified by reference to, our audited consolidated financial statements prepared in accordance with IFRS, as issued by IASB, and the notes to those financial statements, which are included elsewhere in this annual report. It does not include all of the information included in our audited consolidated financial statements. You should read our audited consolidated financial statements to gain a better understanding of our business and our historical results of operations.

As a result of our taking over control of NMIA through our subsidiary, PACKAL, on October 10, 2019, our consolidated financial and operating information for the fiscal year ended December 31, 2019 includes the consolidation of PACKAL from October 10, 2019. Therefore, financial and operating information for the fiscal year ended December 31, 2019 may not be directly comparable with financial and operating information for prior fiscal years.

OVERVIEW

We operate twelve airports in the Pacific and Central regions of Mexico pursuant to concessions granted by the Mexican government and two airports in Jamaica pursuant to concessions granted by the Jamaican government. The majority of our revenues are derived from providing aeronautical services, which generally are related to the use of our airport facilities by airlines and passengers. For example, in 2017, 2018 and 2019, approximately 67.0%, 67.3% and 65.0%, respectively, of our total revenues were derived from aeronautical services (in 2017, 2018 and 2019 aeronautical services represented 74.9%, 74.9% and 73.7%, respectively, of the sum of our aeronautical and non-aeronautical revenues). Changes in our revenues from aeronautical services are principally driven by the passenger and cargo volumes at our airports. Our revenues from aeronautical services are also affected by the maximum rates we are allowed to charge under the price regulation system established by the SCT and JCAA, respectively. The system of price regulation that applies to our aeronautical revenues allows us to charge up to a maximum rate for each unit of traffic volume (which is measured in workload units) at each airport. Thus, increases in aeronautical services, such as passenger and cargo volume, and therefore the number of workload units that we handle, generate greater revenues.

We also derive revenue from non-aeronautical activities, principally related to the commercial services offered at our airports, such as the leasing of space to restaurants, retailers and service providers. Revenues from non-aeronautical activities are not subject to the system of price regulation established by the SCT and JCAA, respectively. Thus, our non-aeronautical revenues are primarily affected by the passenger volume at our airports and the mix of commercial services offered at our airports, the contracts that we have with the providers of those commercial services and our ability to increase the rates we charge to those service providers. While we expect that aeronautical revenues will continue to represent a majority of our future aeronautical and non-aeronautical revenues, growth of our revenues from commercial activities generally has exceeded, and we expect will continue to exceed, the growth rate of our aeronautical revenues. As a result, in recent years we have completed renovation projects to improve the product mix of retail stores in the commercial areas at our Mexican airports. We also expect to continue renegotiating agreements with terminal tenants to be more consistent with market practices and to recover the rights to certain non-aeronautical businesses at our airports previously or currently operated by third parties and developing new sources of non-aeronautical revenues through the direct operation of certain businesses such as our VIP lounges, advertising, convenience stores and car parking lots, among others. Also, see “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Non-Aeronautical Services – Recent Expansion and Development of Commercial Areas”.

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Traffic at our airports may be adversely affected by increased levels of competition as a result of the attractiveness, affordability and accessibility of competing tourist destinations in Mexico, such as Acapulco and Cancun, or elsewhere, such as Hawaii, Puerto Rico, Florida, Cuba, the Dominican Republic and other Caribbean islands and destinations in Central America. In addition, we expect increased competition as a result of the government granting new concessions or amending existing permits for other airports that may compete with our airports. For more information, see “Item 3, Key Information – Risk Factors – Risks Related to Our Operations – Competition from other tourist destinations could adversely affect our business” and “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – The Mexican and Jamaican governments could grant new concessions that compete with our airports. ”

Recent Developments

Developments related to the outbreak of the COVID-19

In December 2019, a novel strain of coronavirus, known as COVID-19 was reported to have surfaced in Wuhan, Hubei Province, China. In January 2020, COVID-19 spread to other countries, including the United States, and efforts to contain the spread of COVID-19 intensified. The COVID-19 outbreak has also led to government-imposed travel restrictions, flight cancellations, and a marked decline in passenger demand for air travel. The potential for a period of significantly reduced demand for travel has and will likely continue to result in significant lost revenue. See “Item 3 – Risk Factors – Risks Related to Our Operations – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations control.” As a result of these or other conditions beyond our control, our results of operations could be volatile and subject to rapid and unexpected change. Accordingly, we have:

i) implemented a service cost-control plan pursuant to which operational areas not currently in use have been temporarily closed and energy use, security services and cleaning and maintenance services have been reduced in accordance with passenger demand, in order to operate at minimum levels without affecting quality.

ii) delayed non-obligatory capital investments.

iii) pursuant to the approval of the Board of Directors, postponed the proposal for shareholder distributions of dividends and equity reductions that were included in the agenda for the Ordinary and Extraordinary Shareholders’ Meeting  announced on March 11, 2020, in order to protect our liquidity, and canceled the Shareholder’s Meeting set to be held on April 28, 2020.

In addition, we plan to:

A. request the postponement of investments committed for this year from the proper authorities; and

B. grant some payment deferrals to our customer airlines to support their liquidity – in fact, agreements have been reached with these customer airlines so they can continue operating, however, our allowance for credit losses for 2020 may increase.

These actions seek to manage our liquidity levels. As a result of these actions, the new Ordinary Shareholders’ Meeting is scheduled for July 1, 2020. We have no other debt maturities coming due in 2020. The only debt maturity due in 2020 corresponded to the “GAP 15” debt securities and was paid on February 14, 2020. See “Item 5, Recent Developments – Issuance of GAP 20 Bond Certificates.”

As of April 30, 2020, the balance of our cash position was Ps.12.2 billion, of which 65.0% was dollar-denominated in order to fulfill our commitments with our employees, suppliers and creditors. Consequently, we anticipate that we will be able to meet all financial and operational obligations with our current cash and equivalents.

In addition, we are complying with the health and safety protocols established by the authorities and agencies of each country in which we operate and are monitoring the developments of the COVID-19 outbreak closely. We have taken steps and implemented policies to safeguard our employees, businesses and communities surrounding our operations from the threats posed by the COVID-19 pandemic.

While we are expecting a negative impact to our operational and our financial results due to the COVID-19 outbreak, we do not foresee a risk to the overall continuity of our business. We have carried out a preliminary analysis of the financial results in the short, medium and long term, and we have not identified any significant asset deterioration. Nevertheless, the demand for travel may decrease more than expected, which could magnify the impact of the COVID-19 outbreak. Accordingly, we will continue to monitor and analyze the situation closely. We do not expect interruptions to our business. We have the ability to continue as a going concern and do not foresee the cancellation of our operations at any of our airports.

We are unable to predict with certainty the impact of the COVID-19 outbreak on our business, clients, suppliers and employees, as well as on international air travel. We are also unable  to predict the degree to which the COVID-19 outbreak may impact air travel demand in the domestic regions in which we operate, or whether continuous travel restrictions, as well as general population fears with respect to air travel, may have a materially adverse effect on our business and on our operating results. The global and domestic impact of the COVID-19 outbreak on our business will depend on its duration and its impact on the economy of Mexico, United States, Canada, Jamaica and Europe.

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Kingston Airport Concession

On February 20, 2017, the Government of Jamaica issued an invitation to prepare and submit a prequalification application to participate in a bidding process for a public private partnership to operate the Norman Manley International Airport in Kingston, Jamaica. We timely submitted our prequalification application and, after participating in a competitive bidding process with seven other international airport operators, we were selected for the concession.

On October 10, 2018, PAC Kingston Airport Limited, a subsidiary of ours, signed a concession agreement with the AAJ, a statutory body established under the Airports Authority Act, to operate, administer and develop the Norman Manley International Airport in the city of Kingston, Jamaica. The rights and obligations of the parties under the concession agreement were subject to the satisfaction of certain conditions precedent. 

On October 10, 2019, the commencement date, the AAJ granted us the exclusive right to carry out the airport improvements and enhancements set forth in the agreement, operate the airport, and collect and receive the aeronautical revenues and the non-aeronautical revenues resulting from such services. In exchange for the concession, we paid the IFC U.S.$2.1 million on November 7, 2018, and must pay the AAJ a concession fee equal to 62.01% of the airport’s gross revenues as well as an additional U.S.$5.0 million which we paid on October 8, 2019. We took control of NMIA on October 10, 2019.

Our operation of the airport business is contingent on our ability to meet certain performance, satisfaction and environmental standards. Our failure to meet such standards may require us to pay certain damages to the AAJ or could lead to termination of the concession agreement.

In addition, the concession agreement allows the AAJ to terminate the concession agreement under certain circumstances, including certain events of default, a force majeure event and certain material adverse government actions, all as defined in the concession agreement. The term of the concession agreement is twenty-five years and may be extended for an additional 5-year period. The concession agreement is governed by and construed in accordance with the laws of Jamaica.

Fluctuation of the Peso

Because tariffs in Mexico are invoiced taking into account the average of the exchange rate for the 30 days prior to the date of a flight, a significant depreciation of the peso during the final two months of any year could result in our exceeding our maximum rates, which would be a violation of our concession and may require us to issue rebates to airline customers to avoid exceeding our maximum rates. As long as we are able to ensure that our revenues do not exceed our maximum rates, a depreciation in the peso has a positive effect on our revenues from a commercial and aeronautical operations perspective while an appreciation in the peso has a negative effect. Tariffs on international passengers and international flights and some of our contracts with commercial services providers are denominated in U.S. dollars, but only in the case of charges for international passengers and international flights are charges invoiced and collected in Mexican pesos. Therefore, depreciation in the peso against the U.S. dollar results in us collecting more pesos than before the depreciation, whereas appreciation of the peso results in us collecting fewer pesos, which may result in lower commercial revenues in the future, especially if the appreciation continues unabated or surpasses historic levels of appreciation. See “Item 3, Key Information – Risk Factors – Risks Related to Mexico – Depreciation or fluctuation of the peso relative to the U.S. dollar could adversely affect our results of operations and financial condition.

In 2017, the peso appreciated, reaching Ps.19.74 per U.S. dollar on December 31, 2017. In 2018, the peso/U.S. dollar exchange rate fluctuated, reaching an appreciation to Ps.19.66 per U.S. dollar on December 31, 2018. In 2019, the peso appreciated, reaching Ps.18.84 per U.S. dollar on December 31, 2019. During 2020, the peso has depreciated against the U.S. dollar, reaching a historical high of Ps.25.13 on March 24, 2020. On May 22, 2020, the exchange rate was Ps.23.2962 per U.S. dollar.

Issuance of GAP 20 Bond Certificates

On February 13, 2020, we issued Ps.3.0 billion in new “GAP 20” debt securities on the Mexican market. Proceeds from the issuance were allocated for liability management and to finance investments set forth in our Master Development Programs for 2020. Interest is payable every 28 days at a variable rate of TIIE-28 plus 17 basis points. Principle on these bond certificates will be due at maturity on February 16, 2025.

On February 14, 2020, we paid our “GAP 15” debt securities with Ps.2.2 billion in proceeds from the new issuance.

Bank loan

On April 13, 2020, we utilized a credit line from Scotiabank for Ps.1.0 billion, at a 15-month rate of TIIE-28 plus 100 basis points and principle payment upon maturity and a structuring fee of 40 basis points. The proceeds will be used for corporate purposes. On May 15, 2020, we utilized a credit line from BBVA for Ps.1.0 billion, at a 24-month fix rate of 6.99% and principle payment upon maturity and a structuring fee of 40 basis points. The proceeds will be used for capital expenditures and corporate purposes.

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On May 15, 2020, MBJA signed a credit line from Bank of Nova Scotia for U.S.60.0 million, at a 5-years of Libor-1M plus 310 basis points and principle payment upon maturity and an upfront fee of 50 basis points. The proceeds will be used for capital expenditures and corporate purposes.

Passenger and Cargo Volumes

Volumes in Mexico

The majority of the passenger traffic volume in our Mexican airports is made up of domestic passengers. In 2017, 2018 and 2019 approximately 62.9%, 64.1% and 63.9% of the terminal passengers using our Mexican airports were domestic. The total number of domestic terminal passengers for 2019 increased 7.42% as compared to 2018, and the total number of domestic terminal passengers in 2018 increased 13.2% as compared to 2017. In addition, of the international passengers traveling through our Mexican airports, approximately 89.7% traveled on flights originating in or departing to the United States during 2019, as compared to 88.1% and 88.8% in 2018 and 2017, respectively. Accordingly, our results of operations are influenced strongly by changes to Mexican economic conditions and to a lesser extent influenced by U.S. economic and other conditions, particularly trends and events affecting leisure travel and consumer spending. Many factors affecting our passenger traffic volume and the mix of passenger traffic in our airports are beyond our control.

In 2019, we had 43.6 million terminal passengers (27.9 million domestic and 15.7 million international), of which 89.4 thousand were on general aviation flights, and an additional 126.4 thousand were transit passengers. Approximately 37.4% of our transit passengers were handled at Tijuana International Airport.

During 2019, the CBX served 2.9 million passengers, who are considered domestic passengers under our internal recording system but are reported as international passengers for market disclosure purposes. Therefore, the proportion of international passengers was 32.5% in our Tijuana airport.

Volumes in Jamaica

The majority of the passenger traffic volume in Jamaica is made up of international passengers. In 2019, approximately 99.8% of the terminal passengers using our Jamaican airports were international. Additionally, of the international passengers traveling through the Montego Bay and Kingston airport, approximately 70.3% and 70.0%, respectively, traveled on flights originating in or departing to the United States during 2019.

In 2019, MBJA had approximately 4.7 million terminal passengers, of which approximately 17.3 thousand were on general aviation flights and an additional 58.6 thousand were transit passengers.

From October 10, 2019 through December 31, 2019, NMIA had approximately 408.7 thousands terminal passengers, of which approximately 1.9 thousand were on general aviation flights and an additional 2.5 thousand were transit passengers.

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The following table sets forth certain operating and financial information relating to certain of our revenues and passenger and cargo volumes in Mexico and Jamaica for the years indicated:

Passenger and Cargo Volumes

	Year ended December 31,
	2017			2018			2019(1)
Macroeconomic indicators:
Change in Mexican GDP (2)		2.1	%		2.0	%		(0.1	)%
Change in Mexican CPI (3)		6.8	%		4.8	%		2.8	%
Change in U.S. GDP (4)		2.3	%		2.6	%		2.1	%
Change in U.S. CPI (5)		2.1	%		1.9	%		2.3	%
Passenger volumes (thousands of passengers) (6) :
Domestic terminal passengers in Mexico		22,932.8			25,951.3			27,872.3
International terminal passengers in Mexico		13,550.2			14,514.2			15,719.9
Mexican total terminal passengers		36,483.0			40,465.5			43,592.2
Domestic terminal passengers in Jamaica		8.9			8.5			12.4
International terminal passengers in Jamaica		4,216.7			4,474.0			5,104.0
Jamaican total terminal passengers		4,225.6			4,482.5			5,116.4
Total terminal passengers (thousands)		40,708.6			44,948.0			48,708.6
Cargo volumes (thousands of cargo units) (6) :
Cargo units in Mexico		2,029.3			2,138.2			2,145.6
Cargo units in Jamaica		69.1			74.8			92.9
Total cargo units		42,807.0			47,161.0			50,947.1
Other operating and financial information:
Change in total terminal passengers		11.4	%		10.4	%		8.4	%
Change in total workload units		11.0	%		10.2	%		8.0	%
Aeronautical revenues (millions of pesos)	Ps.	8,280.5		Ps.	9,499.1		Ps.	10,547.7
Change in aeronautical revenues		17.7	%		14.7	%		11.0	%
Aeronautical revenues per workload unit	Ps.	193.4		Ps.	201.4		Ps.	207.0
Change in aeronautical revenues per workload unit		6.0	%		4.1	%		2.8	%
Non-aeronautical revenues (millions of pesos)	Ps.	2,772.9		Ps.	3,183.5		Ps.	3,771.5
Change in non-aeronautical revenues		15.8	%		14.8	%		18.5	%
Non-aeronautical revenues per terminal passenger	Ps.	68.1		Ps.	70.8		Ps.	77.4
Change in non-aeronautical revenues per terminal    passenger		4.0	%		4.0	%		9.3	%

(1) Includes information for the Kingston airport for the period from October 10 to December 31, 2019.

(2) In real terms, as reported by INEGI.

(3) As reported by INEGI.

(4) In real terms, as reported by the U.S. Bureau of Economic Analysis.

(5) As reported by the U.S. Bureau of Labor Statistics.

(6) Under the regulation applicable to our aeronautical revenues, one workload unit is equivalent to one terminal passenger or one cargo unit. One cargo unit is equivalent to 100 kilograms (220 pounds) of cargo.

Classification of Revenues

We classify our revenues into three categories: (i) revenues from aeronautical services; (ii) revenues from non-aeronautical services; and (iii) revenues from improvements to concession assets. Historically, a majority of our revenues have been derived from aeronautical services; however, with the inclusion of revenues from improvements to concession assets, revenues from aeronautical services and from non-aeronautical services will account for a smaller percentage of total revenues. For example, in 2017, 2018 and 2019 with the inclusion of revenues from improvements to concession assets, aeronautical revenues represented 67.0%, 67.3% and 65.0%, respectively, of total revenues. In 2017, 2018 and 2019, with the inclusion of revenues from improvements to concession assets, non-aeronautical revenues represented 22.4%, 22.5% and 23.2%, respectively, of total revenues. Aeronautical revenues and non-aeronautical revenues, however, represented 74.9% and 25.1%, respectively, of the sum of aeronautical and non-aeronautical revenues in 2017, 74.9% and 25.1%, respectively, of the sum of aeronautical and non-aeronautical revenues in 2018, and 73.7% and 26.3%, respectively, of the sum of aeronautical and non-aeronautical revenues in 2019. In 2017, 2018 and 2019, revenues from improvements to concession assets accounted for 10.6%, 10.2% and 11.8%, respectively, of our total revenues.

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Our revenues from aeronautical services are subject to price regulation under the applicable maximum rate at each of our airports, and principally consist of passenger charges, aircraft landing and parking charges, airport security charges, passenger walkway charges, leasing of space in our airports to airlines (other than first class/VIP lounges and other similar non-essential activities) and complementary services (i.e., fees from handling and catering providers, permanent ground transportation operators and access fees from fuel providers at our airports).

Our revenues from non-aeronautical services are not subject to price regulation under our maximum rates and generally include revenues earned from car parking, leasing of space in our airports to airlines and complementary service providers (for first class/VIP lounges and similar non-essential activities), rental and royalty payments from third parties operating stores, providing commercial services at our airports (such as car rental agencies, food and beverage providers and retail and duty-free store operators), as well as advertising and fees collected from other miscellaneous sources, such as vending machines and timeshare developers. Additionally, we derive revenues from recovery of costs that are included in our non-aeronautical services.

Our revenues from improvements to concession assets represent the fair value of the additions and upgrades to the concession that we undertake in accordance with our Master Development Programs in Mexico and our Capital Development Programs in Jamaica. In exchange for making those additions and upgrades, the governments of Mexico and Jamaica grant us the right to obtain benefits for services provided using those assets, which are recognized as intangible assets. This represents an exchange of dissimilar goods or services rather than an actual cash exchange since we receive an intangible asset for the construction services we provide. Through a bidding process, we hire third parties to make the additions and upgrades. The amount of revenues for these services is equal to the costs of making the additions and upgrades since those values represent the fair value of the goods or services received as there is no profit margin stemming from these construction services. Although these revenues do not generate actual cash inflows, IFRS requires that they be recorded given that revenue generation is inherent in an exchange of dissimilar services, similar to a barter transaction. These revenues do not have a cash impact on our results.

For a detailed description of the components of our revenue categories, see “Item 4, Information on the Company – Business Overview – Our Sources of Revenues.”

Aeronautical Revenues

The following table sets forth our revenues from aeronautical services for the years indicated:

Aeronautical Revenues

	Year ended December 31,
	2017						2018					2019(1)
	Amount			Percent			Amount		Percent			Amount		Percent
		(millions of pesos, except percentages and workload unit data)
Aeronautical Revenues:
Passenger charges	Ps.		6,750.8		81.5	%	Ps.	7,752.8		81.6	%	Ps.	8,589.3		81.4	%
Aircraft landing charges			681.1		8.2			783.1		8.2			862.8		8.2
Aircraft parking charges			133.9		1.6			155.6		1.6			174.4		1.7
Airport security charges			181.3		2.2			207.4		2.2			263.4		2.5
Passenger walkway charges			34.8		0.4			36.7		0.4			38.7		0.4
Leasing of space to airlines			133.4		1.6			148.9		1.6			164.4		1.6
Revenues from complementary service providers (2)			365.2		4.4	%		414.6		4.4			454.8		4.3	%
Total Aeronautical Revenues	Ps.		8,280.5		100.0	%	Ps.	9,499.1		100.0	%	Ps.	10,547.7		100.0	%
Other Information:
Total workload units (millions) (3)			42.8					47.2					50.9
Total aeronautical revenues per workload unit	Ps.		193.5				Ps.	201.4				Ps.	207.0
Change in aeronautical revenues (4)					17.7	%				14.7	%				11.0	%
Change in total aeronautical revenues per workload    unit (4)					6.1	%				4.1	%				2.8	%

(1) Includes information for the Kingston airport for the period from October 10 to December 31, 2019.

(2) Revenues from complementary service providers consist of access and other fees charged to third parties providing baggage handling, catering and other services at our airports.

(3) Under the regulation applicable to our aeronautical revenues, a workload unit is equivalent to one terminal passenger or 100 kilograms (220 pounds) of cargo.

(4) In each case, as compared to the prior year.

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Under the relevant agreements with airlines, our specific prices are structured such that the substantial majority of our aeronautical revenues are derived from passenger charges, and we expect that this will continue to be the case in any future agreements. We earn passenger charges from each departing passenger at our airports (except certain exclusions in each of Mexico and Jamaica, described above under “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Aeronautical Services – Passenger Charges”). In 2017, 2018 and 2019, passenger charges represented 81.5%, 81.6% and 81.4%, respectively, of our aeronautical services revenues and 54.6%, 54.9% and 52.9%, respectively, of our total revenues (in 2017, 2018 and 2019 passenger charges represented 61.1%, 61.1% and 60.0%, respectively, of the sum of aeronautical and non-aeronautical revenues).

The following table sets forth the number of passengers paying passenger charges per airport for the years indicated:

Passengers Paying Passenger Charges per Airport

	Year ended December 31,
Airport:	2017					2018					2019(1)
	Passengers		% change			Passengers		% change			Passengers		% change
	(in thousands, except percentages)
Guadalajara		5,944.1		13.1	%		6,604.0		11.1	%		6,813.3		3.2	%
Tijuana		3,379.4		12.0			3,726.4		10.3			4,263.8		14.4
Los Cabos		2,425.3		15.8			2,591.1		6.8			2,767.8		6.8
Puerto Vallarta		2,212.7		11.4			2,334.2		5.5			2,476.9		6.1
Montego Bay		2,105.8		8.1			2,236.2		6.2			2,347.7		5.0
Guanajuato		953.3		14.5			1,140.7		19.7			1,342.4		17.7
Hermosillo		780.2		7.4			836.0		7.2			897.2		7.3
Mexicali		382.3		12.7			543.1		42.1			574.5		5.8
La Paz		414.5		0.8			449.4		8.4			492.0		9.5
Morelia		298.6		15.2			358.7		20.1			441.9		23.2
Aguascalientes		367.9		9.3			423.1		15.0			419.1		(0.9	)
Los Mochis		170.3		-			168.1		(1.2	)		192.1		14.3
Kingston		-		-			-		-			187.2		100.0
Manzanillo		88.6		(5.6	)		83.0		(6.4	)		83.8		1.1
Total		19,523.0		11.8	%		21,494.0		10.1	%		23,299.7		8.4	%

(1) Includes information for the Kingston airport for the period from October 10 to December 31, 2019.

Mexican Aeronautical Revenues

The system of price regulation applicable to our aeronautical revenues in Mexico establishes a maximum rate in pesos for each Mexican airport for each year in a five-year period, which is the maximum annual amount of revenues per workload unit that we may earn at that airport from aeronautical services. As of December 31, 2014, the SCT determined the maximum rates for our airports for each year through December 31, 2019. Our aeronautical revenues are determined largely by the number of workload units at each of our airports, which is primarily driven by passenger traffic levels, multiplied by the value of the maximum tariffs approved by the SCT. In addition, aeronautical revenues differ among our airports to the extent passenger traffic levels differ among these airports. See “Item 4, Information on the Company – Regulatory Framework – Mexican Aeronautical Services Regulation” for a description of our maximum rates and the rate-setting procedures for future periods.

Our Mexican concessions provide that our maximum rates must be adjusted on an annual basis as determined by the efficiency factor and by changes in inflation. See “Item 4, Information on the Company – Regulatory Framework – Mexican Aeronautical Revenues Regulation – Methodology for Determining Future Maximum Rates.” Under the regulatory system applicable to our Mexican aeronautical revenues, we can set the specific price for each category of aeronautical services every six months (or more frequently if accumulated inflation since the last adjustment exceeds 5%), as long as the total aeronautical revenues per workload unit each year at each of our airports do not exceed the maximum rate set for such airport for that year. Although the SCT may in some cases authorize an increase in our maximum rates, we must negotiate with our principal airline customers the specific rates applicable to each aeronautical activity. As a result, we are not always able to increase prices up to the amount of maximum rates.

Aeronautical revenue per workload unit is an indicator that is calculated by dividing total aeronautical revenues by the workload units for a given period. This indicator is affected annually, except for years in which the new maximum tariffs are set, by:

• Adjustment in the maximum rates for the efficiency factor and the Mexican PPI, excluding petroleum;

• Increases and decreases in the relative number of workload units at each airport; and

• Changes in total workload units per airport.

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For the period from January 1, 2015 until December 31, 2019, the efficiency factor is 0.70%. Our weighted average maximum tariffs, as determined by the SCT (prior to inflation adjustments using the Mexican PPI), increased 2.0% in 2015, decreased 0.7% in 2016, decreased 0.7% in 2017, decreased 0.7% in 2018 and decreased 0.7% in 2019, mainly as a result of the efficiency factor. At the same time, the Mexican PPI, excluding petroleum, increased by 4.4%, 6.8% and 0.6%in 2017, 2018 and 2019 respectively. Our weighted average maximum tariffs as adjusted by the efficiency factor and the Mexican PPI, excluding petroleum, increased 3.8% in 2017, increased 6.2% in 2018 and increased 0.2% in 2019. The total workload units at our Mexican airports were 38.5 million, 42.6 million and 45.7 million in 2017, 2018 and 2019, respectively, representing an increase of 11.3% in 2017, an increase of 10.6% in 2018, and an increase of 7.4% in 2019. Accordingly, when calculating aeronautical revenue per workload units, the result will fluctuate depending on the relative changes in the aforementioned factors. During 2017, 2018 and 2019, average aeronautical revenues per workload unit were Ps.193.4, Ps.201.4 and Ps.207.0 respectively, which represented an increase of 6.0%, an increase of 4.0% and an increase of 2.8%in 2017, 2018 and 2019, respectively. These increases resulted mainly from increases in traffic and tariffs due to adjustments for inflation.

On December 12, 2019, the SCT set new airport maximum rates for the five-year period from January 1, 2020 through December 31, 2024 expressed in constant pesos as of December 31, 2017. On January 2, 2020, these rates were published in the Official Gazette of the Federation (Diario Oficial de la Federación). The maximum rates for each of our airports under the Master Development Programs went into effect as of January 1, 2020, and were adjusted by inflation using the Mexican PPI.

Historically, we have set our prices for regulated services at our Mexican airports as close as possible to the maximum rates allowed in any given year, and we expect to pursue this pricing strategy in the future. However, there can be no assurance that we will be able to collect virtually all of the revenues we are entitled to earn from services subject to price regulation in the future or that we will not be sanctioned in case we exceed our maximum rates. In prior years, in order to ensure our compliance with the maximum rate at a particular Mexican airport when the possibility of exceeding that maximum rate arose, we have taken actions in the latter part of the year, such as reducing our specific prices for aeronautical services and offering discounts or rebates, to ensure our compliance with the applicable maximum rate. For a discussion of risks related to our ability to set specific prices, see “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – We provide a public service regulated by the governments of Mexico and Jamaica, and our flexibility in managing our aeronautical activities is limited by the regulatory environments in which we operate ” and “Item 3, Key Information – Risk Factors – Risks Related to the Regulation of Our Business – If we exceed the maximum rate at any Mexican airport at the end of any year, we could be subject to sanctions.”

Jamaican Aeronautical Revenues

In Jamaica, revenues from passenger charges, aircraft landing and parking charges, airport security charges and passenger walkway charges are regulated by the JCAA. See “Item 4, Information on the Company – Business Overview – Our Sources of Revenues – Aeronautical Services.”

The system of price regulation applicable to our Jamaican airports’ aeronautical revenues establishes maximum rates in U.S. dollars for a five-year period for charges levied on airlines and passengers using a price cap mechanism. Permission for any increase in the levy of regulated charges, which include passenger charges, aircraft landing and parking charges, passenger walkway charges and airport security charges, must be granted by the JCAA.

For MBJA, the airport charges were established with the concession on April 12, 2003. The first review period was concluded in November 2014 with the determination of new charges effective April 1, 2015. Thereafter, regulated aeronautical charges will be reviewed every five years. Aeronautical charges were adjusted by 2.2% and 2.1% in 2018 and 2019, respectively. In 2020, the new maximum rates for the five-year period from 2020-2024 went into effect as of January 1, 2020.

For NMIA, maximum rates for the five-year period from 2020-2024 will go into effect during 2020. Thereafter, regulated aeronautical charges will be reviewed every five years. The new maximum rates for the five-year period from 2020-2024 went into effect as of April 1, 2020.

See “Item 4, Information on the Company – Regulatory Framework – Jamaican Aeronautical Services Regulation” for a description of MBJA’s and PACKAL’s maximum regulated charges and the procedures for setting maximum regulated charges for future periods.

Non-Aeronautical Revenues

Non-aeronautical services historically generate a smaller portion of our total revenues as compared to aeronautical services. Non-aeronautical revenues represented 22.4%, 22.5% and 23.2% of total revenues in 2017, 2018 and 2019, respectively. Non-aeronautical revenues per terminal passenger were Ps.68.1, Ps.70.9 and Ps.77.4 in 2017, 2018 and 2019, respectively. None of our revenues from non-aeronautical services are subject to price regulation under our maximum-rate price regulation systems.

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Our revenues from non-aeronautical services are principally derived from commercial activities. We divide non-aeronautical commercial activities into revenues from businesses operated by third parties and revenues from businesses operated directly. Businesses operated by third parties include leasing of space in our airports to airlines and complementary service providers (for first class/VIP lounges and similar non-essential activities) and rental and royalty payments from third parties operating stores and providing commercial services at our airports, such as timeshare developers, retail stores, food and beverage providers, car rental agencies and duty-free store operators, as well as fees collected from other miscellaneous sources, such as vending machines. Businesses operated directly by us include car parking, advertising, VIP lounges and convenience stores. Additionally, we derive revenues from recovery of costs which are included in our non-aeronautical revenues.

The following table sets forth our revenues from non-aeronautical services for the years indicated:

Non-Aeronautical Revenues

	Year ended December 31,
	2017					2018					2019(1)
	Amount		Percent			Amount		Percent			Amount		Percent
	(millions of pesos, except percentages and workload unit data)
Non-aeronautical Services:
Businesses operated by third parties:
Leasing of space (2)	Ps.	203.5		7.3	%	Ps.	229.1		7.2	%	Ps.	246.1		6.5	%
Car rentals		234.8		8.5			310.3		9.7			378.6		10.0
Food and beverage operations		276.3		10.0			337.0		10.6			482.5		12.8
Retail operations		314.9		11.4			345.0		10.8			380.9		10.1
Duty-free operations		397.6		14.3			468.3		14.7			527.3		14.0
Timeshare operators		186.9		6.7			196.5		6.2			222.4		5.9
Ground transportation		120.2		4.3			129.5		4.1			143.2		3.8
Communications and financial    services		69.9		2.5			81.7		2.6			87.6		2.3
Other		92.9		3.4			56.8		1.8			65.8		1.8
Total businesses operated by    third parties:		1,897.0		68.4	%		2,154.2		67.7	%		2,534.4		67.2	%
Businesses operated directly by us:
Car parking charges		277.2		10.0			320.6		10.1			368.7		9.8
Advertising		154.6		5.6			177.9		5.6			273.1		7.2
VIP lounges		154.7		5.6			222.7		7.0			193.7		5.1
Convenience stores		89.2		3.2			107.2		3.4			165.6		4.4
Total businesses operated    directly by us:		675.7		24.4			828.4		26.0			1,001.1		26.5
Recovery of costs (3)		200.2		7.2			200.9		6.3			236.0		6.3
Total non-aeronautical revenues	Ps.	2,772.9		100.0	%	Ps.	3,183.5		100.0	%	Ps.	3,771.5		100.0	%
Other Information:
Total terminal passengers (millions)		40.7					44.9					48.7
Non-aeronautical revenues per terminal    passenger	Ps.	68.1				Ps.	70.9				Ps.	77.4
Change in non-aeronautical revenues per    terminal passenger (year-on-year)				3.9	%				4.1	%				9.2	%

(1) Includes information for the Kingston airport for the period from October 10 to December 31, 2019.

(2) Includes leasing of space in our airports to airlines and complementary service providers (for first class/VIP lounges and other similar non-essential activities).

(3) Recovery of costs consists of utility, fuel, maintenance and operation charges that are transferred to airlines and other tenants in our airports.

In 2019, revenues from non-aeronautical services in our airports accounted for 23.2% of the total revenues generated by our airports (in 2019, non-aeronautical revenues represented 26.3% of the sum of aeronautical and non-aeronautical revenues). While we believe that aeronautical revenues will continue to represent a majority of our future revenues, we currently estimate that the growth rate of our revenues from commercial activities will likely exceed the growth rate of our aeronautical revenues (as was the case during the period from 2017 to 2019), except in the years in which the maximum tariffs are reset. In the last year, non-aeronautical revenues per terminal passenger increased 9.2% (from Ps.70.9 in 2018 to Ps.77.4 in 2019, during which time the number of terminal passengers increased 8.4%).

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Non-aeronautical revenues per terminal passenger show the average revenue generated by the commercial areas of our airports, and it is calculated by dividing total non-aeronautical revenues by the number of terminal passengers during the same period. Therefore if non-aeronautical revenues decline proportionately less than the decline in the number of terminal passengers during a period, non-aeronautical revenues per terminal passenger will increase despite the decrease in non-aeronautical revenues. Non-aeronautical revenues per terminal passenger are principally affected by:

• recovery of rights to certain businesses that we previously did not operate;

• opening of new commercial spaces at our airports;

• the level of passenger traffic; and

• the exchange rate between the Mexican peso and the U.S. dollar. This exchange rate affects our contracts that are denominated in U.S. dollars, which mainly consist of lease contracts for timeshare developers, car rentals, duty-free operations and certain lease contracts for food and beverages and retail operations.

Certain categories of non-aeronautical revenues are directly impacted by passenger traffic (for example car parking and rental, and food and beverage providers) while others are not (for example leasing of space, on which we earn at least a minimum fixed rent indexed to inflation each year, which may be increased by royalty-based payments as discussed below). Accordingly, non-aeronautical revenues do not always behave in the same manner as passenger traffic or workload units.

Approximately 99.1% of the contracts with third-party tenants that could be arranged as royalty-based have already been executed under those conditions (representing approximately 88.4% of our total non-aeronautical revenues). Under a royalty-based contract the amount tenants must pay is based on tenants’ revenues, subject to minimum guaranteed fixed amounts related to the square footage of the space leased. When the royalty-based amount is lower than the minimum guaranteed amount, the tenant must still pay the latter. Therefore, a decrease in passenger traffic volumes would result in a reduction in non-aeronautical revenues from such tenants only if, prior to such decrease in passenger traffic, the sales of royalty-based tenants were higher than the minimum guaranteed amount. As a result, during periods in which airports experience a reduction in passenger traffic volumes, non-aeronautical revenues may remain stable due to the minimum guaranteed amount received by the airport under the lease contract, thereby resulting in a potential increase in non-aeronautical revenues per workload unit.

During 2017, 2018 and 2019, non-aeronautical revenues were Ps.2,772.9 million, Ps.3,183.5 million and Ps.3,771.5 million respectively, representing an increase of 14.8% in 2018, and an increase of 18.5% in 2019 . During 2019, non-aeronautical revenues increased more than terminal passengers, which increased 8.4%. In 2019, non-aeronautical revenues per terminal passenger increased from Ps.70.9 per passenger in 2018 to Ps.77.4 in 2019, representing an increase of 9.2% from 2018 to 2019.

Recognition of Revenues from Improvements to Concession Assets

IFRIC 12 requires, subject to certain conditions, that the infrastructure of a service concession contract falling within its scope not be recognized as property, plant and equipment. It also requires that revenues obtained when the operator performs both construction or upgrade services and operating services under a single contract be recognized according to each type of service provided, based on the fair value of consideration received at the time the service is rendered. We recognize revenues and the associated costs of improvements to concession assets in relation with the concession’s obligation to perform improvements as established in the Master Development Programs in Mexico and Capital Development Program in Jamaica. Revenues represent the value of the exchange between ourselves and the respective government with respect to the improvements, given that we construct or provide improvements to the airports as obligated under the Master Development Programs in Mexico and Capital Development Program in Jamaica, and in exchange, the respective government grants us the right to obtain benefits for services provided using those assets, which are recognized as intangible assets. We have determined that our obligations per the Master Development Programs in Mexico and Capital Development Program in Jamaica should be considered to be a revenue-earning activity as all expenditures incurred to fulfill the Master Development Programs and Capital Development Program are included in the tariffs. Therefore we recognize the revenue and expense in profit or loss when the expenditures are performed. The cost for such additions and improvements to concession assets is based on actual costs incurred by us in the execution of the additions or improvements, considering the investment requirements in the Master Development Programs and Capital Development Program.

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Through bidding processes, we contract third parties to carry out such construction. The amount of revenues for these services is equal to the amount of costs incurred, as we do not obtain any profit margin for these construction services. The amounts paid are set at market value. As a result, revenues from improvements to concession assets do not have a cash impact on our results. Furthermore, they are not directly related to our passenger traffic, which is the main driver of our revenues. In 2017, we recognized Ps.1,312.5 million in revenues from improvements to concession assets. This represented a decrease of 21.7% as compared to 2016, which was the year with the highest committed investment under the Master Development Programs for 2015-2019. During 2017, MBJA recognized Ps.66.1 million in revenues from improvements to concession assets. During 2018, we recognized Ps.1,440.2 million in revenues from improvements to concession assets. This represented an increase of 9.7% as compared to 2017, due to higher investment commitments under our Master Development Programs. During 2018, MBJA recognized Ps.546.0 million in revenues from improvements to concession assets. In 2019, we recognized Ps.1,906.8 million in revenues from improvements to concession assets. This represented an increase of 32.4% as compared to 2018, due to higher investment commitments under our Master Development Programs. During 2019, MBJA recognized Ps.136.4 million in revenues from improvements to concession assets. From October 10, 2019 through December 31, 2019, PACKAL did not recognize revenues from improvements to concession assets.

Operating Costs

The following table sets forth our operating costs and certain other related information for the years indicated:

Operating Costs

	Year ended December 31,
	2017			2018			2019(1)
	Amount			Amount			Amount			% change
	(millions of pesos, except percentages and passenger data)
Operating Costs:
Cost of services:
Employee costs	Ps.	663.4		Ps.	773.6		Ps.	877.1			13.4		%
Maintenance		505.3			528.9			578.5			9.4		%
Safety, security and insurance		317.0			386.1			428.2			10.9		%
Utilities		278.9			335.0			380.4			13.6		%
Other		345.8			430.1			480.7			11.8		%
Total cost of services		2,110.4			2,453.7			2,744.9			11.9		%
Technical assistance fees		357.5			411.5			461.5			12.2		%
Concession taxes		944.2			1,076.4			1,318.2			22.5		%
Depreciation and amortization:
Depreciation (2)		324.5			400.2			446.5			11.6		%
Amortization (3)		1,119.1			1,169.4			1,329.6			13.7		%
Total depreciation and amortization		1,443.6			1,569.6			1,776.1			13.2		%
Other (income) expenses - net		(84.0	)		(73.2	)		1.3			(101.8	)	%
		4,771.7			5,438.0			6,302.0			15.9		%
Cost of improvements to concession assets		1,312.5			1,440.2			1,906.8			32.4		%
Total operating costs	Ps.	6,084.2		Ps.	6,878.2		Ps.	8,208.8			19.3		%
Other Information:
Total workload units (thousands) (4)		42,806.9			47,160.9			50,947.1			8.0		%
Cost of services per workload unit	Ps.	49.3		Ps.	52.0		Ps.	53.9			3.7		%
Cost of services / the sum of aeronautical and    non-aeronautical revenues (5)		19.1	%		19.3	%		19.2	%

(1) Includes information for the Kingston airport for the period from October 10 to December 31, 2019.

(2) Reflects depreciation of machinery, equipment and improvements on leased buildings.

(3) Reflects amortization of our improvements of concession assets, concessions and other acquired rights.

(4) Under the regulation applicable to our aeronautical revenues, a workload unit is equivalent to one terminal passenger or 100 kilograms (220 pounds) of cargo.

(5) Cost of services divided by the sum of aeronautical and non-aeronautical revenues, expressed as a percentage.

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Cost of Services

Our cost of services consists primarily of employee costs, maintenance, safety, security and insurance costs, as well as utilities (a portion of which we recover from our tenants) and various other miscellaneous expenses. Cost of services per workload unit is an indicator that is calculated by dividing cost of services by the workload units for a given period. This indicator is affected annually by:

• Increases and decreases in the different items included in cost of services; and

• Increases and decreases in the relative number of workload units.

Therefore, if the cost of services increases less in proportion to the increase in workload units, the cost of service per workload unit decreases. Similarly, cost of service per workload units increases in periods in which the costs of service remains stable but workload units declined.

Our cost of services per workload unit was Ps.49.3 in 2017, Ps.52.0 in 2018 and Ps.53.9 in 2019, an increase of 5.5% from 2017 to 2018, and an increase of 3.7% from 2018 to 2019. In 2019, cost of services increased by 11.9%, while total workload units increased by 8.0%. Cost of services increased by Ps.291.2 million, or 11.9%, primarily due to an increase in employee costs of Ps.103.5 million, maintenance costs of Ps.49.6 million, utilities of Ps.45.4 million and safety and security costs of Ps.42.1 million. Cost of services increased by Ps.202.2 million for our Mexican airports, which was mainly due to a Ps.71.1 million increase in employee costs, a Ps.50.4 million increase in other operating cost, a Ps.37.6 million increase in maintenance and Ps.30.0 million increase in utilities. Cost of services at the Montego Bay airport increased by Ps.14.9 million, mainly due to a Ps.13.3 million increase in safety, security and insurance costs, a Ps.8.5 million increase in employee costs, and a Ps.4.2 million increase in maintenance costs, partially offset by Ps.6.5 million decrease in utilities and a Ps.4.6 million decrease in other costs. Cost of services for PACKAL from October 10, 2019 to December 31, 2019 were Ps.74.0 million. Our income from operations divided by the sum of aeronautical and non-aeronautical revenues (operating margin) decreased by 100 basis points from 57.1% in 2018 to 56.1% in 2019 mainly as a result of the consolidation of PACKAL.

Technical Assistance Fees

Technical Assistance Fees in Mexico

Under the technical assistance agreement, AMP provides management and consulting services as well as technical assistance and technological and industry knowledge and experience to us in exchange for a fee. This agreement is more fully described in Item 7 hereof. Since January 1, 2002, the fee has been equal to the greater of U.S.$4.0 million (adjusted annually for U.S. inflation) and 5% of our annual consolidated income from operations, defined as earnings before interest income or expense (calculated prior to deducting the technical assistance fee, income taxes, depreciation and amortization and in each case determined in accordance with MFRS). The technical assistance fee is a component of our maximum tariffs and is collected through the maximum tariffs charged. In 2017, 2018 and 2019, this fee was Ps.357.5 million, Ps.411.5 million and Ps.461.5 million, respectively.

Technical Assistance Fees in Jamaica

Prior to our acquisition of DCA, MBJA had a technical assistance agreement with Vantage, under which Vantage provided management and consulting services as well as technical assistance and technological and industry knowledge and experience to us in exchange for a fee. This technical assistance agreement expired in 2015 and was not renewed.

NMIA does not have a technical assistance agreement with third parties in place.

Concession Taxes

Mexican Concession Tax

We are subject to the Mexican Federal Duties Law, which requires each of our Mexican airports to pay a concession tax to the Mexican government currently equal to 5% of the gross annual revenues (excluding revenues from improvements to concession assets) of each concession holder obtained from the use of public domain assets pursuant to the terms of its concession. The concession tax rate may vary on an annual basis as determined solely by the Mexican Federal Congress, and there can be no assurance that this rate will not increase in the future. If Mexico’s Federal Congress increases the concession tax rate, we are entitled to request an increase in our maximum rates from the SCT; however, there can be no assurance that the SCT would approve our request.

In 2017, 2018 and 2019, this tax amounted Ps.461.2 million, Ps.533.5 million and Ps.599.1 million, respectively.

Jamaican Concession Fees

Under the terms of the Concession Agreement and the relevant tax legislation, MBJA is required to pay a monthly concession fee per workload unit, to the Jamaican government to allow it to use and develop the assets subject to the concession. MBJA is also required to pay an additional concession fee equal to 45% of any revenues earned in excess of the forecast revenues established in the Concession Agreement. This additional concession fee considers the period from April to March of each year, with payment required yearly.

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According to the Concession Agreement, once a 25% cumulative annualized internal rate of return hurdle (“IRR Hurdle”) is reached (as measured from the date of the first equity contribution to the concessionaire), any equity distributions above the IRR Hurdle to MBJA’s shareholders must be matched by an equal payment to the AAJ as owner of the concession assets (“Excess Benefit Payment”). Equity distributions include any dividend, capital reduction, interest, fee, loan or other payment to MBJA’s shareholders. To date, MBJA’s IRR Hurdle has not been reached; the aggregate as of December 2019 was of 19.0%.

The concession fee applied in 2017 was U.S.$2.88 per workload unit serviced. In 2017, the sum of these monthly and annual concession fees was Ps.483.0 million. The concession fee applied in 2018 was U.S.$2.87 per workload unit serviced. In 2018, the sum of these monthly and annual concession fees was Ps.542.9 million. The concession fee applied in 2019 was U.S.$2.93 per workload unit serviced. In 2019, the sum of these monthly and annual concession fees was Ps.611.5 million.

The additional concession fee for the concession year ending March 2018, March 2019 and March 2020 was U.S.$14.4 million, U.S.$15.9 million and U.S.$16.9 million, respectively.

Under the terms of the NMIA Concession Agreement and the relevant tax legislation, PACKAL is required to pay a monthly concession fee of 62.01% of the total aeronautical and non-aeronautical revenues based on the gross revenues of NMIA, to the Jamaican government to allow it to use and develop the assets subject to the concession.

From October 10, 2019 through December 31, 2019 PACKAL paid U.S.$5.6 million in concession fees.

Depreciation and Amortization

Depreciation and Amortization of Mexican Assets

Our depreciation and amortization expenses primarily reflect the amortization of our investment in our twelve Mexican concessions, which we began amortizing for accounting purposes in August 1999, the date on which the value of our Mexican concessions was determined based on the value assigned by AMP to our Series BB shares as part of its winning bid to acquire its 15% interest in us. In addition, we amortize the value of certain fixed assets we acquire or build at our Mexican airports pursuant to the investment requirements under our Master Development Programs. In 2017, these write-offs totaled Ps.23.5 million. In 2018, we did not write off any amounts. In 2019, these write-offs totaled Ps.46.8 million.For further information regarding depreciation and amortization expenses, refer to Notes 8, 9, 10, 11 and 12 to our audited consolidated financial statements.

Depreciation and Amortization of Jamaican Assets

Our depreciation and amortization expenses in Jamaica primarily reflect the amortization of our investment in our Jamaican airports, the value of certain fixed assets the airports acquired pursuant to the investment requirements under their respective Capital Development Programs and amortization of MBJA concessions’ fair value. For further information regarding depreciation and amortization expenses, refer to Notes 8, 9, 10, 11 and 12 to our audited consolidated financial statements.

Cost of Improvements to Concession Assets

In compliance with our Master Development Programs in Mexico and the Capital Development Program in Jamaica, we invest in additions and upgrades to our concession assets and these investments are reflected according to IFRIC 12. In our case, because we hire third parties to provide construction and upgrade services and we do not recognize a premium on the cost of services, our revenues from improvements to concession assets are equal to the cost of improvements to concession assets such that the application of IFRIC 12 does not have a cash impact on our results.

Taxation

We and each of our subsidiaries pay taxes on an individual (rather than consolidated) basis.

Our effective tax rates in 2017, 2018 and 2019 were 23.2%, 26.6% and 25.8%, respectively.

In 2019, our effective tax rate decreased 80 basis points as compared to 2018, resulting from a Ps.61.7 million decrease in our current tax expense mainly due to an exception for airports located along the Mexican border with the United States of America, for which the income tax rate for 2019 was 20%, applying the Decree for Fiscal Incentives in the Northern Border Region (Decreto de Estímulos Fiscales Región Fronteriza Norte) which reduces the applicable income tax by a third and a decrease in deferred income tax of Ps.84.1 million, derived from a lower inflation rate, which went from an inflation rate of 4.8% in 2018 to an inflation rate of 2.8% in 2019, partially offset by an increase in our earnings before income taxes of 4.8%.

In 2018, our effective tax rate increased 340 basis points as compared to 2017, resulting from a Ps.160.5 million decrease in the deferred tax benefits as a result of 4.8% inflation in 2018, versus 6.8% in 2017. These changes were offset by an decrease in our current tax expense by Ps.267.9 million, resulting from an increase in our earnings before income taxes of 13.5%.

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In 2017, our effective tax rate decreased 410 basis points as compared to 2016, resulting from an increase in our deferred tax benefits due to higher inflation in 2017.

We paid Ps.1,820.4 million, Ps.2,263.4 million and Ps.2,163.1 million in corporate taxes in 2017, 2018 and 2019, respectively, representing 29.5%, 32.3% and 29.4% of our earnings before taxes.

Taxation in Mexico

Beginning in 2014, significant changes to tax laws applicable in Mexico came into force, with substantial effects for Mexican taxpayers (as published in the Official Gazette on December 11, 2013, the “2014 Fiscal Reform”).

The principal change to affect our business from the 2014 Fiscal Reform was the effect on our deferred income taxes caused by the reform to the Income Tax Law, by which the income tax rate was prospectively increased from 28% to 30%. The new income tax rate will apply to all of our Mexican entities except for those entities with operations located on the Mexican side of the border with the United States, which will be subject to an income tax rate of 20% for the next two years pursuant to the Decree for Fiscal Incentives in the Northern Border Region (Decreto de Estímulos Fiscales Región Fronteriza Norte).

We regularly review our deferred tax assets for recoverability, which are reduced as necessary to the extent that a future tax benefit is no longer probable, based on an analysis of historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. In addition, Mexican tax law allows Mexican companies utilizing tax amortization rates that are lower than the maximum allowable rates to modify their tax amortization rates every five years, without exceeding the maximum allowable rate. Beginning in 2000, we utilized rates lower than the 15% maximum allowable rate to amortize our airport concessions and rights to use airport facilities for tax purposes.

According to the mechanism established to recover existing asset tax credit carryforwards, which ultimately benefit us, we have ten years beginning in 2008 to recover those existing asset tax credits. Every year, we review and adjust, as necessary, our financial projections based on new expectations of revenues, expenses and capital expenditures, whether for our Master Development Programs, for new maximum tariffs or new passenger traffic projections. Based on these changes, which resulted in our ability to recover tax on assets previously determined to be unrecoverable, and our financial projections for 2008 to 2017, we recognized Ps.354.9 million in 2007 associated with a previously paid recoverable tax on assets. In 2017, we decreased the recoverable tax on assets by Ps.7.6 million and Ps.46.6 million were recovered. During 2018, we recovered the remaining Ps.25.3 million of the amount recognized in 2007. In 2019, we recovered Ps.18.5 million, and believe no additional asset tax credit carryforward is recoverable.

Taxation in Jamaica

Jamaican companies, including our Jamaican airports, are required to pay corporate income tax on taxable profit, employer taxes on certain employee costs and a value-added tax on services offered.

Corporate income tax is applicable on taxable profit at a rate of 25%, but taxable profit may be reduced by an employer tax credit of up to the total amount of employer and certain obligatory employee taxes timely paid during any fiscal year. However, this employer tax credit is clawed back if any dividends are paid to shareholders in the subsequent fiscal years, based on a prescribed formula. In 2017, 2018 and 2019, MBJA incurred U.S.$8.4 million (Ps.158.6 million), U.S.$9.4 million (Ps.179.9 million) and U.S.$9.7 million (Ps.186.8 million), respectively, in corporate income tax liabilities. From October 10, 2019 through December 31, 2019, PACKAL did not incur corporate income tax liabilities for the period due to the fact that expenses exceeded income for the period.

Employee Profit Sharing

Employee Profit Sharing in Mexico

We are subject to the statutory employee profit sharing regime established under the Mexican Federal Labor Law (Ley Federal del Trabajo). Under this regime, 10% of each unconsolidated company’s annual profits (as calculated for tax purposes) must be distributed among its employees, other than its chief executive officer. The profit sharing is derived from the taxable income for the year as adjusted by the income tax for the year as modified per certain provisions.

Employee Profit Sharing in Jamaica

Our Jamaican airports are not subject to an employee profit sharing regime.

Employee Retirement Plans

Employee Retirement Plans in Mexico

Under Mexican legislation, we must make payments equivalent to 2% of our workers’ comprehensive daily salary to a defined contribution plan that is part of the retirement savings system. This expense amounted Ps.6.0 million in 2017, Ps.7.2 million in 2018 and Ps.8.0 million in 2019.

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Employee Retirement Plans in Jamaica

MBJA participates in a defined contribution pension scheme, the assets of which are held in a separate fund administered by trustees and a fund Administrator. Under this contribution pension scheme MBJA pays fixed percentage contributions to the fund, which are funded by payments from employees and the company. MBJA’s contributions are charged to the statement of comprehensive income for the year to which they relate.

PACKAL does not currently participate in a defined contribution pension scheme, all employees maintain short-term contracts in accordance with the terms of the concession. The defined contribution pension scheme will begin during October 2020. The assets of the pension will be held in a separate fund administered by trustees and a fund Administrator. Under this contribution pension scheme, PACKAL will pay fixed percentage contributions to the fund, which are funded by payments from employees and the company. PACKAL’s contributions will be charged to the statement of comprehensive income for the year to which they will relate.

Effects of Devaluation and Inflation

The following table sets forth, for the periods indicated, the percentage change in the price of the Mexican peso against the U.S. dollar, the Mexican inflation rate, the U.S. inflation rate, and the Mexican GDP, each as compared to the previous period:

	Year ended December 31,
	2017			2018			2019
Depreciation (appreciation) of the Mexican peso as compared to    the U.S. dollar (1)		(4.5	)%		(0.3)	%		(4.3	)%
Mexican inflation rate (2)		6.8	%		4.8	%		2.8	%
U.S. inflation rate (3)		2.1	%		1.9	%		2.3	%
Increase in Mexican GDP (4)		2.1	%		2.0	%		(0.1	)%

(1) Based on changes in the rates for calculating foreign exchange liabilities, as reported by the Mexican Central Bank (Banco de México), at the end of each period, which were as follows: Ps.19.7350 per U.S.$1.00 as of December 31, 2017, Ps.19.6829 per U.S.$1.00 as of December 31, 2018 and Ps.18.8452 per U.S.$1.00 as of December 31, 2019.

(2) Based on changes in the Mexican CPI from the previous period, as reported by INEGI. The Mexican CPI at year-end was 98.273 in 2017, 103.019 in 2018 and 105.934 in 2019.

(3) As reported by the U.S. Bureau of Labor Statistics.

(4) Estimated as reported by INEGI.

The general condition of the Mexican economy, changes in the value of the peso as compared to the U.S. dollar, inflation and high interest rates have in the past adversely affected, and may in the future adversely affect, our:

• Depreciation and amortization expense. According to IFRS, if inflation rates over a three-year period approach or exceed 100.0%, the incorporation of inflation in an entity’s financial statements becomes necessary. Therefore, non-monetary assets would be restated, and as a result depreciation and amortization of those assets would be higher, negatively affecting our net income.

• Passenger charges. Passenger charges for international passengers are currently denominated in U.S. dollars, but are invoiced and collected in pesos. Meanwhile, passenger charges for domestic passengers are denominated in pesos. Consequently, an appreciation of the peso against the U.S. dollar could cause declines in our revenues from passenger charges for international passengers and consequently our aeronautical revenues. This would also produce a decline in peso-denominated revenues when compared with the previous year, because our tariffs for the services we provide to international flights or international passengers are denominated in U.S. dollars but are generally invoiced and paid for in Mexican pesos based on the average exchange rate for the month prior to each flight on which the charge is incurred.

• Finance income (cost). As required by IFRS, our finance income (cost) reflects gains or losses from foreign exchange and gains and losses from interest earned or incurred, and as a consequence a depreciation or appreciation of the peso would impact the finance income (cost).

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• Maximum rates in pesos. Our tariffs for the services we provide in our Mexican airports to international flights or international passengers are denominated in U.S. dollars, but are generally invoiced and paid in Mexican pesos based on the average exchange rate for the month prior to each flight. During 2017, 2018 and 2019, we collected passenger charges from airlines within an average period of 52, 57 and 54 days, respectively. We intend to charge prices that are as close as possible to the maximum rates that we can charge. Since we are usually only entitled to adjust our specific prices once every six months (or earlier upon a cumulative increase of 5% in the Mexican PPI, excluding petroleum), a depreciation of the peso as compared to the U.S. dollar, particularly late in the year, could cause us to exceed the maximum rates at one or more of our airports, possibly leading to the termination of one of our Mexican concessions if it is repeated and sanctioned by the SCT at least three times. In the event that any one of our Mexican concessions is terminated, our other Mexican concessions may also be terminated. In addition, if the peso appreciates as compared to the U.S. dollar we may underestimate the specific prices we can charge for regulated services and be unable to adjust our prices upwards to maximize our regulated revenues.

• Non-aeronautical revenues. In addition, some of our non-aeronautical revenue contracts are denominated and invoiced in U.S. dollars; however, some of them are collected in Mexican pesos. Consequently, an appreciation of the peso against the U.S. dollar would cause declines in our revenues from these U.S. dollar-denominated contracts.

Results of Operations by Subsidiary

Historically, our most profitable airports have been our Guadalajara, Los Cabos, Montego Bay and Puerto Vallarta international airports, which handle the majority of our international passengers. We determine profitability per airport by dividing income from operations at each airport by total revenues for that airport. Operating margins at our Tijuana airport historically have been lower than at our other principal airports because the maximum rates applicable to aeronautical services provided at our Tijuana airport are lower than those applicable to our other principal airports. This results from the amortization of our concession relative to the level of revenues being much higher at our Tijuana airport than at our other principal airports because the original concession value assigned to Tijuana International Airport was proportionately higher.

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The following table sets forth our results of operations for the years indicated for each of our principal airports and our other subsidiaries:

Results of Operations

		Year ended December 31,
	2017				2018			2019
		(thousands of pesos, except percentages)
Guadalajara:
Revenues:
Aeronautical services	Ps.		2,426,289		Ps.	2,824,677		Ps.	2,978,617
Non-aeronautical services			645,997			796,739			938,445
			3,072,286			3,621,416			3,917,062
Improvements to concession assets (1)			326,198			110,415			858,807
Total revenues			3,398,484			3,731,831			4,775,869
Total costs			1,325,993			1,277,072			2,176,553
Costs of operations (2)			659,359			769,019			867,224
Cost of improvements to concession (1)			326,198			110,415			858,807
Depreciation and amortization			295,445			310,882			346,587
Other expense			44,992			86,756			103,935
Income from operations			2,072,491			2,454,759			2,599,316
Operating margin (3)			60.98	%		65.78	%		54.43	%
Tijuana:
Revenues:
Aeronautical services	Ps.		1,158,896		Ps.	1,344,122		Ps.	1,568,297
Non-aeronautical services			304,023			326,214			454,098
			1,462,919			1,670,337			2,022,396
Improvements to concession assets (1)			203,664			100,986			300,221
Total revenues			1,666,583			1,771,323			2,322,617
Total costs			782,618			728,956			1,047,716
Costs of operations (2)			347,487			364,605			447,599
Cost of improvements to concession (1)			203,664			100,986			300,221
Depreciation and amortization			161,892			180,904			206,983
Other expense			69,576			82,460			92,914
Income from operations			883,965			1,042,367			1,274,901
Operating margin (3)			53.04	%		58.85	%		54.89	%
Los Cabos:
Revenues:
Aeronautical services	Ps.		1,111,293		Ps.	1,244,106		Ps.	1,364,746
Non-aeronautical services			618,468			698,891			787,424
			1,729,761			1,942,997			2,152,170
Improvements to concession assets (1)			222,106			346,956			299,155
Total revenues			1,951,866			2,289,954			2,451,326
Total costs			780,029			1,017,773			1,053,998
Costs of operations (2)			351,195			403,660			446,048
Cost of improvements to concession (1)			222,106			346,956			299,155
Depreciation and amortization			201,241			217,858			234,669
Other expense			5,488			49,299			74,125
Income from operations			1,171,837			1,272,180			1,397,328
Operating margin (3)			60.04	%		55.55	%		57.00	%

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	Year ended December 31,
	2017				2018			2019
		(thousands of pesos, except percentages)
Montego Bay:
Revenues:
Aeronautical services	Ps.		1,290,079		Ps.	1,419,674		Ps.	1,512,164
Non-aeronautical services			496,477			543,878			585,325
			1,786,556			1,963,552			2,097,489
Improvements to concession assets (1)			66,131			545,959			136,363
Total revenues			1,852,687			2,509,511			2,233,853
Total costs			1,287,224			1,866,797			1,604,825
Costs of operations (2)			876,232			986,266			1,068,338
Cost of improvements to concession (1)			66,131			545,959			136,363
Depreciation and amortization			344,861			354,963			399,738
Other expense			-			(20,391	)		386
Income from operations			565,463			642,714			629,027
Operating margin (3)			30.50	%		25.61	%		28.16	%
Puerto Vallarta:
Revenues:
Aeronautical services	Ps.		989,137		Ps.	1,088,417		Ps.	1,183,610
Non-aeronautical services			371,939			399,427			455,699
			1,361,076			1,487,844			1,639,309
Improvements to concession assets (1)			101,235			40,330			57,697
Total revenues			1,462,310			1,528,174			1,697,007
Total costs			599,102			585,623			645,337
Costs of operations (2)			311,346			352,589			386,299
Cost of improvements to concession (1)			101,235			40,330			57,697
Depreciation and amortization			142,763			153,230			156,383
Other expense			43,758			39,474			44,958
Income from operations			863,209			942,551			1,051,669
Operating margin (3)			59.03	%		61.68	%		61.97	%
Guanajuato:
Revenues:
Aeronautical services	Ps.		386,726		Ps.	484,799		Ps.	584,650
Non-aeronautical services			116,686			148,119			180,327
			503,412			632,918			764,976
Improvements to concession assets (1)			122,133			16,244			32,853
Total revenues			625,545			649,162			797,829
Total costs			313,181			241,125			320,512
Costs of operations (2)			128,660			149,389			169,099
Cost of improvements to concession (1)			122,133			16,244			32,853
Depreciation and amortization			52,835			61,072			101,688
Other expense			9,553			14,419			16,873
Income from operations			312,364			408,037			477,317
Operating margin (3)			49.93	%		62.86	%		59.83	%

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	Year ended December 31,
	2017			2018			2019(1)
	(thousands of pesos, except percentages)
Hermosillo:
Revenues:
Aeronautical services	Ps.	272,941		Ps.	306,118		Ps.	337,380
Non-aeronautical services		62,481			82,922			97,696
		335,422			389,040			435,076
Improvements to concession assets (1)		174,769			47,541			3,332
Total revenues		510,191			436,581			438,408
Total costs		367,355			283,006			247,329
Costs of operations (2)		113,887			142,377			152,523
Cost of improvements to concession (1)		174,769			47,541			3,332
Depreciation and amortization		59,241			72,635			75,028
Other expense		19,459			20,452			16,446
Income from operations		142,836			153,575			191,079
Operating margin (3)		28.00	%		35.18	%		43.58	%
Other Airport Subsidiaries (4) :
Revenues:
Aeronautical services	Ps.	645,162		Ps.	787,242		Ps.	1,018,256
Non-aeronautical services		152,133			180,517			265,281
		797,294			967,759			1,283,537
Improvements to concession assets (1)		96,256			231,771			218,373
Total revenues		893,551			1,199,530			1,501,910
Total costs		692,276			893,333			1,151,661
Costs of operations (2)		353,824			409,838			637,879
Cost of improvements to concession (1)		96,256			231,771			218,373
Depreciation and amortization		175,473			186,996			210,358
Other expense		66,722			64,728			85,051
Income from operations		201,275			306,197			350,249
Operating margin (3)		22.53	%		25.53	%		23.32	%
Other Subsidiaries (5) :
Revenues:
Non-aeronautical services	Ps.	4,700		Ps.	6,823		Ps.	7,205
Total revenues		4,700			6,823			7,205
Total costs		(63,591	)		(15,447	)		(39,149	)
Costs of operations (2)		270,067			363,806			349,624
Depreciation and amortization		9,811			31,097			44,703
Other (income)		(343,470	)		(410,350	)		(433,476	)
Income from operations		68,291			22,270			46,354
Total:
Revenues:
Aeronautical services	Ps.	8,280,522		Ps.	9,499,154		Ps.	10,547,720
Non-aeronautical services		2,772,905			3,183,532			3,771,500
		11,053,427			12,682,686			14,319,220
Improvements to concession assets (1)		1,312,491			1,440,204			1,906,801
Total revenues		12,365,918			14,122,890			16,226,021
Total costs		6,084,187			6,878,237			8,208,783
Costs of operations (2)		3,412,055			3,941,549			4,524,633
Cost of improvements to concession (1)		1,312,491			1,440,204			1,906,801
Depreciation and amortization		1,443,562			1,569,637			1,776,137
Other (income) expense		(83,921	)		(73,152	)		1,212
Income from operations		6,281,731			7,244,652			8,017,238
Operating margin (3)		50.80	%		51.30	%		49.41	%

(1) Corresponds to recognition of revenues and costs pursuant to IFRIC 12.

(2) Cost of operations includes cost of services, technical assistance fees and concession taxes.

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(3) We determine operating margin per airport by dividing income from operations at each airport or group of airports by total revenues for that airport or group of airports.

(4) Reflects the results of operations of our Morelia, La Paz, Aguascalientes, Mexicali, Los Mochis and Manzanillo airports. It also includes information for the Kingston airport for the period from October 10 to December 31, 2019.

(5) Other subsidiaries data reflects the results of operations of our principal holding company as well as those of our administrative, operating and car parking services providers.

The following table sets forth a summary of our consolidated results of operations for the years indicated:

Summary Consolidated Results of Operations

	Year ended December 31,
	2017			2018			2019(1)			% change
	(thousands of pesos, except percentages)
Revenues:
Aeronautical services	Ps.	8,280,522		Ps.	9,499,154		Ps.	10,547,720			11.0	%
Non-aeronautical services		2,772,905			3,183,532			3,771,500			18.5	%
		11,053,427			12,682,686			14,319,220			12.9	%
Improvements to concession assets		1,312,491			1,440,204			1,906,801			32.4	%
Total revenues		12,365,918			14,122,890			16,226,021			14.9	%
Operating costs:
Cost of services		2,110,407			2,453,722			2,744,864			11.9	%
Technical assistance fees		357,451			411,477			461,549			12.2	%
Concession taxes		944,197			1,076,350			1,318,220			22.5	%
Depreciation and amortization		1,443,562			1,569,637			1,776,137			13.2	%
Other (income) expense		(83,921	)		(73,152	)		1,212			(101.7	)%
Cost of improvements to concession assets		1,312,491			1,440,204			1,906,801			32.4	%
Total costs		6,084,187			6,878,238			8,208,783			19.3	%
Income from operations		6,281,731			7,244,652			8,017,238			10.7	%
Finance cost
Interest cost, net		(198,472	)		(435,717	)		(759,917	)		74.4	%
Exchange gain, net		99,083			199,684			88,785			(55.5	)%
Net finance (cost) income		(99,389	)		(236,033	)		(671,132	)		184.3	%
Share of (loss) profit of associate		(10,620	)		(947	)		79			(108.3	)%
Income before income taxes		6,171,722			7,007,672			7,346,185			4.8	%
Income tax expense		1,440,641			1,869,041			1,891,443			1.2	%
Profit for the year		4,731,081			5,138,631			5,454,742			6.2	%
Other comprehensive income
Items that are or may be reclassified subsequently to    profit or loss:
Exchange differences on translating foreign operations		(226,494	)		(103,569	)		(269,440	)		160.2	%
Cash flow hedges, effective portion of changes in fair value, net of income tax		—			—			(172,094	)		(100.0	)%
Items that will not be reclassified to profit or loss:
Remeasurements of employee benefit – net of income tax		(2,602	)		(161	)		(1,404	)		770.8	%
Total comprehensive income for the year		4,501,985			5,034,901			5,011,804			(0.5	)%
Profit for the year attributable to:
Controlling interest		4,649,120			5,037,368			5,360,152			6.4	%
Non-controlling interesting		81,961			101,263			94,590			(6.6	)%
Profit for the year		4,731,081			5,138,631			5,454,742			6.2	%
Total comprehensive income for the year
Controlling interest		4,451,659			4,936,526			4,937,027			0.0	%
Non-controlling interesting		50,326			98,375			74,777			(24.0	)%
Total comprehensive income for the year		4,501,985			5,034,901			5,011,804			(0.5	)%
Other operating data:
Operating margin (2)		50.8	%		51.3	%		49.4	%		(3.7	)%
Net margin (3)		38.3	%		36.4	%		33.6	%		(7.6	)%

(1) Includes information for the Kingston airport for the period from October 10 to December 31, 2019.

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(2) Income from operations divided by total revenues, expressed as a percentage.

(3) Net income divided by total revenues, expressed as a percentage.

Results of Operations for the Year ended December 31, 2019 Compared to the Year Ended December 31, 2018

Revenues

Total revenues increased by Ps.2,103.1 million, or 14.9%, from Ps.14,122.9 million in 2018 to Ps.16,226.0 million in 2019. The total revenue increase comprised an increase of Ps.1,048.6 million, or 11.0%, in aeronautical services revenues, an increase of Ps.588.0 million, or 18.5%, in non-aeronautical services revenues and an increase of Ps.466.6 million, or 32.4%, in revenues from improvements to concession assets which increased as a result of the committed investments outlined in our Master Development Programs.

Aeronautical Services Revenues

Aeronautical services revenues increased by Ps.1,048.6 million, or 11.0%, from Ps.9,499.2 million in 2018 to Ps.10,547.8 million in 2019, mainly due to an increase of Ps.814.4 million, or 10.1%, in revenues at our Mexican airports as a result of an increase of Ps.589.9 million or 8.6% in revenues from passenger charges, as result of the 7.7% increase in total passenger traffic and the increase in specific tariffs as of January 1, 2019. Revenues from aircraft landing and parking fees in our Mexican airports increased by Ps.185.3 million, or 23.2%, while revenues from the leasing of space to airlines for ticket counters, airport security and complementary services increased by Ps.39.1 million, or 10.1%. Revenues from the Montego Bay airport increased by Ps.92.5 million, or 6.5%, in 2019 compared to 2018, mainly due to an increase in passenger traffic of 5.0%, an increase of the U.S. CPI of 2.3%. The consolidation of PACKAL from October 10, 2019 to December 31, 2019, contributed Ps.141.7 million in aeronautical services revenues.

Non-Aeronautical Services Revenues

Non-aeronautical services revenues increased by Ps.588.0 million, or 18.5%, from Ps.3,183.5 million in 2018 to Ps.3,771.5 million in 2019. Our Mexican airports represented an increase of Ps.508.5 million, or 19.3%, compared to 2018, driven mainly by a Ps.310.6 million increase in revenues from businesses operated by third-parties, primarily driven by revenues from food and beverage services, car rentals, duty-free stores, retail stores, and timeshares and commercial spaces, which jointly increased by Ps.283.7 million. Revenues from businesses operated directly by us increased by Ps.168.2 million or 20.6%, mainly due to an increase in car parking revenues, convenience stores and VIP lounges. The latter two categories increased as a result of the openings that took place during 2019 and revenues from recovery of costs increased by Ps.29.7 million or 16.8% compared to 2018. Revenues from the Montego Bay airport increased by Ps.41.5 million, or 7.6% compared to 2018, mainly an increase in revenues from duty-free stores, retail stores, leasing of space and food and beverage operations. The consolidation of PACKAL from October 10, 2019 to December 31, 2019, contributed Ps.38.0 million to non-aeronautical revenues.

Revenues from Improvements to Concession Assets

Revenues from improvements to concession assets increased by Ps.466.6 million, or 32.4%, from Ps.1,440.2 million in 2018 to Ps.1,906.8 million in 2019. Revenues from improvements to concession assets are determined by committed investments under our Master Development Programs in Mexico and our Capital Development Program in Jamaica. During 2019, the main commitments of improvements to concession assets included: (i) expansion of the terminal building at the Guadalajara airport, (ii) expansion of the terminal building at the Aguascalientes airport, (iii) expansion of the terminal building at the Morelia airport (iv) rehabilitation of runways at the La Paz airport, (v) connection of the terminal buildings at the Los Cabos airport, (vi) rehabilitation of aprons and taxiways at the Tijuana airport and (vii) expansion of the terminal building at the Montego Bay airport.

Revenues by Airport

Total revenues for the Guadalajara airport increased by Ps.1,044 million, or 28.0%, from Ps.3,731.8 million in 2018 to Ps.4,775.9 million in 2019 (revenues increased by Ps.295.6 million, or 8.2%, taking into account only revenues from aeronautical and non-aeronautical services). Aeronautical services revenues increased by Ps.153.9 million, or 5.4%, from Ps.2,824.7 million in 2018 to Ps.2,978.6 million in 2019 . This increase in aeronautical services revenues was mainly due to a Ps.135.0 million, or 5.7%, increase in passenger charges driven by a 3.4% increase in passenger traffic. Non-aeronautical services revenues increased by Ps.141.7 million, or 17.8%, from Ps.796.7 million in 2018 to Ps.938.4 million in 2019, this increase in non-aeronautical services revenues was primarily due to a Ps.82.7 million increase in revenues from businesses operated by third parties, such as food and beverage operations, car rentals, leasing of space and duty-free operations. Revenues from business lines operated by us increased Ps.59.0 million, or 18.0%, principally as a result of increase revenues from car parking, convenience stores and advertising. Revenues from improvements to concession assets increased by Ps.748.4 million, or 677.8%, as compared to 2018.

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Total revenues for the Tijuana airport increased by Ps.551.3 million, or 31.1%, from Ps.1,771.3 million in 2018, to Ps.2,322.6 million in 2019 (revenues increased by Ps.352.1 million, or 21.1%, taking into account only revenues from aeronautical and non-aeronautical services). Aeronautical services revenues increased by Ps.224.2 million, or 16.7%, from Ps.1,344.1 million in 2018 to Ps.1,568.3 million in 2019. This increase in aeronautical services revenues was mainly due to an increase in passenger charges of Ps.198.8 million driven by a 13.9% increase in passenger traffic, as well as increases in revenues from landing, leasing of space to airlines, aircraft parking charges and airport security charges, which together increased by Ps.19.1 million. Non-aeronautical services revenues increased by Ps.127.9 million, or 39.2%, from Ps.326.2 million in 2018, to Ps.454.1 million in 2019 primarily due to an increase of Ps.60.8 million from business lines operated by us, including VIP lounges, car parking, advertising and convenience store and an increase of Ps.67.1 million in revenues from business lines operated by third parties, including car rental and food and beverage operations. Revenues from improvements to concession assets increased by Ps.199.2 million, or 197.3%, in 2019 as compared to 2018.

Total revenues for the Los Cabos airport increased by Ps.161.4 million, or 7.0%, from Ps.2,290.0 million in 2018 to Ps.2,451.3 million in 2019 (revenues increased by Ps.209.2 million, or 10.8%, taking into account only revenues from aeronautical and non-aeronautical services). Aeronautical services revenues increased by Ps.120.6 million, or 9.7% from Ps.1,244.1 million in 2018 to Ps.1,364.7 million in 2019. This increase in aeronautical services revenues was mainly due to a Ps.97.2 million, or 9.2%, increase in passenger charges driven by a 6.9% increase in passenger traffic, as well as increases in landing charges, airport security charges and complementary service providers totaling Ps.22.1 million. Non-aeronautical services revenues increased by Ps.88.5 million, or 12.7%, from Ps.698.9 million in 2018, to Ps.787.4 million in 2019 primarily due to a Ps.68.4 million increase in revenues from business lines operated by third parties, including duty-free operations, food and beverage operations, communications, timeshare operation, ground transportation, as well as a Ps.20.1 million increase in revenues from business lines operated by us, including car parking and VIP lounges. Revenues from improvements to concession assets decreased by Ps.47.8 million, or 13.8%, in 2019, as compared to 2018.

Total revenues for the Montego Bay airport decreased by Ps.275.7 million, or 11.0%, from Ps.2,509.5 million in 2018 to Ps.2,233.9 million in 2019 (revenues increased by Ps.133.9 million, or 6.8%, taking into account only revenues from aeronautical and non-aeronautical services). Aeronautical services revenues increased by Ps.92.5 million, or 6.5%, from Ps.1,419.7 million in 2018 to Ps.1,512.2 million in 2019. This increase in aeronautical services revenues was mainly due to a Ps.66.4 million, or 7.8%, increase in passenger charges, as well as an increase of Ps.16.2 million, or 6.4%, in revenues from airport security charges and landing charges. Non-aeronautical services revenues increased by Ps.41.4 million, or 7.6%, from Ps.543.9 million in 2018 to Ps.585.3 million in 2019, primarily due to a Ps.41.7 million increase in revenues from businesses operated by third parties, such as duty-free operations, car rentals, leasing of space and food and beverage operations. Revenues from improvements to concession assets decreased by Ps.409.6 million, or 75.0%, in 2019, as compared to 2018.

Total revenues for the Puerto Vallarta airport increased by Ps.168.8 million, or 11.0%, from Ps.1,528.2 million in 2018 to Ps.1,697.0 million in 2019 (revenues increased by Ps.151.5 million, or 10.2%, taking into account only revenues from aeronautical and non-aeronautical services). Aeronautical services revenues increased by Ps.95.2 million, or 8.7%, from Ps.1,088.4 million in 2018 to Ps.1,183.6 million in 2019. This increase in aeronautical services revenues was primarily due to an increase in passenger charges of Ps.80.3 million, itself caused principally by a 6.0% increase in passenger traffic and an increase in revenues from landing charges, leasing of space to airlines and complementary service providers of Ps.12.7 million. Non-aeronautical services revenues increased by Ps.56.3 million, or 14.1%, from Ps.399.4 million in 2018 to Ps.455.7 million in 2019, due to a Ps.20.4 million increase in revenues from businesses operated by third parties, including retail operations, timeshare operation, car rentals, food and beverage operations and duty-free operations, and an increase in revenues from business lines operated by us of Ps.35.9 million, mainly in convenience store and VIP lounges. Revenues from improvements to concession assets increased by Ps.17.4 million, or 43.1%, in 2019, as compared to 2018.

Total revenues for the Guanajuato airport increased by Ps.148.7 million, or 22.9%, from Ps.649.2 million in 2018 to Ps.797.8 million in 2019 (revenues increased Ps.132.1 million, or 20.9%, taking into account only revenues from aeronautical and non-aeronautical services). Aeronautical services revenues increased by Ps.99.9 million, or 20.6%, from Ps.484.8 million in 2018, to Ps.584.6 million in 2019 mainly due to an increase in passenger charges of Ps.95.0 million, or 23.1%, driven by a 17.8% increase in passenger traffic, as well as a Ps.2.1 million increase in complementary service providers. Non-aeronautical services revenues increased by Ps.32.2 million, or 21.7%, from Ps.148.1 million in 2018 to Ps.180.3 million in 2019. This increase in non-aeronautical services revenues is a result of a Ps.23.7 million increase in revenues from businesses operated by third parties, including retail operations, food and beverage operations, leasing of space and car rentals, as well as a Ps.8.5 million increase in revenues from businesses operated by us, including revenues related to VIP lounges, car parking charges and convenience stores. Revenues from improvements to concession assets increased by Ps.16.6 million, or 102.2%, in 2019, as compared to 2018.

Total revenues for the Hermosillo airport increased by Ps.1.8 million, or 0.4%, from Ps.436.6 million in 2018 to Ps.438.4 million in 2019 (revenues increased Ps.46.0 million, or 11.8%, taking into account only revenues from aeronautical and non-aeronautical services). Aeronautical services revenues increased by Ps.31.3 million, or 10.2%, from Ps.306.1 million in 2018 to Ps.337.4 million in 2019, mainly due to an increase in passenger charges of Ps.24.7 million, or 10.1%, driven by a 7.5% increase in passenger traffic, as well as increase of Ps.5.5 million in revenues from complementary service providers landing charges and aircraft parking charges. Non-aeronautical services revenues increased by Ps.14.8 million, or 17.8%, from Ps.82.9 million in 2018 to Ps.97.7 million in 2019, primarily due to a Ps.8.6 million increase in revenues from business lines operated by us, including revenues related to VIP lounges and car parking services, and a Ps.6.2 million increase in revenues from business lines operated by third parties, primarily from retail operations, car rentals and food and beverage operations. Revenues from improvements to concession assets decreased by Ps.44.2 million, or 93.0%, in 2019, as compared to 2018.

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Total revenues for our other seven airports increased by Ps.302.4 million, or 25.2%, from Ps.1,199.5 million in 2018, to Ps.1,501.9 million in 2019, and (revenues increased by Ps.315.8 million, or 32.6%, taking into account only revenues from aeronautical and non-aeronautical services), primarily due to the consolidation of PACKAL from October 10, 2019 to December 31, 2019, which contributed Ps.179.7 million. Aeronautical services revenues at these airports increased by Ps.231.0 million, or 29.3%, from Ps.787.2 million in 2018 to Ps.1,018.3 million in 2019, mainly due to a 8.3% increase in passenger traffic and the consolidation of PACKAL from October 10, 2019 to December 31, 2019 which contributed Ps.141.7 million. Non-aeronautical services revenues increased by Ps.84.8 million, or 47.0%, from Ps.180.5 million in 2018 to Ps.265.3 million in 2019, primarily due to a Ps.40.5 million increase in revenues from businesses operated by us, including advertising, car parking charges and convenience stores, as well as a Ps.44.3 million increase in revenues from businesses operated by third parties, including from leasing space and car rentals. The consolidation of PACKAL from October 10, 2019 to December 31, 2019, contributed Ps.38.0 million in non-aeronautical services revenues. Revenues from improvements to concession assets decreased by Ps.13.4 million or 5.8%, in 2019, as compared to 2018.

Operating Costs

Total operating costs increased by Ps.1,330.5 million, or 19.3%, from Ps.6,878.2 million in 2018 to Ps.8,208.8 million in 2019, partly due to an increase in operating costs for our Mexican airports of Ps.1,408.7 million, or 28.1%, from Ps.5,011.4 million in 2018 to Ps.6,420.2 million in 2019. Operating expenses of MBJA decreased by Ps.261.9 million, or 14.0%, from Ps.1,866.8 million in 2018 to Ps.1,604.8 million in 2019. The consolidation of PACKAL from October 10, 2019 to December 31, 2019 contributed Ps.183.7 million.

Cost of Services

Cost of services, which comprises employee costs, maintenance, safety, security and insurance, utilities and other expenses, increased by Ps.291.1 million, or 11.9%, from Ps.2,453.7 million in 2018 to Ps.2,744.9 million in 2019.

Cost of services for our Mexican airports increased by Ps.202.2 million, or 10.1%, in 2019 compared to 2018. The change in cost of services for these airports was composed primarily of the following factors:

• Employee costs increased by Ps.71.1 million, or 10.9%, compared to 2018, mainly due to a 5.8% increase in the workforce compared to 2018, as well as increases in wages and salaries.

• Other operating expenses increased by Ps.50.4 million, or 13.7%, mainly due to higher professional services fees, sales costs for the VIP lounges and recognized an expected credit loss for doubtful accounts, which together increased by Ps.45.1 million or 8.3%.

• Maintenance costs increased by Ps.37.6 million, or 8.3%, compared to 2018, mainly due to maintenance of terminal buildings, operational areas, aprons and runways, access roads, air conditioning and building cleaning services.

• Utility costs increased by Ps.30.0 million, or 13.0%, compared to 2018, mainly due to an increase of Ps.27.4 million in electricity consumption as a result of terminal expansions and higher energy prices during 2019.

Of our Mexican airports, the Guadalajara airport contributed most to the increase in the cost of services in 2019 as compared to 2018.

The cost of services at our Guadalajara airport increased by Ps.98.2 million, or 12.8%, from Ps.769.0 million in 2018 to Ps.867.2 million in 2019, mainly as a result of increases of Ps.29.9 million in utilities costs, Ps.17.5 million in employee costs, Ps.17.7 million in maintenance expenses and Ps.16.1 million in other operating expenses.

Costs of services at the Montego Bay airport increased by Ps.14.9 million, or 3.4%, in 2019 compared to 2018. The change in cost of services for this airport was composed primarily of the following factors:

• Safety and security expenses increased by Ps.13.3 million, or 17.3%, compared to 2018, mainly due to increased security costs for our terminals and increase in insurance policy.

• Maintenance costs increased by Ps.4.2 million, or 5.4%, compared to 2018, mainly due to maintenance of the terminal building and service areas.

• Employee costs increased by Ps.8.5 million, or 6.9%, compared to 2018, due to 2.0% increase in the workforce compared to 2018 and an increase in wages and salaries.  

• Other operating expenses decreased by Ps.4.0 million, or 6.6%, compared to 2018, mainly due to higher professional services fees of Ps.3.3 million.

• Partially offset by a decrease in Utility costs of Ps.6.5 million, or 6.2%, compared to 2018, mainly due to an decrease of Ps.6.4 million in electricity and water consumption.

The consolidation of PACKAL resulted in an increase in the costs of services by Ps.73.9 million, mainly due to employee costs of Ps.23.8 million, utility costs of Ps.21.8 million, security and insurance costs of Ps.15.7 million and maintenance expenses of Ps.7.8 million.

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Technical Assistance Fees

Technical assistance fees increased by Ps.50.0 million, or 12.2%, from Ps.411.5 million in 2018 to Ps.461.5 million in 2019. This increase in technical assistance fees was mainly due to an increase in our consolidated income from operations at the Mexican airports, which is used to calculate the technical assistance fee. See “Item 4, Information on the Company – History and Development of the Company – Investment by AMP.”

Concession Taxes

As a result of the revenues increase (excluding revenues from improvements to concession assets, which do not form part of income for purposes of the government concession tax), government concession taxes increased by Ps.241.9 million, or 22.5%, from Ps.1,076.3 million in 2018 to Ps.1,318.2 million in 2019 mainly as a result of the consolidation of PACKAL which contributed Ps.107.6 million in government concession taxes from October 10, 2019 to December 31, 2019.

Depreciation and Amortization

Depreciation and amortization increased by Ps.206.5 million, or 13.2%, from Ps.1,569.6 million in 2018 to Ps.1,776.1 million in 2019, mainly due to the growth in infrastructure, resulting from the fulfillment of our Master Development Programs.

Other (Income) expense

Other income decreased by Ps.74.4 million, or 101.7%, from income of Ps.73.2 million in 2018 to expense Ps.1.2 million in 2019, mainly due to a decrease of cancellation of other provisions by Ps.36.9 million and a decrease in recovery from insurance of Ps.12.6 million and an increase in other expenses by Ps.33.6 million.

Cost of Improvements to Concession Assets

Cost of improvements to concession assets increased by Ps.466.6 million, or 32.4%, from Ps.1,440.2 million in 2018 to Ps.1,906.8 million in 2019. In Mexico we had an increase of Ps.876.2 million or 98.0% in 2019, as compared to 2018. This increase was partially offset by a decrease in the amount allocated in our Capital Development Program for 2019, as compared to 2018 in MBJA, which recognized Ps.136.4 million in cost of improvements to concession assets in 2019, as compared to Ps.546.0 million in 2018.   

Operating Costs by Airport

Operating costs for the Guadalajara airport increased by Ps.899.5 million, or 70.4%, from Ps.1,277.1 million in 2018 to Ps.2,176.6 million in 2019. This increase was primarily due to a Ps.748.4 million, or 677.8%, increase in the cost of improvements to concession assets from Ps.110.4 million in 2018 to Ps.858.8 million in 2019 and a Ps.98.2 million, or 12.8% increase in the cost of services, mainly driven by employee costs, safety, security and insurance, maintenance and concession taxes. Depreciation and amortization increased by Ps.35.7 million, or 11.5%, in 2019 as compared to 2018. Operating costs increased by Ps.151.1 million, or 13.0%, without including the cost of improvements to concession assets.

Operating costs for the Tijuana airport increased by Ps.318.8 million, or 43.7%, from Ps.729.0 million in 2018 to Ps.1,047.7 million in 2019. This increase was mainly due to a Ps.199.2 million, or 197.3%, increase in the cost of improvements to concession assets from Ps.101.0 million in 2018 to Ps.300.2 million in 2019 and a Ps.83.0 million, or 22.8%, increase from Ps.364.6 million in 2018 to Ps.447.6 million in 2019, in the cost of services mainly driven by safety, security and insurance, utilities, employees costs and concession taxes. Depreciation and amortization increased Ps.26.1 million, or 14.4% in 2019 as compared to 2018. Operating costs increased by Ps.119.6 million, or 19.0%, without including the cost of improvements to concession assets.

Operating costs for the Los Cabos airport increased by Ps.36.2 million, or 3.6%, from Ps.1,017.8 million in 2018 to Ps.1,054.0 million in 2019. This increase was mainly due to a Ps.71.5 million, or 17.7%, increase in the cost of services mainly in utilities, safety, security and insurance and concession taxes, from Ps.403.7 million in 2018 to Ps.475.2 million in 2019. In addition, there was a Ps.16.8 million, or 7.7% increase in depreciation and amortization in 2019 as compared to 2018. The increases were partially offset by a Ps.47.8 million, or 13.8%, decrease in the cost of improvements to concession assets from Ps.347.0 million in 2018 to Ps.299.2 million in 2019. Operating costs increased by Ps.84.0 million, 12.5%, without including the cost of improvements to concession assets.

Operating costs for the Montego Bay airport decreased by Ps.261.9 million, or 14.01%, from Ps.1,866.8 million in 2018 to Ps.1,604.8 million in 2019 of Ps.82.0 million, primarily due to a Ps.409.6 million, or 75.0%, decrease in the cost of improvements to concession assets from Ps.546.0 million in 2018 to Ps.136.4 million in 2019, and partially offset by an increase in costs of operations, from Ps.986.3 million in 2018 to Ps.1,068.3 million in 2019, including employee costs, maintenance costs, utilities and safety, security and insurance and concession taxes. Depreciation and amortization expenses increased Ps.44.7 million, or 12.6%, from Ps.355.0 million in 2018 to Ps.399.7 million in 2019. Operating costs increased by Ps.147.6 million, or 11.2%, without including the cost of improvements to concession assets.

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Operating costs for the Puerto Vallarta airport increased by Ps.59.7 million, or 10.2%, from Ps.585.6 million in 2018 to Ps.645.3 million in 2019. This increase was primarily due to an increase of Ps.17.4 million, or 43.1% in the cost of improvements to concession assets from Ps.40.3 million in 2018 to Ps.57.7 million in 2019, Other expense increased Ps.34.7 million or 87.8% mainly due to the cancellation of non-payable liabilities and provisions in 2018, and an increase of Ps.4.5 million, or 1.3%, in the cost of services, driven by an increase in maintenance, utilities and employee cost. Depreciation and amortization increased by Ps.3.2 million, or 2.1%, in 2019 as compared to 2018. Operating costs increased by Ps.42.3 million, or 7.8%, without including the cost of improvements to concession assets.

Operating costs for the Guanajuato airport increased by Ps.79.4 million, or 32.9%, from Ps.241.1 million in 2018 to Ps.320.5 million in 2019. This increase was mainly due an increase of Ps.16.6 million or 102.2%, in the cost of improvements to concession assets from Ps.16.2 million in 2018 to Ps.32.9 million in 2019, and an increase of Ps.19.7 million, or 13.2%, in the cost of services, driven by an increase in safety, security and insurance and other expenses costs. Depreciation and amortization increased by Ps.40.6 million, or 66.5%, in 2019 as compared to 2018. Operating costs increased by Ps.62.7 million, or 27.9%, without including the cost of improvements to concession assets.

Operating costs for the Hermosillo airport decreased by Ps.35.7 million, or 12.6%, from Ps.283.0 million in 2018 to Ps.247.3 million in 2019. This decrease was due to a Ps.44.2 million, or 93.0%, decreased in the cost of improvements to concession assets from Ps.47.5 million in 2018 to Ps.3.3 million in 2019 and partially offset by a Ps.10.1 million, or 7.1%, increase in the cost of services, mainly in costs of maintenance and safety and security. Depreciation and amortization increased by Ps.2.4 million, or 3.3%, in 2019 as compared to 2018. Operating costs increased by Ps.8.5 million, or 3.6%, without including the cost of improvements to concession assets.

Operating costs for our other seven airports increased by Ps.258.3 million, or 28.9%, from Ps.893.3 million in 2018 to Ps.1,151.7 million in 2019. This increase was primarily due to the consolidation of PACKAL from October 10, 2019 to December 31, 2019 which contributed Ps.183.7 million to operating costs. Overall, cost of services increased Ps.228.0 million, or 55.6%, from Ps.409.9 million in 2018 to Ps.637.9 million in 2019, mainly as a result of increases in the costs of maintenance, utilities, safety and security, concession fee and other expenses, partially offset by a decrease of Ps.13.4 million, or 5.8%, in the cost of improvements to concession assets from Ps.231.8 million in 2018 to Ps.218.4 million in 2019. Additionally, depreciation and amortization increased by Ps.23.4 million, or 12.5%, in 2019 as compared to 2018. Operating costs increased by Ps.271.7 million, or 41.1%, without including the cost of improvements to concession assets.

Income from Operations

Income from operations increased by Ps.772.6 million, or 10.7%, from Ps.7,244.7 million in 2018 to Ps.8,017.2 millionin 2019. This increase was due to a Ps.2,103.1 million increase in total revenues in 2019, partially offset by a Ps.1,330.5 million increase in total costs. Our operating margin decreased by 190 basis points, from 51.3% in 2018 to 49.4% in 2019 (taking into account only the sum of aeronautical and non-aeronautical services revenues, the operating margin decreased by 100basis points in 2019, from 57.1% to 56.1%).

Historically, our most profitable airports have been our Guadalajara, Los Cabos and Puerto Vallarta airports, which handle the majority of our international passengers in Mexico. Historically, operating margins at our Tijuana airport have been lower than at our other principal airports because of a combination of (i) a high initial concession value, and consequently larger amortizations thereof, and (ii) lower revenues due to low maximum rates applicable to aeronautical services.

Income from Operations by Airport

Income from operations for the Guadalajara airport increased by Ps.144.6 million, or 5.9%, from Ps.2,454.8 million in 2018 to Ps.2,599.3 million in 2019, mainly due to an increase in aeronautical and non-aeronautical services revenues of Ps.295.6 million. The operating margin decreased by 1,140 basis points, from 65.8% to 54.4% (operating margin decreased by 140 basis points, from 67.8% to 66.4%, taking into account only the sum of aeronautical and non-aeronautical services revenues).

Income from operations for the Tijuana airport increased by Ps.232.5 million, or 22.3%, from Ps.1,042.4 million in 2018 to Ps.1,274.9 million in 2019, primarily due to an increase in aeronautical and non-aeronautical services revenues of Ps.352.1 million. The operating margin decreased by 400 basis points from 58.8% to 54.8% (operating margin increased by 60 basis points from 62.4% to 63.0%, taking into account only the sum of aeronautical and non-aeronautical services revenues).

Income from operations for the Los Cabos airport increased by Ps.125.1 million, or 9.8%, from Ps.1,272.2 million in 2018 to Ps.1,397.3 million in 2019, primarily due to an increase in aeronautical and non-aeronautical services revenues of Ps.209.2 million. The operating margin increased by 140 basis points from 55.6% to 57.0% (operating margin decreased by 50 basis points, from 65.5% to 65.0%, taking into account only the sum of aeronautical and non-aeronautical services revenues).

Income from operations for the Montego Bay airport decreased by Ps.13.7 million, or 2.1%, from Ps.642.7 million in 2018 to Ps.629.0 million in 2019, primarily due to a decrease in improvements to concession assets of Ps.409.6 million and an increase in operating costs of Ps.147.6 million. The decrease was partially offset by an increase in aeronautical and non-aeronautical services revenues of Ps.133.9 million. The operating margin increased by 260 basis points from 25.6% in 2018 to 28.2% in 2019 (operating margin decreased by 270 basis points from 32.7% in 2018 to 30.0% in 2019, taking into account only the sum of aeronautical and non-aeronautical services revenues).

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Income from operations for the Puerto Vallarta airport increased by Ps.109.1 million, or 11.6%, from Ps.942.6 million in 2018 to Ps.1,051.7 million in 2019, mainly due to an increase in aeronautical and non-aeronautical services revenues of Ps.151.5 million. The operating margin increased by 30 basis points from 61.7% to 62.0% (operating margin increased by 80 basis points from 63.4% to 64.2%, taking into account only the sum of aeronautical and non-aeronautical services revenues).

Income from operations income for the Guanajuato airport increased by Ps.69.1 million, or 16.9%, from Ps.408.0 million in 2018 to Ps.477.1 million in 2019, primarily due to an increase in aeronautical and non-aeronautical services revenues of Ps.132.1 million. The operating margin decreased by 310 basis points, from 62.9% to 59.8% (operating margin decreased by 210 basis points from 64.5% to 62.4%, taking into account only the sum of aeronautical and non-aeronautical services revenues).

Income from operations for the Hermosillo airport increased by Ps.37.5 million, or 24.4%, from Ps.153.6 million in 2018 to Ps.191.1 million in 2019, primarily due to an increase in aeronautical and non-aeronautical services revenues of Ps.46.0 million offset by an increase in operating expenses of Ps.8.5 million. The operating margin increased by 840 basis points from 35.2% to 43.6% (operating margin increased by 440 basis points from 39.5% to 43.9%, taking into account only the sum of aeronautical and non-aeronautical services revenues).

Income from operations for our seven other airports increased by Ps.44.1 million, or 14.4%, from Ps.306.2 million in 2018 to Ps.350.3 million in 2019, primarily due to an increase in aeronautical and non-aeronautical services revenues of Ps.315.8 million mainly as a result of the consolidation of PACKAL which contributed Ps.179.7 million in aeronautical and non-aeronautical revenues. The operating margin decreased by 220 basis points from 25.5% to 23.3% (operating margin decreased by 440 basis points from 31.6% to 27.3%, taking into account only the sum of aeronautical and non-aeronautical services revenues).

Finance Cost

Financial cost in 2019 increased by Ps.435.1 million, or 284.3%, from Ps.236.0 million in 2018 to Ps.671.1millionin 2019. This increase was mainly due to a decrease in the foreign exchange rate gain of Ps.110.9 million in 2019, as a result of a peso appreciation from Ps.19.868 per U.S. dollar at December 31, 2018 to Ps.18.8452 per U.S. dollar at December 31, 2019. The financial income for foreign exchange rate decreased from foreign exchange rate gain of Ps.199.7 million in 2018 to a foreign exchange rate gain of Ps.88.8 million in 2019. The effect of the foreign exchange rate gain was partially offset by the recognition of Ps.269.4 million in expenses from exchange differences on translating foreign operations in 2019, recognized within other comprehensive income, in accordance with applicable norms. Moreover, interest expenses increased by Ps.413.3 million in 2019 compared to 2018, mainly due to the issuance of Ps.3,000.0 million in new debt securities and the reference interest rates of those securities. Interest income increased by Ps.89.1 million in 2019 as compared to 2018 due to higher interest rates and a gain of Ps.88.7 million in our hedging instruments.

Income Taxes

Income taxes increased in 2019 by Ps.22.4 million, from Ps.1,869.0 million in 2018 to Ps.1,891.4 million in 2019. The Mexican airports’ current tax decreased by Ps.37.2 million. MBJA’s current tax increased by Ps.6.9 million, while DCA’s current tax decreased by Ps.31.4 million. Benefit from deferred tax decreased by Ps.84.1 million due to a 4.8% inflation rate in 2018 as compared to a 2.8% inflation rate in 2019. Our effective tax rate decreased from 26.7% in 2018 to 25.7% in 2019, primarily due to a decrease in benefit from deferred taxes, from Ps.248.5 million in 2018 to Ps.164.3 million in 2019, due to the effects of inflation from non-monetary assets and the effect of applying the tax rate of 20% according to the Decree for Fiscal Incentives in the Northern Border Region "Decreto de Estímulos Fiscales Región Fronteriza Norte" in the airports located atthe Border of Mexico with the United States of America.

Total Comprehensive Income for the Year Attributable to Controlling Interest

Total comprehensive income for the year decreased by Ps.23.1 million, or 0.5%, from Ps.5,034.9 million in 2018 to Ps.5,011.8 million in 2019. Although income from operations increased Ps.979.1 million, this increase was offset by an increase in our financial cost of Ps.435.1 million, a Ps.61.7 million increase in current taxes and a Ps.84.1 million decrease in the benefit from deferred tax. On the other hand, the exchange rate loss increased by Ps.165.8 million due to exchange differences on translating foreign operations resulting from the appreciation of the peso in 2019 and the recognized from cash flow hedges of the effective portion of changes in fair value of Ps.172.0 million. Our net margin decreased from 36.4% in 2018 to 33.6% in 2019 (taking into account only aeronautical and non-aeronautical services revenues, net margin decreased from 40.5% to 38.1%).

Statement of Financial Position

Our financial position as of December 31, 2019 increased by Ps.2,027.3 million, or 5.1%, primarily due to increases in cash and cash equivalents of Ps.1,348.7 million, an increase in improvements to concession assets of Ps.1,080.5 million, deferred taxes of Ps.176.7 million and trade accounts receivable of Ps.84.0 million, partially offset by a decrease in our airport concessions of Ps.590.5 million.

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Total liabilities as of December 31, 2019 increased by Ps.3,130.0 million, or 17.6%, primarily due to increases in debt securities of Ps.3,000.0 million, derivative financial instruments of Ps.265.9 million, partially offset by a decrease in bank loans of Ps.98.8 million and decrease in deferred income taxes of Ps.103.0 million.

Results of Operations for the Year ended December 31, 2018 Compared to the Year Ended December 31, 2017

For a comparison of the results of operations for the year ended December 31, 2018 as compared to the year ended December 31, 2017, see “Item 5, Operating and Financial Review and Prospects – Results of Operations for the Year ended December 31, 2018 Compared to the Year Ended December 31, 2017” in our Fiscal Year 2018 Form 20-F.

Liquidity and Capital Resources

Historically, the cash flow generated from our operations has generally been used to fund operating costs and capital expenditures, including expenditures under our Master Development Programs, and the excess of our cash flow has been added to our accumulated cash and cash equivalents in our consolidated statements of financial position.

As of December 31, 2017, 2018 and 2019 we had Ps.7,730.1 million, Ps.6,151.5 million and Ps.7,500.2 million, respectively, of cash and cash equivalents. We recorded no financial investments held for trading purposes as of December 31, 2017, 2018 and 2019.

Due to the COVID-19 pandemic, we have taken a series of actions that seek to manage our liquidity levels. In addition, during the remainder of 2020, we have no other debt maturities coming due, the only debt maturity due this year corresponded to the “GAP 15” debt securities which were paid on February 14, 2020. See “Item 5, Recent Developments –Issuance of GAP 20 Bond Certificates.” As a result of these actions, we anticipate that we will be able to meet our financial and operational obligations with our current cash and equivalents. See “Item 3, Risk Factors – Developments relating to the outbreak of  COVID-19 may have a material adverse impact on our financial conditions or results of operations control,” and “Item 5, Recent Developments – Developments related to the outbreak of COVID-19."

Cash Flows

Cash flows for the year ended December 31, 2019 as compared to cash flows for the year ended December 31, 2018

Cash and cash equivalents increased by Ps.1,348.7 million, or 21.9%, from Ps.6,151.5 million in 2018 to Ps.7,500.2 million in 2019, mainly due to an increase of Ps.928.4 million in net cash flows provided by operating activities and a decrease of net cash flows used in financing activities of Ps.1,935.2 million resulting from the issuance of 30 million long-term debt securities for a total Ps.3,000 million (offset by Ps.763 million in dividend and capital reduction payments in 2019), and partially offset by a decrease in net cash flows used in investing activities of Ps.35.6 million. The increase in net cash provided by operating activities was primarily due to: increases of (i) Ps.316.1 million, or 6.2%, in profit for the year and (ii) Ps.413.3 million, or 40.8%, in interest expense for financing activity, partially offset by an decrease in income taxes paid of Ps.100.3 million, or 4.4%.

Cash and cash equivalents were mainly used for: (i) dividend payments of Ps.4,425.3 million (Ps.2,212.7 million paid on August 29, 2019 and Ps.2,212.6 million paid on November 20, 2019); (ii) a capital stock distribution payment of Ps.1,592.5 million on May 17, 2019; (iii) purchases of machinery and equipment, improvements on leased buildings and concession assets and advance payments to suppliers of Ps.2,478.9 million; and (iv) payments of Ps.1,143.3 million, to service the cost of debt.

Cash flows for the year ended December 31, 2018 as compared to cash flows for the year ended December 31, 2017

For a comparison of the cash flows for the year ended December 31, 2018 as compared to the cash flows for the year ended December 31, 2017, see “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources – Cash Flows – Cash flows for the year ended December 31, 2018 as compared to cash flows for the year ended December 31, 2017 ” in our Fiscal Year 2019 Form 20-F.

Indebtedness

Indebtedness in Mexico

On April 6, 2017, we issued Ps.1.5 billion in new five-year debt securities under the ticker symbol “GAP 17”, on which interest is payable every 28 days at a variable rate of TIIE-28 plus 49 basis points, and the principal will be payable at maturity on March 31, 2022. The proceeds from the issuance were allocated to financing the investments set forth in the Master Development Programs for 2017.

On November 9, 2017, we issued Ps.2.3 billion in new five-year debt securities under the ticker symbol “GAP 17-2”, on which interest is payable every 28 days at a variable rate of TIIE-28 plus 44 basis points, and the principal will be payable at maturity on November 3, 2022. The proceeds from the issuance were allocated to financing the investments set forth in the Master Development Programs for 2018 and 2019.

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On March 29, 2019, we issued Ps.3.0 billion in new five-year debt securities under the ticker symbol “GAP 19”, on which interest is payable every 28 days at a variable rate of TIIE-28 plus 45 basis points, and the principal will be payable at maturity on March 22, 2024. The proceeds from the issuance were allocated to financing the investments set forth in the Master Development Programs for 2019 and 2020.

In addition, to finance the acquisition of DCA in April 2015, we borrowed a total of U.S.$191.0 million through unsecured credit agreements with The Bank of Nova Scotia (U.S.$95.5 million) and BBVA Bancomer (U.S.$95.5 million), at the variable one-month Libor rate plus 99 and 105 basis points, respectively. The Bank of Nova Scotia and BBVA Bancomer loans were disbursed on January 19, 2016 and February 15, 2016, respectively, and have a five-year maturity.

As of December 31, 2019, we were in compliance with all covenants stipulated by these credit agreements.

Indebtedness in Jamaica

In September 2007, MBJA entered into a credit facility with the IFC for up to U.S.$20.0 million, with interest at the variable 6-month Libor plus 392 basis points, semi-annual principal and interest payments and final maturity in February 2019. In December 2012, MBJA entered into a second credit facility with the IFC for up to U.S.$13.5 million, with interest at the variable 6-month Libor plus 450 basis points, semi-annual principal and interest payments and final maturity five years from each disbursement. On August 15, 2018, we pre-paid MBJA’s outstanding balance of U.S.$11.2 million (Ps.21.5 million) under both the credit facility with the IFC.

In 2007, MBJA entered into unsecured loans with its shareholder, Vantage, for U.S.$10.9 million and U.S.$0.5 million, in June 2007 and February 2009, respectively. The loans bear annual interest, payable semi-annually, at 14.0% and 8.0%, respectively, without a fixed maturity, and are subject to prepayment restrictions. As of December 31, 2019, the outstanding balance under this facility amounted to U.S.$11.4 million (Ps.215.7 million).

On December 28, 2017, we entered into seven-year unsecured loan agreement with The Bank of Nova Scotia Jamaica Limited and The Bank of Nova Scotia for U.S.$40 million, with interest at a variable rate of one-month Libor plus 280 basis points. Payments will be made on a semi-annual basis after 24 months. As of December 31, 2019, the balance outstanding under this facility amounted to U.S.$33.0 million (Ps.621.9 million).

As of December 31, 2019, we were in compliance with all covenants stipulated by these credit agreements.

Capital Expenditures

For the years ended December 31, 2017, 2018 and 2019, we had total capital expenditures of Ps.1,923.9 million, Ps.2,501.7 million and Ps.2,478.9 million, respectively. During 2017, 2018 and 2019, 3.1%, 1.9% and 2.4%, respectively, of our capital expenditures were funded by cash flows from operations, while the remaining balance was funded with bank loans and long-term debt securities issued on the Mexican capital markets. We currently intend to fund the investments and working capital required by our business strategy through cash flows from operations and from the indebtedness described above.

Due to the COVID-19 pandemic, we have delayed non-obligatory capital investments and shall request the postponement of investments committed for this year from the proper authorities. See “Item 3, Risk Factors – Developments relating to the outbreak of COVID-19 may have a material adverse impact on our financial conditions or results of operations control,” and “Item 5, Recent Developments – Developments related to the outbreak of COVID-19."

Capital Expenditures in Mexico

Under the terms of our Mexican concessions, each of our Mexican subsidiary concession holders is required to present a Master Development Program for approval by the SCT every five years. Each Master Development Program includes investment commitments (including capital expenditures and improvements) applicable to us as the concession holder for the succeeding five-year period. Once approved by the SCT, these commitments become binding obligations under the terms of our Mexican concessions. In December 2014, the SCT approved our Master Development Programs for each of our Mexican airports for the 2015 to 2019 period. In December 2019, the SCT approved our Master Development Programs for each of our Mexican airports for the 2020 to 2024 period. This five-year program is in effect from January 1, 2020 until December 31, 2024.

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The table below sets forth our historical capital expenditures in Mexico. Capital expenditures are calculated on a cash flow basis, meaning that capital expenditures are equal to those investments actually paid for by each airport during a given year and not including investments for which the airport made allocations but did not pay during the given year. The investments shown in the table below therefore reflect our expenditures actually paid for by our airports for the years indicated. In order to be compared with our committed investments for a given year, the investments made in the previous year but paid for in the given year need to be subtracted while the investments allocated but not paid for in the given year need to be added. For 2017, 2018 and 2019, the total of our investments allocated but unpaid were Ps.409.3 million, Ps.318.5 million and Ps.286.4 million, respectively.

Capital Expenditures in Mexico

Year ended December 31,	Total Capital Expenditures
	(thousands of pesos) (1)
2017	Ps.	1,801,399
2018		1,842,350
2019		2,226,982

(1) Expressed in nominal pesos.

In 2017, we spent Ps.1,801.4 million on capital expenditures in Mexico, primarily for expansion and remodeling of terminal buildings and improvements to runways, taxiways and aprons at our Guanajuato, Guadalajara, Hermosillo, Los Cabos and Tijuana airports.

In 2018, we spent Ps.1,842.4 million on capital expenditures in Mexico primarily for the expansion of the terminal building at the Guanajuato, Guadalajara, Aguascalientes and La Paz airports, improvements to the runways and aprons and extension of the checked baggage review system at the Los Cabos airport and improvements in operational areas and of the terminal building at the Tijuana airport.

In 2019, we spent Ps.2,226.9 million on capital expenditures in Mexico primarily for the expansion of terminal buildings at the Guadalajara, Los Cabos, Aguascalientes and Morelia airports, improvements to the runways, taxiways and aprons at the Tijuana, La Paz and Los Cabos airports and improvements in operational areas and of the terminal building at the Tijuana airport.

Capital Expenditures in Jamaica

Every five-year period, MBJA is entitled to submit to the JCAA its proposal for increases to the maximum regulated charges together with investment commitments (including capital expenditures for capital projects and required improvements at the Montego Bay airport under MBJA’s Concession Agreement). Upon the JCAA’s approval of the new maximum regulated charges, these commitments become binding obligations under the terms of MBJA’s concession.On November 18, 2014, the JCAA approved new maximum regulated charges for the Montego Bay airport that assume capital investments (including scheduled maintenance) for the period from April 1, 2015 through December 31, 2019, estimated to cost approximately U.S.$37.9 million. The maximum regulated charges were determined by the JCAA based on traffic projections, operating costs and capital investments included in the new Capital Development Program. It is our understanding that, under the terms of the MBJA Concession Agreement with the AAJ, these committed capital investments must be met over the five-year period and not on an annual basis. In 2020, the new maximum rates for the five-year period from 2020-2024 went into effect as of January 1, 2020.

In 2017, MBJA made investments of U.S.$3.4 million in capital expenditures, primarily for expansion and remodeling of the terminal, improvements to the runway, apron and equipment. In 2018, MBJA made investments of U.S.$34.3 million in capital expenditures, primarily for the rehabilitation of the taxiways, apron and ticketing area. In 2019, MBJA made investments of U.S.$11.6 million in capital expenditures, primarily for expansion of the terminal building, checked baggage review system and equipment.

From October 10, 2019 to December 31, 2019, PACKAL did not make any investments in capital expenditures. For NMIA, maximum rates for the five-year period from 2020-2024 will go into effect during 2020. Thereafter, regulated aeronautical charges will be reviewed every five years. The new maximum rates for the five-year period from 2020-2024 went into effect as of April 1, 2020.

Share Repurchase Program

We periodically repurchase our shares on the open market using funds authorized by our shareholders specifically for the repurchase of our shares by us at our discretion. We do not repurchase our shares other than through this share repurchase program.

In the aggregate, as of December 31, 2019, we held 35,424,453 shares in our treasury worth approximately Ps.1.7 billion, at an average price of Ps.48.93 per share; as of May 22, 2020 we held 35,424,453 shares at an average price of Ps.48.93 per share.

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At the General Ordinary Shareholder’s Meeting held on April 25, 2017, a share repurchase program for Series B shares was approved for a maximum amount of Ps.995.0 million for the following twelve months. During this period, no shares were purchased by us or on our behalf, or by or on behalf of any of our affiliates.

At the General Ordinary Shareholder’s Meeting held on April 25, 2018, a share repurchase program for Series B shares was approved for a maximum amount of Ps.1.25 billion for the following twelve months. During this period, no shares were purchased by us or on our behalf, or by or on behalf of any of our affiliates.

At the General Ordinary Shareholders’ Meeting held on April 23, 2019, a share repurchase program for Series B shares was approved for a maximum amount of Ps.1.55 billion for the following twelve months. During this period, no shares were purchased by us or on our behalf, or by or on behalf of any of our affiliates

As of each of December 31, 2017, 2018 and 2019 there was a total balance of Ps.1.7 billion repurchased shares in each year on our Consolidated Statements of Financial Position.

Critical Accounting Policies

We prepare our audited consolidated financial statements in conformity with IFRS. Our significant accounting policies are described in Note 3 to our audited consolidated financial statements.

The preparation of audited consolidated financial statements in conformity with IFRS requires us to make estimates and assumptions that affect the application of accounting policies relating to the reported amounts of assets, liabilities, income and expenses of the relevant period. We base our estimates and judgments on our historical experience, on technical merits for tax positions, on financial projections and on various other reasonable factors that together form the basis for making judgments about the carrying values of our assets and liabilities. Our actual results may differ from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Information on the uncertainty in the use of assumptions and estimates that have a significant risk of resulting in a material adjustment within the next financial year are described in Note 2.g to our audited consolidated financial statements.

We believe our most critical accounting policies that result in the application of estimates and/or judgments are the following:

Allowance for Expected Credit Losses

We systematically and periodically review the aging and collection of our accounts receivable and recognize an expected credit loss for doubtful accounts when evidence exists that they will not be fully recoverable, according to our bad debt policy. The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. We evaluate of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Moreover, because our accounts receivable are concentrated among a small number of important clients, a change in the liquidity of these clients could have a material adverse impact on the collection of our accounts receivables and our future operating results. We believe such risk is adequately covered by guarantee deposits in cash or other kind of guarantees by clients.

Accounting for the Concession

We believe we have carried out a comprehensive implementation of the standards applicable to the accounting treatment of our concession and have determined that, among others IFRIC 12 is applicable to us. We treat our investments related to improvements and upgrades to be performed in connection with our Master Development Programs and Capital Development Program under the intangible asset model established by IFRIC 12 and do not recognize a provision for maintenance, as all investments required by the Master Development Programs and Capital Development Program, regardless of their nature, directly increase the maximum tariff per traffic unit. Accordingly, all amounts invested under the Master Development Programs and Capital Development Program have a direct correlation to the amount of fees we will be able to charge each passenger or cargo service provider, and thus, a direct correlation to the amount of revenues we will be able to generate. As a result, we define all expenditures associated with investments required by the Master Development Programs and Capital Development Program as revenue-generating activities given that they ultimately provide future benefits, whereby subsequent improvements and upgrades made to the concession are recognized as intangible assets based on the principles of IFRIC 12. Additionally, compliance with the committed investments per the Master Development Programs and Capital Development Program is mandatory, as well as the fulfillment of the maximum tariff and therefore, in case of a failure to meet any one of these obligations (Master Development Programs or Capital Development Program amounts or maximum tariff or maximum regulated charges), we could be subject to sanctions and our Mexican concessions or Jamaican concessions could be revoked. See “Item 4, Information on the Company – Regulatory Framework – Mexican Airport Concessions – General Obligations of Concession Holders.”

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Depreciation and Amortization

In light of the nature of our business and our concessions, we make certain assumptions and professional judgments regarding recognition of depreciation and amortization of our tangible and intangible assets. Depreciation of our tangible assets and of improvements to leased assets is calculated under the straight-line method based on the useful lives of the related assets. The estimated useful life and the depreciation method are reviewed at the end of each year, and the effect of any changes in the estimate recorded is recognized on a prospective basis. To determine the amortization period of intangible assets, we focus either on the period over which they will generate future economic benefits or the concession term, whichever is less. We do not determine residual values for machinery, equipment, improvements and leased buildings as they are not considered to be material. As of the date of this filing, we have not made any changes to estimated useful life and depreciation and amortization methods for the years ended as of December 31, 2017, 2018 and 2019. We believe that the decisions made are the most reasonable based on information available, on the judgments made and the way in which we manage our operations.

Lease Accounting

At execution of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assesses whether: (i) the contract involves the use of an identified asset, which may be specified explicitly or implicitly, and should be, or represent substantially all of the capacity of, a physically distinct asset (for example, if the supplier has a substantive substitution right, then the asset is not identified); (ii) we have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and (iii) we have the right to direct the use of the asset, which means we have decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, we have the right to direct the use of the asset if either: (a) we have the right to operate the asset; or (b) we designed the asset in a way that predetermines how and for what purpose it will be used.

Deferred Tax Assets

Under IFRS, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. At December 31, 2017, we recognized, within the deferred income tax asset, an estimated amount of recoverable asset tax paid of Ps.25.3 million , based on financial projections that show that we will recover the excess of asset tax over income tax relating to our Guanajuato, Guadalajara, Puerto Vallarta and Tijuana airports. We did not recognize deferred income tax assets for recoverable asset taxes at December 31, 2019. As a result of changes in Mexican tax law (see “Item 5, Operating and Financial Review and Prospects – Overview – Taxation”), the asset tax balance may be recovered through rebates of up to 10% of the total asset tax paid out and pending recovery over the next ten years (starting in 2008), provided that this sum does not exceed the difference between the income tax paid during the period and the asset tax paid during the years 2007, 2006 and 2005, whichever is lower, whenever the income tax exceeds asset tax in any of those years. Additionally, we have recorded a tax loss carryforward, expiring in 2026 as permitted by the Mexican tax authorities. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income and related income tax expense compared to future estimated asset tax and the expected timing of the reversals of existing temporary differences. If these estimates and related assumptions change in the future, we may be required to make additional adjustments to our deferred tax assets, which may result in a reduction of, or an increase in, income tax expense. In 2017 and 2018, we did not pay income taxes on dividends, in 2019 we paid Ps.0.3 million by income taxes on dividends. Every year, we review the amount of income taxes paid on dividends according to our financial projections and determine the amount that could be recovered.

Liabilities for Retirement Benefits

We estimate the present value of our obligations under defined benefit pension plans using the projected unit credit method, involving interest risk, longevity risk and salary risk. A decrease in the 30-year interest rate, or in the life expectancies or salaries of plan participants will increase our liability. The discount rate of the projected benefit obligation at present value is determined based on the interest rate curve for 30-year government bonds. We base our assumptions on life expectancy on statistics for the general Mexican population, where the average life expectancy of an individual retiring at age 65 is currently 17 years for men and 19 years for women.

Contingencies and Provisions

We are a party to a number of legal proceedings. Under IFRS, provisions are recognized in the financial statements when: an entity has a present obligation (legal or constructive) as a result of a past event; it is probable 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. A provision is not recognized for contingent liabilities. Contingent liabilities must be disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

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Capitalization of improvements to concession assets

We are made numerous capital investments to each of its airports, annually in the case of Mexican airports and every five years in Jamaica in accordance with their respective Master Development Plan. Investments considered to be additions or improvements to concession assets are recognized as intangible assets-improvements to concession assets. Disbursements related to the general maintenance of concession assets are recognized as expenses in the consolidated statement of income and other comprehensive income.

Cash flow hedges

We have derivatives designated as a cash flow instrument. Under IFRS, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income (OCI) and accumulated in the hedging reserve. The effective portion of changes in the fair value of the derivative that is recognized in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from the inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognized immediately as profit or loss.

Application of new and revised International Financing Reporting Standards

In 2018, we adopted IFRS 9 and IFRS 15. We also early adopted IFRS 16 from January 1, 2018, as well as other new IFRS interpretations (IFRIC 23) clarifying accounting for transactions that include the receipt or payment of advance consideration in a foreign currency, which did not have significant effect on our consolidated financial statements. See Note 2.e in our audited consolidated financial statements for more information.

Recently Issued Accounting Standards

The following are new or revised International Financial Reporting Standards that have been issued but are not yet effective:

Standard	Effective as of
IFRS 17– Insurance Contracts 1	January 1, 2021
IFRS 10 and IAS 28 (amendments)	January 1, 2020
Amendments IFRS 3	January 1, 2020
Amendments to IAS 1 and IAS 8	January 1, 2021
Conceptual Framework	January 1, 2021

(1) Effective for annual periods beginning on or after a date to be determined.

The following is a summary of these recently issued accounting standards, our expected adoption methods and timelines for their implementation, as well as our assessments of their impacts on our consolidated financial position and results of operations, if any.

IFRS 17 Insurance Contracts

IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4 Insurance Contracts.

This standard outlines a General Model, which is modified for insurance contracts with direct participation features, described as the Variable Fee Approach. The General Model is simplified if certain criteria are met by measuring the liability for remaining coverage using the Premium Allocation Approach.

The General Model will use current assumptions to estimate the amount, timing and uncertainty of future cash flows and it will explicitly measure the cost of that uncertainty, it takes into account market interest rates and the impact of policyholders’ options and guarantees.

The implementation of this standard is likely to bring significant changes to a Company’s processes and systems, and will require much greater co-ordination between many functions of the business, including finance, actuarial and IT.

This standard is effective for annual reporting periods beginning on or after January 1, 2021, with early application permitted. It is applied retrospectively unless impracticable, in which case the modified retrospective approach or the fair value approach is applied.

For the purpose of the transition requirements, the date of initial application is the start if the annual reporting period in which the Company first applies this standard, and the transition date is the beginning of the period immediately preceding the date of initial application.

We anticipate that the application of these amendments will not have an impact on our consolidated financial statements in future periods should such transactions arise.

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IFRS 10 Consolidated Financial Statements and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognized in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognized in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.

We anticipate that the application of these amendments may have an impact on our consolidated financial statements in future periods should such transactions arise.

Amendments IFRS 3, Definition of a Business

The modifications clarify that, while businesses usually have outputs, outputs are not required for a series of integrated activities and assets to qualify as a business. To be considered as a business, a series of acquired activities and assets will be including, at a minimum, an input and a substantial process that together contribute significantly to the ability to generate outputs.

The modifications introduce an optional test to identify the fair value concentration, which allows a simplified assessment of whether a series of acquired activities and assets is not a business if substantially all of the fair value of the acquired gross assets is concentrated in a single identifiable asset. or a group of similar assets.

The amendments apply prospectively to all business combinations and asset acquisitions whose acquisition date is on or after the first reporting period started on or after January 1, 2020, with early adoption allowed.

We anticipate that the application of these amendments will not have an impact on our consolidated financial statements in future periods should such transactions arise.

Amendments to IAS 1 and IAS 8 Definition of Material

The modifications have to intend to simplify the definition of materiality contained in IAS 1, making it easier to understand and are not intended to obscuring the underlying concept of materiality in IFRS Standards. The concept of obscuring material information with intangible information has been included in the new definition.

The limit for influential materiality for users has been changed from “could influence” to “could reasonably be expected to influence”.

The definition of materiality in IAS 8 has been replaced by a reference to the definition of materiality in IAS 1. In addition, the IASB modified other Standards and the Conceptual Framework that contained a definition of materiality or reference to the term materiality to ensure consistency.

The modification will be applied prospectively for reporting periods beginning on or after January 1, 2020, with early application allowed.

We do not anticipate that the application of the standards in the future will have an impact on our consolidated financial statements.

Conceptual Framework Amendments to References to Conceptual

Together with the revised Conceptual Framework, which entered into force in its publication on March 29, 2018, the IASB also issued the Modifications to the References to the Conceptual Framework of IFRS Standards. The document contains amendments to IFRS 2, 3, 6, 14, IAS 1, 8, 34, 37, 38, IFRIC 12, 19, 20, 22 and SIC 32.

However, not all modifications update the pronouncements regarding references to the Conceptual Framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version they refer to or to indicate that the definitions in the Standard have not been updated with new ones. definitions developed in the revised Conceptual Framework.

The modifications, which are actually updates, are effective for annual periods beginning on or after January 1, 2020, with early adoption allowed.

We do not anticipate that the application of the standards in the future will have an impact on our consolidated financial statements.

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Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019:

	Payments due by period
	Total		Less than 1 year (4)		1-3 years		3-5 years			More than 5 years
	(in millions of pesos)
Contractual Obligations:
Master Development Programs (1)(5)	Ps.	21,831.7	Ps.	6,739.4	Ps.	11,391.5	Ps.	3,700.8	Ps.	n/a
Capital Development Program (7)		4,901.9		1,357.2		2,750.4		794.3		n/a
Purchase Obligations (2)		719.2		142.7		287.0		289.5		n/a
Debt		16,561.4		2,324.4		9,272.6		3,248.8			1,715.7
Interest from Debt (6)		2,494.7		771.9		1,226.5		429.9			66.5
Operating Lease Obligations (3)		44.8		15.7		26.8		2.3		n/a
Total	Ps.	46,553.7	Ps.	11,351.2	Ps.	24,954.7	Ps.	8,465.6	Ps.		1,782.2

(1) Peso figures are expressed in constant pesos as of December 31, 2017, based on the Mexican PPI’s construction price index.

(2) Reflects a minimum fixed annual payment of U.S.$4.0 million required to be paid under our technical assistance agreement. The agreement was automatically renewed for another five-year period on August 25, 2019. For the peso calculation, we assume an average exchange rate of Ps.22.86 per U.S.$1.00 and an annual U.S. inflation rate of 1.5%. The amount ultimately to be paid in any year will depend on our profitability.

(3) Includes leasing of buildings and vehicles.

(4) Amount for less than one year corresponds to obligations for 2020.

(5) Reflects the new Master Development Programs commitments for the subsequent five-year period (2020-2024).

(6) For the interest calculations, we determined the interest payments using an average fixed interest rate of 7.92% and an average variable rate of 6.55% for the loans contracted. See “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources – Indebtedness.”

(7) Reflects the new Capital Development Program commitments for the subsequent five-year period (2020-2024) by our Jamaican airports.

Item 6. Directors, Senior Management and Employees

Directors

The board of directors is responsible for the management of our business. Pursuant to our bylaws, our board of directors generally must consist of eleven members. Under Mexican law, at least 25 percent of our directors must be independent (as determined by our shareholders at each annual General Ordinary Shareholders’ Meeting, applying the provisions of our bylaws and relevant Mexican and other laws); under the Securities Market Law, the National Banking and Securities Commission may object to such designation of independence. Currently, our board of directors comprises eleven members.

Our bylaws provide that the holders of Series BB shares are entitled to elect four members to the board of directors and their alternates. Our remaining directors are elected by the holders of our Series B shares (who do not elect alternates). Under our bylaws, each shareholder or group of shareholders owning 10% of our capital stock in the form of Series B shares is entitled to elect one member to the board of directors. Also our bylaws prevent any Series B shareholders, individually, or together with related parties, from appointing more than one board member, even if the shareholder owns more than 10% of our outstanding capital stock (because any shares in excess of the 10% maximum do not have any voting rights under our bylaws). The other directors to be elected by the holders of our Series B shares are elected by majority vote of all holders of Series B shares present at the shareholders’ meeting, except for those Series B shareholders that already participated in any 10% board member designation. Selection of independent directors is conducted through an executive search firm tasked with locating individuals with appropriate profiles. Directors are elected for one-year terms at the ordinary shareholders’ meeting.

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The composition of our board of directors as of the date of this report is set forth in the following table, which lists the title, date of appointment, age and alternate, as applicable, of each of our current directors, however, this composition could change in the Ordinary Shareholders Meeting to be held on July 1, 2020. In the past, certain of our shareholders have challenged the composition of our board of directors. For more information see “Item 8, Financial Information – Legal Proceedings – Litigation related to Grupo México, S.A.B. de C.V. seeking to void certain resolutions adopted at our corporate shareholders’ meetings.”

Name	Title	Director since	Age	Alternate
Laura Díez Barroso Azcárraga (1)	Chairwoman and Director	April 21, 2015	67	Carlos Laviada Ocejo
Juan Gallardo Thurlow  (1)	Director	April 26, 2016	72	Alejandro Cortina Gallardo
Eduardo Sánchez Navarro Redo (1)	Director	April 25, 2018	74	Carlos Alberto Rohm Campos
María José Cuenda Chamorro (1)	Director	April 24, 2019	50	Juan José Álvarez Gallego (4)
Alfredo Casar Pérez (2)	Director	April 26, 2016	66		—
Carlos Cárdenas Guzmán (3)	Director	September 22, 2011	69		—
Joaquin Vargas Guajardo (3)	Director	April 16, 2012	66		—
Álvaro Fernández Garza (3)	Director	February 26, 2014	52		—
Juan Díez-Canedo Ruíz (3)	Director	April 23, 2014	69		—
Ángel Losada Moreno (3)	Director	April 23, 2014	65
Luis Tellez Kuenzler (3)	Director	April 25, 2018	61		—

(1) Elected by AMP as holder of Series BB shares, which represents 15% of our capital stock.

(2) Director representing Grupo México as shareholder or group of shareholders owning 10% of our capital stock.

(3) Independent directors elected to comply with the Securities Market Law (Ley del Mercado de Valores).

(4) Juan José Álvarez Gallego retired on March 31, 2020, since then he was replaced by María Ángeles Rubio Alfayate.

Laura Díez Barroso Azcárraga. Mrs. Díez Barroso is chairwoman of our board of directors since 2015 and chairwoman of Fundación GAP since its establishment in 2013. Mrs. Díez Barroso began her career in publishing in 1979 as editor of the teen magazine, TU. In 1988, she founded Editorial Eres, and in 1995 Editorial Eres merged with Editorial Televisa. Mrs Díez Barroso was named Chairwoman of the Board and CEO until 2000. She currently invests in both public and private entities through LCA Capital, a family office she co-founded. She served for 14 years as a board member of Royal Caribbean Cruises, and she is currently a board member of Consejo Mexicano de Negocios, Grupo Financiero Inbursa and Telmex. On April 28, 2020, Mrs. Díez Barroso was appointed Chairwoman of Grupo Financiero Mexico, S.A. de C.V. Mrs. Díez Barroso is a trustee in several philantropic initiatives including Fundación GAP, Museo San Ildefonso, Centro Roberto Garza Sada, Escuelas Ser and WomenCorporateDirectors Foundation.

Juan Gallardo Thurlow. Mr. Gallardo was elected to our board of directors on April 26, 2016. Mr. Gallardo currently is the chairman of the board of directors of Organización CULTIBA (the holding company for GEPP and Grupo Azucarero México), and the chairman of the board of Grupo Azucarero México, the largest sugar mill group in Mexico and Grupo GEPP, the exclusive bottling company of PepsiCo in Mexico. Mr. Gallardo is also a member of the board of directors of Caterpillar Inc. and Banco Santander (Mexico) S.A., as well as a member of the international advisory councils of Bombardier, Rabobank and Lafarge. Mr. Gallardo is a member of the Consejo Mexicano de Negocios, A.C. and of the Consejo Empresarial de América Latina. He was coordinator of COECE, a special ad-hoc alliance of all Mexican private sector organizations formed to promote increased trade between Mexico, the United States and Canada and the rest of the world, particularly in the context of NAFTA and the Free Trade Agreement with the European Union. Mr. Gallardo has a bachelor’s degree in law from the Escuela Libre de Derecho in Mexico City and completed the AD-II Top Management Course at IPADE in Mexico City. He was honored by the French Government with the Legion of Honor.

Eduardo Sánchez Navarro Redo.Mr. Sánchez Navarro Redo has been a director or alternate on our board of directors since 2012. He is the founder of Grupo Questro, a real estate investment group with substantial holdings in Los Cabos, including luxury resorts and residential developments such as Cabo Real and Puerto Los Cabos. He is also a member of the board of directors and vice president of CULTIBA (the holding company for GEPP and Grupo Azucarero) and a member of the Mexican Resort Development Association (AMDETUR) since 1991, which is an organization that includes 90% of tourism real estate developers in the country. He is the vice president of the National Tourist Business Counsel (CNET) and has served as president of the Hotels and Tourism Companies Investors Association (AIHET). He is also the founder of the Coordinating Counsel of Los Cabos.

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María José Cuenda Chamorro.Mrs. Cuenda was elected to our board of directors on April 23, 2019. Mrs. Cuenda currently is the Managing Director of commercial, real estate and international developmentfor AENA. Her most notable achievements include the commercial transformation and modernization of the Spanish airports in the AEA network with a special emphasis on developing retail businesses by incorporating the biggest and best-known perfumery, fashion and food brands in innovative spaces that are designed for the passengers. She has a degree in Economics and Business Administration from the University of Extremadura, an MBA from IE Business School and graduated from the Management Development Program at IESE. She began working for AENA in the commercial and marketing department at the Palma de Mallorca airport in 1996.

Alfredo de Jesús Casar Pérez. Mr. Casar holds a bachelor’s degree in economics from the Autonomous Technological Institute of Mexico (ITAM), a degree in industrial engineering from Anahuac University and a master’s degree in economics from the University of Chicago.He has been a member of the board of directors of Grupo México since 1997. He was named Executive President of Grupo Ferroviario Mexicano S.A. de C.V. (“GFM”) and Ferrocarril Mexicano, S.A. de C.V. (“Ferromex”), on March 5, 2008, and he served as President and Chief Executive Officer of GFM and Ferromex since November 16, 1999. Previously, Mr. Casar served as director of development at Grupo Mexico S.A.B. de C.V. for two years after having served as Chief Executive Officer of Compañía Perforadora México, S.A. de C.V. and Méxican Chief Executive Officer of Compañía Constructora, S.A. de C.V., during 7 years. Mr. Casar is also a member of the board of directors of Grupo Mexico, GFM and Southern Copper Corporation (“SCC”).

Carlos Cárdenas Guzmán. Mr. Cárdenas has been a member of our Board of Directors since 2011. He also serves as President of our Audit Committee. He is a Certified Public Accountant from the Universidad Autónoma de Guadalajara and a master’s degree in tax law from the Universidad Panamericana (IPADE). He is a retired partner of Ernst & Young Mexico after 39 years of active service, where he served as the Tax Partner in Charge during many years, and as member of its Executive Committee. Currently, he serves on the Board of Directors and, as member or President of Audit Committees of numerous large Mexican companies, including among others as Independent Board Member and President of the Audit Committee of Aleatica, S.A. (Subsidiary company of the Australian Fund IFM Investors), Independent Board Member and Audit Committee member of Grupo Farmacias del Ahorro, Independent Board Member and President of the Audit Committee of Reaseguradora Patria, S.A., Member of the Peña Verde SAB Evaluation and Compensation Committee, Independent Board Member and Audit Committee member of Anteris Capital Venture Lending Fund, Audit Committee member of Lockton México Agente de Seguros y de Fianzas S.A. de C.V., and Former Board President of The American British Cowdray Medical Center, I.A.P. (Centro Médico ABC). He is also a member of several business and professional associations; most notably, he served as President of the Mexican Institute of Certified Public Accountants (IMCP) and of the Academy of Tax Studies of Public Accounting (AEF)

Joaquín Vargas Guajardo.Mr. Vargas was elected as an independent director to the Company’s board of directors on April 16, 2012. He is chairman of the board of directors of Grupo MVS, which includes, MVS Radio, MVS Education, MVS Entertainment, as well as DISH and MVS TV, satellite television services. He is also chairman of CMR, a public company that has more than 280 restaurants with more than a dozen brands, among others, The Capital Grille, Sushi Itto, Chili’s and Olive Garden. He serves on the boards of directors of publicly traded companies Vitro, Grupo Financiero Santander and Medica Sur. He is also a member of the boards of directors of El Universal newspaper, and Costamex, among others.

Álvaro Fernández Garza.Mr. Fernández was elected to our board of directors on February 26, 2014 as a provisional director nominee and was ratified as an independent director during the April 23, 2014 Shareholder Meeting. He serves as a General Director of Grupo ALFA and is member of the board of directors of Vitro, ALFA and CYDSA. He is also a member of the board of directors of Grupo CitiBanamex and Georgetown University (Latin American Board). He is president of the board of the Universidad de Monterrey (UDEM). He holds a bachelor’s degree in economics from the University of Notre Dame, a master’s degree in business administration from the Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM) and an MBA from Georgetown University.

Juan Díez-Canedo Ruíz. Mr. Díez-Canedo Ruíz received a bachelor’s degree in economics from the Instituto Tecnológico Autónomo de Mexico (ITAM) in 1973 and a PhD in economics from the Massachusetts Institute of Technology (MIT) in 1980. In 1978 he began working at Banco de México, holding several positions until becoming head of Macrofinancial Programming and Economic Research, a position he held until 1988. In 1980, he obtained first place in the Banamex National Economics Award. From 1989 to 1992, he was Deputy CEO of Banco Internacional (currently HSBC). From 1992 to 1994 he was Director General of the Banking area of Grupo Financiero Probursa; from 1995 to 1996 he was Executive Vice-president of Grupo Maseca (GRUMA); and from 1995 to 1999 he was Executive Vice-president of Grupo Financiero Banorte. From November 1999 to February 2001 he was CEO of CINTRA, the holding company of Aeroméxico and Mexicana de Aviación; from 2001 to 2009 he was President of Fomento y Desarrollo Comercial, S.A. de C.V.; and from 2009 to date, President and CEO of Financiera Local, S.A. de C.V. SOFOM ENR. He has been a professor at several institutions (ITAM and El Colegio de México, among others) and has published articles in specialized academic magazines in Mexico and the United States. He has been a member of the board of directors of companies such as Telmex, Alcatel, Banorte, Grupo Maseca, Grupo Gimsa, Deportes Martí, Fondo de Cultura Económica, among others. He is also member of the board of Agrofinanciera del Noroeste, TDA (Titulización de Activos, Madrid España) and the Regional Metropolitan Board of Grupo Financiero Banorte.

Ángel Losada Moreno. Mr. Losada was elected as an independent director to the Company’s board of directors on April 23, 2014. He is currently executive president and chairman of the board of directors and CEO of Grupo Gigante, S.A.B. de C.V. He is a member of the boards of directors of Banco Nacional de México, S.A. (Citi Banamex Group), the Federico Gómez Children’s Hospital and Laboratorios Novag. He

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has also served as chairman of the board of directors of the Mexican National Association of Retailers (Asociación Nacional de Tiendas de Autoservicio y Departamentales, A.C., or ANTAD), as a director and member of the board of directors of the Food Marketing Institute of the United States and as member of the board of Mexico City’s National Chamber of Commerce. Mr. Losada holds a bachelor’s degree in business administration from Universidad Anáhuac.

Luis Tellez Kuenzler.Mr. Téllez is a Mexican economist and politician. He was Secretary of Energy during the government of President Ernesto Zedillo and Secretary of Communications and Transportation under President Felipe Calderon Hinojosa government. In 2009, he took the position of Chairman of the Board and General Director of the Bolsa Mexicana de Valores Group. He is currently Chairman of the Mexican subsidiary of Kohlberg Kravis Roberts & Co (KKR), a United States multinational corporation that manages investment funds and venture capital. He also serves as President of the Spanish technology company, Everis, in Mexico.

During 2019, the attendance by board members of meetings of the Board of Directors or Board Committees was of 97.0%.

Executive Officers

Pursuant to our bylaws, the directors appointed by the holders of Series BB shares are entitled to appoint and remove our top-level executive officers.

The following table lists our top-level executive officers, their current positions and their dates of appointment as executive officers:

Name	Current position	Executive officer since	Age
Raúl Revuelta Musalem	Chief Executive Officer	April 26, 2018	43
Saúl Villarreal García	Chief Financial Officer	February 25, 2015	49
Sergio Enrique Flores Ochoa	General Counsel	February 8, 2002	67
Juan Francisco Martínez Mira	Director of Quality, Innovation and IT	August 1, 2018	54
José Ángel Martínez Sánchez	Chief of Airports and Regulated Revenues	May 7, 2016	44
Alejandro Vallarino Marusich	Director of Infrastructure	September 10, 2018	51
Alejandro Guillermo Mañón Hernández	Director of Culture & Human Capital	April 15 , 2019	54

Raúl Revuelta Musalem. Mr. Revuelta was named our CEO in April 2018. Mr. Revuelta has more than 18 years of experience in the infrastructure sector and is an expert in the airport sector. From 2005 to 2015, he worked at Grupo Aeroportuario del Pacífico (GAP), serving as CFO and Commercial Director (CCO). During his professional career, he has also served as General Director of Cross Border Xpress (CBX) and as Deputy Director of Finance of the Ministry of Communications and Transportation (SCT). In his six years as Deputy Director of the SCT, Mr. Revuelta participated in different privatization processes in the transportation sector, obtaining extensive experience in federal concessions. Mr. Revuelta has a degree in economics from the Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM).

Saúl Villarreal García. Mr. Villarreal was named our CFO effective on February 25, 2015. He has been responsible for overseeing corporate administration at GAP since 2003; as a result, he has vast experience and knowledge of the administrative and financial management aspects of our business. In 2006, he participated in the initial public offering process and more recently participated in the issuance of debt securities on the local market. Mr. Villarreal is a public accountant from the University of Guadalajara, with an MBA from the same university and a master’s degree in finance with a concentration in international accounting from the Universidad Panamericana.

Sergio Enrique Flores Ochoa. Mr. Flores was named our General Counsel in February 2002. Previously, he was the manager of legal matters for the ASA and an Assistant District Attorney for Mexico City. In addition, he was head of the legal department of INFONAVIT and legal manager for NAFIN. Mr. Flores received a degree in law, as well as a master’s degree in law, from the Universidad Nacional Autónoma de México (UNAM).

Juan Francisco Martínez Mira. Mr. Martinez was named our Director of Quality, Innovation and IT in August 2018. He has worked in the aeronautical industry for over 29 years. Previously, he worked for AENA in several airports and performing different functions. He joined GAP in June 2007 and performed several functions, including Operational Systems Manager, IT Subdirector and Director of the Guadalajara International Airport. Mr. Martinez is a systems engineer and also obtained a degree in music, publicity and RRPP, a master’s degree in pedagogy and in airport and aeronautics management and direction, and obtained postgraduate diplomas in innovation, strategic planning and airports. He completed his studies at Conservatorio Superior de Música de Murcia, Universidad de Murcia and Universidad Complutense de Madrid.

José Ángel Martínez Sánchez. Mr. Martínez was named our Chief of Airports and Regulated Revenues in May 2016. Previously, he worked at AENA in several capacities within airport engineering and maintenance. Most recently, as part of AENA Internacional, he was Manager of Technical Operations for five years in Colombia, supporting the Cartagena de Indias, Cali and Barranquilla airports. He was also the AENA manager responsible for the takeover of the London-Luton Airport in the United Kingdom. Mr. Martínez holds a degree in

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aeronautical engineering with a specialization in airports and air transport. He also holds an MBA from the Universidad Rey Juan Carlos in Madrid, and a master’s degree in infrastructures, equipment and services management from the Universidad Politécnica in Madrid.

Alejandro Vallarino Marusich. Mr. Vallarino was appointed as Infrastructure Director in November, 2018. In this role, he has planned, developed and built approximately one million square meters of projects. Mr. Vallarino is a civil engineer with a bachelor’s degree in engineering from University of Mexico (UNAM), an MBA from ITAM, a master’s degree in real estate and construction companies executive management from Polytechnic University of Madrid and a Master’s degree in airport infrastructure planning from Polytechnic University of Madrid. For 23 years of his professional career, Mr. Vallarino worked for large construction and real estate development companies, including Dine, Gicsa, ICA and Citelis.

Alejandro Guillermo Mañón Hernández. Mr. Mañón was appointed as Director of Culture & Human Capital in April, 2019. Mr. Mañón has almost 30 years of professional experience in human resources in different industries including technology, consumer goods, pharmaceutical and electronics. Mr. Mañón has a strong background in complex operations including manufacturing and corporate areas in Mexico and in other countries in Latin America. Mr. Mañón holds a bachelor’s degree in Industrial Relations from the Universidad Panamericana.

The business address of our directors and executive officers is our principal executive headquarters.

Compensation of Directors and Executives

Under the technical assistance agreement with AMP, the four directors and four alternates elected by AMP do not receive compensation from us for serving on our board of directors.

For 2019, the aggregate compensation paid to our directors designated by our Series B shareholders was approximately Ps.7.4 million. The compensation paid to the director appointed by Grupo México was of approximately Ps.1.1 million. We have not established any pension, retirement or similar benefits or arrangements for these individuals. These directors receive a base annual compensation of approximately U.S.$44,100 for their service on our board of directors. Additionally, for their services to our corporate governance committees, certain directors receive supplemental compensation: the president of our Audit Committee receives an additional 35.0% of the base annual compensation; members of our Audit Committee receive 20.0% of the base annual compensation; and members of our Acquisition Committee and our Compensation Committee receive 10.0% of the base annual compensation.

The compensation paid to our seven executive officers amounted to Ps.35.0 million in 2019, of which 63.5% was salary, 34.0% was bonuses and 2.5% was other compensation. We have not established any pension, retirement or similar benefits or arrangements for these individuals through 2019. However, in 2016 we established a new long-term cash bonus incentives plan for our executives, which seeks to encourage the retention and development of key management within the Company. The executive officers’ rights to exercise this compensation plan will vest at the end of 2019, after the approval of the financial statements in the Shareholders’ Meeting, subject to achieving certain performance and profitability targets for the Company, including share price, distributions to shareholders, operating profitability, net income and capital expenditures.

None of our directors, alternate directors or executive officers is the beneficial owner of more than 1% of any class of our capital stock, except as described in “Item 7, Major Shareholders and Related Party Transactions – Major Shareholders.” None of our directors or executive officers is entitled to benefits upon termination under their service contracts with us, except for what is due to them according to the Mexican Federal Labor Law. Additionally, we have not made personal loans to our directors or executive officers and do not have a stock option plan or any equivalent plan.

Board Committees

Our bylaws provide for four committees to assist the board of directors with the management of our business: an Operating Committee, an Audit and Corporate Practices Committee, an Acquisitions Committee and a Nominations and Compensation Committee. The Audit Committee, to which our bylaws have granted the duties provided for in the Securities Market Law for Mexican corporate practices committees, is the only legally required committee. The other committees have been established to assist the board of directors. The board of directors may establish further committees from time to time.

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Operating Committee

The Operating Committee, which, pursuant to our bylaws, shall have six members and three alternates, is responsible for, among other matters, proposing and approving certain plans and policies relating to our business, investments and administration, including approval of the Master Development Programs of our subsidiary concession holders, our dividend policy and investments of less than U.S.$3.0 million that are not provided for in our annual budget. Pursuant to our bylaws, the board of directors is authorized to appoint the six members of the Operating Committee. Board members elected by the holders of Series BB shares have the right to appoint three of the committee members. As of the date of this report, the members of the Operating Committee are Raúl Revuelta Musalem, CEO, who chairs the committee; Carlos Alberto Rohm Campos; Juan Gallardo Thurlow; Saúl Villarreal García, Chief Financial Officer; and José Ángel Martínez Sánchez, Chief of Airports and Regulated Revenues, Alejandro Vallarino Marusich, Chief of Infrastructure, Martín Pablo Zazueta, Director of our Guadalajara airport. Carlos Manuel Porrón Suarez, Santiago Riveroll and Alejandro Cortina Gallardo serve as alternates for Raúl Revuelta Musalem, Carlos Alberto Rohm Campos and Juan Gallarado Thurlow, respectively.

Audit and Corporate Practices Committee

The Audit and Corporate Practices Committee, which must have a minimum of three members, the majority of whom must be members of our board of directors, is responsible, among other things, for: (i) monitoring the compliance of our directors, officers and employees (and those of our subsidiaries) with our (and their) bylaws (estatutos sociales) and applicable law, (ii) naming, and supervising the work of, our independent auditors and (iii) receiving and investigating internal complaints or other information concerning our systems of internal control and other such matters. The Audit and Corporate Practices Committee is also responsible for reviewing our corporate governance and all related-party transactions (according to the requirements of our bylaws and the Mexican Market Law), including transactions with AMP. The members of the board of directors elected by the holders of Series BB shares are entitled to propose the appointment to the Audit and Corporate Practices Committee of the number of members representing 20% of the committee’s total members, but at least one member who must also fulfill applicable independence requirements. The president of this committee is elected at the annual shareholders’ meeting. The composition of the Audit and Corporate Practices Committee must at all times be compliant with all applicable laws and regulations, including independence requirements, for every jurisdiction in which our securities are listed or quoted. As of the date of this report, the Audit and Corporate Practices Committee comprises the following directors: Carlos Cárdenas Guzmán serves as president and Juan Díez-Canedo Ruíz and Ángel Losada Moreno serve as members.

Acquisitions Committee

The Acquisitions Committee is responsible for ensuring compliance with our procurement policies set forth in our bylaws. Among other things, these policies require that the Acquisitions Committee approve any transaction or series of related transactions between us and a third party involving consideration in excess of U.S.$400,000 and that any contract between us, on the one hand, and AMP or any of its related parties, on the other hand, be awarded pursuant to a bidding process, which, in the case of AMP, must involve at least three other bidders. In the case of a proposed transaction between us and AMP or any related party, we are required to invite, pursuant to the bylaws, at least three contractors to bid on the transaction and, in the case that a third-party contractor’s bid is equal to or less than AMP’s bid, the transaction is awarded to the third-party contractor.

Our bylaws provide that a shareholders’ meeting will determine the number of members of the Acquisitions Committee, which must be composed primarily of members of the board of directors. The members of the board of directors elected by the holders of Series BB shares are entitled to appoint to the committee the number of members representing 20% of its total members but at a minimum, one member. As of the date of this report, the Acquisitions Committee consists of proprietary members Carlos Alberto Rohm Campos and Joaquin Vargas Guajardo. Juan José Álvarez Gallego was elected to serve as an alternate member to Carlos Alberto Rohm Campos. A secretary has also been appointed who is not a member of the committee.

Nominations and Compensation Committee

The Nominations and Compensation Committee is responsible for nominating candidates for election to our board of directors and making recommendations regarding the compensation of our directors and officers. The committee also serves in a corporate governance role within the scope of its subject matter. Our bylaws provide that a shareholders’ meeting will determine the number of members of the committee. The holders of the Series B and Series BB shares, each acting as a class, are each entitled to name one member of the Nominations and Compensation Committee. The remaining members of the committee, if any, are designated by the two members who were selected by the Series B and Series BB shareholders. If these two members are unable to reach agreement, the remaining members of the committee will be designated by the majority of the votes in the shareholders’ meeting, provided that, in such case, holders of the Series BB Shares will be entitled to appoint 20% of the members but at a minimum, one member. Members of the committee serve for a term of one year. At each annual shareholders’ meeting, the Nominations and Compensation Committee is required to present a list of candidates for election as directors for the vote of the Series B shareholders. As of the date of this report, the members of the Nominations and Compensation Committee are Laura Díez Barroso Azcárraga and Álvaro Fernández Garza. Juan José Alvarez Gallego was elected to serve as an alternate member to Laura Díez Barroso Azcárraga.

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Employees

Employees in Mexico

The following table sets forth the number of employees and a breakdown of employees by main category of activity and geographic location as of the end of each year indicated:

Employees in Mexico

	December 31,
	2017		2018		2019 (2)
By category of activity:
Airport operations	585		601		621
Airport maintenance	208		214		223
Administration (1)	300		322		348
Fundación GAP	24		35		51
By geographic location:
Guadalajara	194		207		230
Tijuana	109		115		120
Los Cabos	109		113		127
Puerto Vallarta	113		114		119
Guanajuato	70		67		72
Hermosillo	66		68		66
Mexicali	52		53		56
La Paz	53		52		49
Aguascalientes	48		54		57
Morelia	51		51		52
Los Mochis	45		45		46
Manzanillo	38		39		40
Total (1)		1,117		1,172		1,243

(1) Total at December 31, 2017, 2018 and 2019, includes 169, 191, and 209 employees, respectively, of SIAP, our administrative services subsidiary located in Guadalajara.

(2) As of December 31, 2019, CORSA employed 493 people, SIAP employed 619 people, PCP employed 83 people and Fundación GAP employed 50 people.

As of December 31, 2019, 60.0% of our employees were non-unionized employees. The remaining 40.0% employees were unionized. All of our unionized employees are members of local chapters of the Mexican National Union of Airport Workers (Sindicato Nacional de Trabajadores de la Industria Aeroportuaria y Servicios Similares y Conexos de la República Mexicana), an organization formed in 1998 whose members include employees of ASA as well as of the three other airport groups (the Southeast Group, the Mexico City Group and the Central-North Group) operating in Mexico. Labor relations with our employees are governed by one collective bargaining agreement relating to each one of our twelve airport subsidiaries; which is negotiated by the respective local chapter of the union. As is typical in Mexico, wages are renegotiated every year, while other terms and conditions of employment are renegotiated every two years. In 2019, we successfully renegotiated our collective bargaining agreements, thereby securing a favorable and productive work environment for our employees for 2020 and 2021. We believe that our relations with our employees are good, and the wages we pay our employees are similar to those paid to employees of similar airport operating companies in Mexico. During October 2020, we will begin renegotiating our collective bargaining agreements.

We offer a savings plan available to all of our Mexican employees pursuant to which our employees may make bi-weekly contributions of up to 13% of their pre-tax salaries. We make bi-weekly contributions matching each employee’s contribution. Employees are entitled to withdraw funds from their accounts on an annual basis. In 2017, 2018 and 2019, we made a total of Ps.22.0 million, Ps.26.4 million and Ps.29.3 million, respectively, in payments to employees’ accounts pursuant to the savings plan.

Funds in the savings plan may be used to make loans to employees and are otherwise invested in securities listed on the Mexican Stock Exchange or in treasury bills issued by the Mexican Treasury Department.

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Employees in Jamaica

Montego Bay Airport Employees

The following table sets forth the number of employees and a breakdown of employees by main category of activity as of the end of each year indicated:

Employees at Montego Bay Airport

	December 31,
	2017		2018		2019
By category of activity:
Airport operations		78		81		86
Airport maintenance (1)		49		52		53
Administration		33		32		33
Total		160		165		172

(1) Total at December 31, 2019 includes 21 employees representing contractors in maintenance assigned to work on landscaping, runway maintenance, drainages and general labor tasks.

As of December 31, 2019, 38.0% of MBJA’s employees, comprising management and contract staff, were non-unionized employees and the remaining 62.0% of employees were unionized. The unionized employees are members of two local trade unions: the Trade Union Congress (“TUC”) and Union of Technical, Administrative, and Supervisory Personnel (“UTASP”).

On December 18, 2018, MBJA and the TUC amicably agreed and executed the current collective bargaining agreement covering the period from March 1, 2018 to February 28, 2020. Forty-nine employees from MBJA’s maintenance, engineering and emergency response service teams are members of the TUC. MBJA has received the Salary and Fringe Benefits Claim document from the TUC Bargaining unit for the negotiating year March 1, 2020 to February 28, 2022. Negotiations have not yet commenced.

On December 18, 2018, MBJA and the UTASP amicably agreed and executed the current collective bargaining agreement covering the period from April 1, 2018 to March 31, 2020. Sixty employees from MBJA’s supervisory and administrative personnel across different departments are members of the UTASP. We await the submission of the Salary and Fringe Benefits Claim from the UTASP Bargaining unit for the period April 1, 2020 to March 31, 2022.

MBJA continues to maintain a good relationship with both unions. Further, to our knowledge, MBJA pays comparable salaries and benefits to similar enterprises in Jamaica. MBJA also facilitates voluntary employee salary deductions for personal savings.

Kingston Airport Employees

As of December 31, 2019, our Kingston airport had a total of 130 employees (92 in airport operations, 22 in maintenance, and 16 in administration. As of December 31, 2019, all of NMIA’s employees, comprising management and contract staff, were non-unionized employees.

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Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

Prior to our initial public offering in 2006, the Mexican government owned 476,850,000 Series B shares, representing 85% of our issued and outstanding capital stock. After the offering, the Mexican government ceased to be a shareholder.

The following table sets forth information with respect to beneficial ownership of our capital stock as of May, 22, 2020:

Major Shareholders

	Number of Shares				Percentage of Total Capital Stock
Identity of shareholder	B Shares		BB Shares		B Shares			BB Shares
AMP		13,519,900		84,150,000		2.4	%		15.0	%
Grupo México S.A.B. de C.V. (1)		59,483,060		—		10.6	%		—
Weston Hill Equity Holdings, LP (2)		23,794,815		—		4.2	%		—
Public (3)		379,052,225		—		67.7	%		—

(1) Based on the Schedule 13D (Amendment 38) filed on December, 24, 2019 by Grupo México.

(2) Based on the Schedule 13D (Amendment No. 5) filed on May 5, 2020 by Weston Hill Equity Holdings, LP (“Weston”), on May 5, 2020, Mrs. Díez Barroso and Mr. Laviada Ocejo disposed of the following Series B and Series BB shares through a series of transfers, in each case for no consideration, to various adult family members, which resulted in each of Mrs. Díez Barroso and Mr. Laviada Ocejo and such transferees owning less than 5% of our Series B shares outstanding:

• Mrs. Díez Barroso and Mr. Laviada Ocejo transferred to various transferees all of their interest in PAP. See “Item 4, Information on   the Company —History and Development of the Company – Investment by AMP.”

• Mrs. Díez Barroso, as majority owner of Weston, caused the transfer of (i) 18,264,638 Series B shares held by Weston to various transferees, including 1,250,048 Series B shares directly to herself, and subsequently transferred (ii) 100% ownership of Weston to various other transferees. In connection with such transfers, Mr. Laviada Ocejo was replaced as the general partner of Weston.

• Subsequent to these series of transfers, Weston beneficially owns 23,794,815 Series B shares (4.9% of our Series B shares). Mr. Laviada Ocejo directly beneficially owns 356,924 Series B shares. Mrs. Díez Barroso directly beneficially owns 2,695,811 Series B shares. Mr. Laviada Ocejo and Mrs. Díez Barroso are husband and wife. Therefore, Mrs. Díez Barroso may also be deemed to be a beneficial owner of 356,924 Series B shares directly beneficially owned by Mr. Laviada Ocejo and Mr. Laviada Ocejo may be deemed a beneficial owner of 2,695,811 Series B shares directly beneficially owned by Mrs. Díez Barroso.

(3) As of December 31, 2019, we held 35,424,453 shares in treasury as a result of our Share Repurchase Programs. These shares have not been cancelled and may be resold into the market from time to time.  

AMP holds all of our Series BB shares, representing 15% of our total capital stock. Special rights and restrictions attached to our Series BB shares are described under “Item 4, Information on the Company – History and Development of the Company” and “Item 10, Additional Information – Corporate Governance – Voting Rights and Shareholders’ Meetings.” As of April 30,, 2020, approximately 15.5% of our Series B shares were held in the form of ADSs, and 83.0% of the holders of our ADSs (82 holders, including The Depository Trust Company) had registered addresses in the United States.

AMP Trust, Bylaws and Shareholders’ Agreement

The rules governing the sale of our Series BB shares to AMP required that AMP place all of its Series BB shares in trust in order to guarantee AMP’s performance of its obligations under the technical assistance agreement and AMP’s commitment to maintain its interest in us for a specified period. Accordingly, AMP has placed its shares in trust with Bancomext. This trust provides that AMP may instruct Bancomext with respect to the voting of the shares held in trust that represent up to 10% of our capital stock; the remaining 5% is required to be voted in the same manner as the majority of all shares voted at the relevant shareholders’ meeting. Under our bylaws and the trust, AMP could not sell any of its Series BB shares before August 25, 2004. Since the end of this no-sale period, AMP has been permitted to transfer up to 49% of its Series BB shares without restriction. After August 25, 2009, AMP may sell in any year up to 20% of its remaining 51% ownership interest in us represented by Series BB shares. The terms of the trust will be extended for an additional fifteen years if, at the end of the initial fifteen-year term, AMP holds shares representing more than 10% of our capital stock. AMP may terminate the trust before the second fifteen-year term begins if (i) AMP holds less than 10% of our capital stock at the end of the initial term, and (ii) the technical services agreement has been terminated. AMP is required to deposit in the trust any additional shares of our capital stock that it acquires.

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AMP’s shareholders have entered into a shareholders’ agreement that provides that AENA will have the right to appoint our director of technical operations, meanwhile (i) the appointment of AMP’s representatives to our board of directors and board committees shall be made on a rotating basis, and (ii) any right of AMP regarding the appointment of our chief executive officer, chief financial officer, director of investor relations, general counsel, director of human resources, director of commercial activities, the secretary of our board of directors and most other matters relating to AMP’s participation in us, must be made, in principle, pursuant to the unanimous consent of AMP’s shareholders. When unanimous consent is not obtained, other mechanisms exist to avoid the resulting deadlocks. However, such deadlocks might still occur, which may affect our operations. See “Item 3, Key Information –Risk Factors – Risks Related to our Strategic Shareholder – Disputes among AMP’s shareholders may affect our shareholders’ meetings or management.”

Under the terms of the participation agreement and the trust agreement, AMP’s designated “Mexican” and “operating” partners were required to maintain their 25.5% ownership interest in AMP until August 25, 2014. On November 19, 2014, CMA and DCA entered into a stock purchase agreement and formalized the transaction through which CMA purchased from DCA 792,800,000 shares, representative of 33.33% of the capital stock of AMP. Although CMA became 66.66% owner of the capital stock of AMP as a result of this transaction, CMA and AENA have agreed that AENA’s consent is required with respect to certain significant actions or decisions.

RELATED PARTY TRANSACTIONS

Arrangements with AMP and its Affiliates

The rules for the sale of the Series BB shares required AMP, us and the SCT to enter into a participation agreement, which established the framework for the technical assistance agreement and the Banco Nacional de Comercio Exterior, S.N.C., or Bancomext, trust agreement.

Since the time our concessions were granted and pursuant to the technical assistance agreement and the participation agreement, AMP and its shareholders agreed to provide management and consulting services and transfer to us technical assistance and technical and industry expertise related to the operation of airports, thereby helping us develop and improve our airports and the services they provide. Under the technical assistance agreement and the participation agreement, we have obtained a variety of services from AMP, including airport operating and security advice, direction on the development of commercial projects, identification of new investment opportunities and assessments of different international projects, including the acquisition of the Sangster International Airport in Jamaica. The active participation of AMP in our operations as a result of the technical assistance agreement and the participation agreement is a competitive advantage that has become an essential part of our operations and results growth as can be seen in the financial information. See “Item 5, Operating and Financial Review and Prospects – Overview.”

The agreement has an initial term of fifteen years, but automatically renews for successive five-year terms unless one party provides the other a notice of termination at least 60 days prior to a scheduled expiration date. Despite the automatic renewal under Clause 5.2 of the agreement, at our April 23, 2014, board of directors meeting, we requested the opinion of the board’s independent directors with respect to the continuation of the agreement. The majority of our independent directors voted in favor of the five-year automatic renewal option. The agreement was most recently automatically renewed again on August 25, 2019, for an additional five-year term, in accordance with Clase 5.2 of the agreement.

A decision by us to renew or cancel the technical assistance agreement is subject to the approval of 51% of Series B shareholders other than AMP or any related party of AMP (to the extent that AMP or any such related party holds Series B shares). The agreement will only remain in effect if AMP continues to hold at least 7.65% of our capital stock. If the agreement does not remain in place, our management could change and due to the lack of technical assistance, our operations could be adversely and significantly affected.

The technical assistance fee is equal to the greater of U.S.$4.0 million adjusted annually for inflation (measured by the U.S. CPI) or 5% of our annual consolidated income from operations (calculated prior to deducting the technical assistance fee and depreciation and amortization in accordance with MFRS). We believe that this structure creates an incentive for AMP to increase our annual consolidated earnings.

The technical assistance agreement allows AMP, its shareholders and their affiliates to render additional services to us only if our Acquisitions Committee determines that these related parties have submitted the most favorable bid in a bidding process with at least three unrelated parties. This process is described in “Item 6, Directors, Senior Management and Employees – Board Committees.”

In 2017 and 2018, we did not recognize any expenses paid to AMP. In 2019, we recognized Ps.5.6 million (U.S.$296 thousand) in expenses.   Pursuant to the technical assistance agreement, the fee paid to AMP and its affiliates was approximately Ps.357.5 million (U.S.$18.2 million), Ps.411.5 million (U.S.$20.9 million) and Ps.461.5 million (U.S.$24.5 million) for 2017, 2018 and 2019, respectively.

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Tijuana cross-border walkway

The Tijuana airport has a commercial agreement with OTV for the construction, operation, maintenance and use of a cross-border walkway (the “CBX”), with each party responsible for the section of walkway corresponding to such party’s side of the U.S.-Mexico border. The CBX aims to facilitate the flow of passengers in both directions across the border with the presentation of a valid boarding pass. The contract, in effect since April 8, 2013 and expiring with the expiration of the Tijuana airport concession, establishes that OTV must pay the Tijuana airport a fixed fee (“access rights”) for every passenger that uses the CBX as compensation for the reduction in non-aeronautical services revenues from parking, taxi, bus, retail, car rental and money exchange services until December, 2017. The CBX began operations on December 9, 2015. During the years ended December 31, 2017, 2018 and 2019 respectively, the CBX was used by approximately 1.9 million, 2.3 million and 2.9 million passengers. The Tijuana airport received Ps.44.0 million in access rights during 2017 and Ps.3.7 million corresponding to the last 15 days of 2017. Since 2018 no additional payments for access rights are payable. For more information, see Note 32 of our audited consolidated financial statements.

OTV is a private company incorporated in the United States and wholly owned by Otay-Tj Holdings, L.L.C. The holding company has two shareholders, 25% is held by a U.S. company, and 75% is held by a Mexican company. The shareholders of the Mexican company, also own 66.66% of AMP, our strategic shareholder. Consequently, this agreement is considered an operation between related parties. OTV obtained the presidential permits in the U.S. to provide border-crossing services, and is responsible for all obligations with the U.S. government. It is also the owner of the property along the U.S. border which it acquired prior to obtaining the presidential permit on which the CBX terminal was subsequently constructed. For this reason, this business opportunity could only be conducted with OTV.

The agreement with OTV was negotiated at arm’s length and reported to our Audit and Corporate Practices Committee. It was approved by a majority of our independent directors at a board of directors meeting on February 26, 2013, and our Series BB directors appointed by AMP abstained from the vote.

Accounts receivable (payable) with other related parties

As of December 31, 2017, 2018 and 2019, the following balances receivable (payable) with other related parties that are in the consolidated statement of financial position, are integrated as follows:

	2017		2018		2019
Accounts receivable:
Especialistas en Alta Cocina, S.A. de C.V.    (Independent director)	Ps.	—	Ps.	93	Ps.	3,523
Mayo 13, S.A. de C.V.  (Independent director)	Ps.	417	Ps.	—	Ps.	729
OTV (Shareholder)	Ps.	5,950	Ps.	—	Ps.	—

	2017			2018		2019
Accounts payable:
Ingeniería y Economía del Transporte, S.A.    (Shareholder)	Ps.	(3,777)		Ps.	(7,698)	Ps.	(3,079	)
OTV (Shareholder)	Ps.		—	Ps.	(465)	Ps.	-

Other operations with other related parties

During the years ended December 31, 2017, 2018 and 2019, the following operations were carried out with other related parties that are included in the consolidated statement of profit or loss and other comprehensive income, are as follows:

	2017			2018		2019
Commercial revenues:
Especialistas en Alta Cocina, S.A. de C.V.    (Independent Director)	Ps.	28,093		Ps.	32,236	Ps.	34,039
Mayo 13, S.A. de C.V. (Independent Director)	Ps.	10,042		Ps.	9,443	Ps.	5,549
Otayconnect, S. de R.L. de C.V. (Shareholder)	Ps.		—	Ps.	300	Ps.	1,253
Promotora Cabo Real, S.A. de C.V. (Shareholder)	Ps.		22,225	Ps.	21,059	Ps.	28,910
Las Nuevas Delicias Gastronómicas, S. de R L. de C.V.  (Shareholder)	Ps.		—	Ps.	—	Ps.	4,886
Diseños Pantera, S.A. de C.V. (Shareholder)	Ps.		—	Ps.	—	Ps.	298

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	2017		2018		2019
Technical advisory:
Ingeniería y Economía del Transporte, S.A.    (Shareholder)	Ps.	14,637	Ps.	8,896	Ps.	8,626
Advertising:
OTV (Shareholder)	Ps.	—	Ps.	477	Ps.	—
Other service:
Diseños Pantera, S.A. de C.V. (Shareholder)	Ps.	—	Ps.	—	Ps.	279

Item 8. Financial Information

See “Item 18, Financial Statements” and our consolidated financial statements beginning on page F-1. Since the date of the financial statements, no significant change has occurred.

LEGAL PROCEEDINGS

General

We are periodically involved in certain legal proceedings that are incidental to the normal conduct of our business, none of which is expected to have a material or adverse effect on our business. In addition to those legal proceedings in the ordinary course of our businesses, in recent years, we have also been subject, directly and indirectly, to the litigation proceedings that are summarized below.

Litigation related to Grupo México, S.A.B. de C.V. seeking to void certain of our bylaws

Articles X and XII of our bylaws, among others, limit the ability of Series B shareholders, directly or with related parties, other than AMP, to hold more than 10% of our outstanding capital stock, and any shares held in excess of that amount must be sold in a public offering. In accordance with our bylaws, until the public offering of such shares takes place, such excess shares have no voting power and cannot be represented in any shareholders’ meeting.

On June 13, 2011, Grupo México announced that it intended to acquire more than 30% and up to 100% of our shares outstanding at that time, excluding treasury shares. Grupo México and certain of its subsidiaries commenced legal proceedings, among others, seeking (i) to modify our bylaws to eliminate the foregoing limitations and (ii) to terminate AMP’s special rights that stem from AMP’s ownership of our Series BB shares.

In October 2010, a legal proceeding was filed against us in a civil court in Mexico City. The complaint sought to have the court grant relief by, among others, declaring Articles X and XII of our bylaws void. The plaintiffs are Grupo México and its subsidiary ITM. On February 19, 2014, the Mexican Supreme Court agreed to review the legal proceeding regarding ownership limits contained in our bylaws that impose a 10% ownership threshold, stating that it considered this issue a matter of national interest and significance, and referred the proceeding to the second chamber of the Supreme Court. On June 17, 2015, the Mexican Supreme Court issued an amparo ruling upholding the validity of Articles X and XII of our bylaws under Article 48, Section III of the Mexican Securities Law and remanded the case to the intermediate appellate court. Consequently, the challenges initiated by Grupo México and ITM against these articles have been definitively concluded. In accordance with the decision of the Mexican Supreme Court, the Superior Court of Mexico City: (i) declared that Grupo México and ITM are in violation of our bylaws, resulting from the fact that together they hold more than the 10% of our capital stock; (ii) ordered the sale by Grupo México and ITM of the Series B shares held in excess of 10% of our capital stock; and (iii) instructed that the sale should be conducted through a public offer (Oferta Pública de Venta) in accordance with the laws of Mexico and Article XII of our bylaws. Grupo México filed an appeal looking for clarification regarding the ruling. On November 9, 2016, the Grupo México complaint was declared unfounded. We filed a complaint seeking fees and expenses. On May 8, 2019, a civil court in Mexico City granted Grupo Mexico´s request for an amparo on a challenge to the constitutionality of Article 48, Section III of the Mexican Securities Law. We then filed a direct amparo appeal. The amparo review is pending.As of the date of this filing, and according to the last Schedule 13D filed with the SEC, Grupo México owns 10.6% of our outstanding shares. See “Item 3, Key Information – Risk Factors – Risks Related to Our Strategic Shareholder – Certain actions by Grupo México, S.A.B. de C.V. may affect our management, financial condition or results of operations.”

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Grupo México, S.A.B. de C.V. and certain of its subsidiaries challenge our participation agreement with AMP

ITM, a subsidiary of Grupo México, filed a legal proceeding against us on November 4, 2011, seeking to void AMP’s ownership of our Series BB shares as granted by the participation agreement between AMP and us, which would result in the termination of AMP’s veto, appointment of executives and other special rights. Additionally, ITM’s suit sought the repayment of all economic benefits conferred by us upon AMP during the period in which AMP has held our shares. We filed an initial reply in this proceeding on November 25, 2011. On March 7, 2012, we were notified by our external legal counsel that a ruling was issued in our favor, which found a lack of jurisdiction by the civil court due to the administrative nature of the claim. Although we received notice that this proceeding had concluded, a federal court later granted a direct amparo appeal that had been filed by Grupo México on June 6, 2012. Therefore, on July 13, 2012, the legal proceeding was recommenced in the appropriate federal civil court. On October 22, 2013, we filed briefs responding to the plaintiff’s arguments. On October 31, 2017, a ruling was issued in our favor finding ITM’s claim without standing. ITM filed an appeal, and consequently, we also appealed, seeking to strengthen certain decisions made in the ruling in our favor. ITM’s appeal was declared unfounded, and ITM then filed a direct amparo appeal. We then filed an appeal for a joint application for judicial review (revisión adhesiva). On October 9, 2019, ITM’s amparo was denied, however, ITM then proceeded to file for judicial review (revision). The request for review is pending.

Ejidoparticipants at Tijuana, Guadalajara and Puerto Vallarta airports

A portion of the lands constituting some of our airports were expropriated by the Mexican government under its power of eminent domain. Prior to their expropriation, some of these lands had been held by groups of individuals through a system of communal ownership of rural land known as an ejido. Certain of these former ejidos’ participants have asserted indemnity claims against the Mexican government challenging the expropriation decrees.

Tijuana

In the case of our Tijuana airport, our airport subsidiary has been joined as an interested third party in the proceedings challenging the 1970 expropriation decree. During 2008, the ejido received an unfavorable ruling, which it appealed, and subsequently, it received a judgment in its favor from the agrarian court calling for the restitution of 320 hectares of land. On October 20, 2016, we filed an amparo against the decision, the outcome of which remains pending. If we are not successful in our appeal, although the precise area affected has yet to be determined, depending on which particular land parcel is to be returned, the decision could affect the airport’s perimeter and could materially disrupt the airport’s current operations.

In addition, certain of the former ejidos’ participants are currently occupying portions of the property on which we operate Tijuana International Airport. Although the currently occupied portions are not at present essential to the airport’s operations and these former ejidos’ participants are not currently interfering with the airport’s operations, their presence could limit our ability to expand the airport into the areas they occupy and they may seek to disrupt the airport’s operations if their legal claims against the Mexican government are not resolved to their satisfaction.

Guadalajara

Similarly, in the case of Guadalajara International Airport, in 2009 two different ejidos commenced proceedings before an agrarian court (Tribunal Superior Agrario) against the SCT, seeking to void the expropriation decree of 1975. The case was transferred to the federal justice system, and in a November 2010 ruling in favor of the ejidos, the district court ordered the return of all expropriated property to the ejidos and thus voided the specific concession granted to us on expropriated land. Although our Guadalajara airport has been joined only as an interested third party in the proceedings, we appealed this decision. On July 10, 2012, the appellate court reversed and remanded the decision, and on July 31, 2014, the district court issued a new judgment in favor of one of the ejidos, El Zapote, which both our Guadalajara airport and the federal authorities again appealed. On April 14, 2016, an appellate court issued a definitive decision on the matter declaring that although the rights of the ejido to challenge the appraised value of their land were violated, the land could not be returned to them. Furthermore, the court concluded that our concession was valid. The decision is now in the enforcement phase. On January 13, 2017, the Department of Agrarian, Territorial and Urban Development (Secretaría de Desarrollo Agrario, Territorial y Urbano (SEDATU)) issued an appraisal for the value of a portion of the land on which Guadalajara airport is located, related to the appeal previously mentioned. This appraisal was made based on the expropriation decree of 1975. This proceeding was challenged by the ejido group and accepted by the court. In response to the above, the district judge began a proceeding for restitution through financial compensation on August 10, 2018, which is pending resolution.

On February 17, 2017, we were notified of a new legal proceeding before an agrarian court instituted by El Zapote against the federal government. This proceeding alleges similar facts to the initial case and claims the same disputed property that was the subject of the initial case. This legal proceeding is in its initial phases, and we have joined as an interested third party.

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In addition to the legal proceedings, during various periods since 2016, members of the ejido blocked access to commercial areas of Guadalajara Airport, specifically the parking facilities, which resulted in commercial revenue losses of  Ps.9.0 million during 2017 (7.9% of our total car parking charges at the airport for 2017), losses of  Ps.8.1 million during 2018 (5.8% of our total car parking charges at the airport for 2018) and losses of Ps.20.5 million during 2019 plus the damage to the parking lot (14.1% of our total car parking charges at the airport for 2019).

With respect to a second ejido, Santa Cruz del Valle, the district court’s ruling that the Mexican government’s 1975 expropriation decree was illegal was confirmed by the appellate court and is subject to enforcement against the Mexican government. On August 22, 2016, the district court ordered that their decision be carried out. We have appealed this decision. The Mexican government sought to provide restitution through financial compensation, and in July 2019, with the approval of the SCT, a settlement was reached between the parties providing for the payment of a complementary indemnification. On September 13, 2019, the settlement was approved by the district court.  As a result of the settlement, 196 hectares in operational areas that we already possessed by the airport were given legal certainty and an additional 101 hectares that were not possessed but were included in the concession were also turned over to the airport which will be able to be used for expansion of the airport.

In February 10, 2014, our Guadalajara airport received a notice from the district court regarding a proceeding by the ejido San José del Valle claiming approximately five hectares within the airport’s possession. Currently, this case is in the evidentiary stage.

Puerto Vallarta

In October 2013, Puerto Vallarta International Airport received notification of lawsuits related to the ejido Valle de Banderas, which claimed the invalidity of the expropriation by the Mexican government of the land on which the airport is located. Participants of the ejido commenced three proceedings against us, our Puerto Vallarta airport and various federal authorities for restitution or compensation with respect to 154 hectares of land comprising this airport. The claimants seek, among other things, to invalidate the expropriation decree issued on October 9, 1957 and, in two of the proceedings, are also seeking restitution of the land as they were not part of the expropriation decrees of October 9, 1957, August 20, 1990, November 24, 1993, and April 24, 1997. These lawsuits are also seeking, in part, to void the concession granted to the airport. We challenged the lawsuits on the basis of a lack of jurisdiction, as the claims were brought in the courts of the State of Nayarit, while our Puerto Vallarta airport is located in the State of Jalisco. The superior agrarian court agreed with our appeal and removed the case to Guadalajara. This proceeding is in process and remains pending.

The terms of our concession require the Mexican government to provide us restitution for any loss of our use of the land provided for in our Mexican concessions. Although no assurance can be given, we believe that the Mexican government would be liable for any operational disruption caused by the proceedings with the ejidos and would have to restore our rights of use for the public property assigned to us under the concessions if we were to lose our appeals.

Property tax claims by certain municipalities

We remain subject to ongoing property tax claims that have been asserted against us by various municipalities for the payment of property taxes with respect to the property on which we operate our airports in those cities.

Tijuana

Of these, the most relevant case regards our Tijuana airport, where the municipal authority issued a second property tax claim against the airport on June 8, 2005. On March 25, 2008, the Tijuana airport received an initial ruling declaring the tax claim by the municipal authority void but upholding the right of the municipal authorities to assess property taxes over commercial areas. We appealed the ruling with respect to the assessment of property taxes over commercial areas. Our challenge to this request is still pending.

On October 20, 2010, the municipal authority of Tijuana issued a separate request for the repayment of property taxes for 2000 through 2010. We and our legal counsel believe that this request for payment of taxes is not valid since local courts had already ruled the tax claims for the years 2005 and 2006 invalid. Because we and our legal counsel believe that this request for repayment is also invalid, we commenced legal proceedings against the municipal authority. The legal proceeding is currently pending.

On February 7, 2013, the Tijuana municipal authority filed a property tax claim for the period from 2008 to 2012 against the Tijuana airport in the amount of Ps.15.2 million, demanding payment within three business days. On February 28, 2013, we began an annulment proceeding against the claim. On March 5, 2013 the authority established the amount to be guaranteed, and on March 8, 2013 we presented a bond to guarantee the amount claimed. As of the date of this report, this proceeding is still pending.

On November 26, 2014, the Tijuana municipal authority issued a requirement for payment of Ps.234.8 million in property taxes for the period from 2000 to 2014, which we challenged on December 19, 2014. With respect to the municipal authority’s request for us to post a collateral bond guaranteeing the entire amount in question, the court granted judgment in our favor and suspended the requirement, which we had challenged on the grounds that we have already guaranteed part of the amount in previous proceedings. Currently, this case is in the evidentiary stage.

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Hermosillo

On October 28, 2019, the municipality of Hermosillo notified us regarding seven property tax claims for a total of Ps.10.2 million. We challenged claims by commencing an annulment proceeding on December 12, 2019. As of the date of this report, this proceeding is still pending.

We do not believe that liabilities related to any claims or proceedings against us are likely to have, individually or in the aggregate, a material adverse effect on our consolidated financial condition or results of operations should a court determine that these property taxes must be paid in response to any future proceedings.

DIVIDENDS

The declaration, amount and payment of dividends are determined by a majority vote of our shareholders present at a shareholders’ meeting and generally, but not necessarily, on the recommendation of the board of directors, which is empowered by Article 18 of our bylaws to set our dividend policies. So long as the Series BB shares represent at least 7.65% of our outstanding capital stock, the declaration and payment of dividends will require the approval of the holders of a majority of the Series BB shares.

Mexican law requires that at least 5% of a company’s net income each year (after profit sharing and other deductions required by Mexican law) be allocated to a legal reserve fund until such fund reaches an amount equal to at least 20% of the company’s capital stock from time to time (without adjustment for inflation). Our legal reserve fund was Ps.1.6 billion (historical value) at December 31, 2019 (excluding reserve amounts corresponding to 2019 net income).

Mexican companies may pay dividends only out of earnings (including retained earnings after all losses have been absorbed or paid up) and only after such allocation to the legal reserve fund. The reserve fund is required to be funded on a stand-alone basis for each company, rather than on a consolidated basis. The level of earnings available for the payment of dividends is determined under MFRS. Our subsidiaries, which prepare and report financial information under MFRS, are required to allocate earnings to their respective legal reserve funds prior to paying dividends to Grupo Aeroportuario del Pacífico, S.A.B. de C.V. We are also required to allocate earnings to our legal reserve fund prior to distributing any dividend payments to our shareholders.

As a result of the 2014 Fiscal Reform, dividends paid to Mexican individuals or any foreign residents with respect to our Series B shares and ADSs are subject to a 10% withholding tax. The definition of dividend for this purpose includes, among others, in addition to declared dividends: (i) interest paid on preferred shares; (ii) loans to shareholders and partners unless the loan is established for less than one year, incurred in the operations of the business and meets certain requirements; (iii) payments that are considered non-deductible and benefit the shareholders; (iv) amounts not recognized as a result of omissions of income or unrealized purchases; and (v) transfer pricing adjustments to income or expenses as a result of assessments by the tax authorities for related party transactions. The 10% distribution tax would also apply on distributions from a branch to the home office. A transitory provision limits the withholding tax on dividends to earnings generated in 2014 and subsequent years. For this purpose, the transitory provision refers to distributions from accumulated previously taxed earnings (CUFIN) as of 2013, being free of tax. Taxpayers are currently required to maintain a separate CUFIN account for earnings. Because this withholding tax would be a tax on the shareholders under the Mexican Income Tax Law, treaty benefits should be available.

Dividends that are paid from a company’s distributable earnings that have not been subject to corporate income tax will be subject to a corporate-level dividend tax (retained against cumulative net income and payable by us) calculated on a gross-up basis by applying a factor of 1.4286 for 2013 and subsequent years. For 2013 and thereafter, the corporate tax rate is 30%. This corporate-level dividend income tax on the distribution of earnings may be applied as a credit against Mexican corporate income tax corresponding to the fiscal year in which the dividend was paid or against the Mexican corporate income tax of the two fiscal years following the date on which the dividend was paid.

Distributions made by us to our shareholders other than as dividends (in the manner described above), including capital reductions, amortization of shares or otherwise, would be subject to taxation in Mexico, including withholding taxes. The tax rates applicable and the method of assessing and paying taxes applicable to any such non-dividend distributions will vary depending on the nature of the distributions.

Under our dividend policy adopted at the Extraordinary Shareholders’ Meeting held on April 15, 2005, our annual dividend is expected to consist of two components. The first component is a fixed amount, which was Ps.450 million for 2005 (for the dividend paid in 2006) and is intended to increase gradually each year. The dividend policy also contemplates that our annual dividend will include any cash and cash equivalents we hold (as reflected in our balance sheet as of the month-end prior to the dividend payment, after deducting the fixed component) in excess of our “minimum cash balance.” For purposes of our policy, the “minimum cash balance” is the amount of cash and cash equivalents that our board of directors determines is necessary to cover the minimum amount of expenses and investments expected to be incurred in the fiscal year during which the dividend payment is made and the subsequent fiscal year. Dividends are expected to be made payable in cash and in one or more payments as determined in the relevant ordinary shareholders’ meeting approving dividends.

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We paid aggregate dividends of Ps.3,006.3 million in 2017, Ps.4,004.9 million in 2018, and Ps.4,425.4 million in 2019.

The declaration, amount and payment of dividends pursuant to the policy described above are subject to (i) compliance with applicable law regarding the declaration and payment of dividends with respect to any year including the establishment of the statutory legal reserve fund and (ii) the absence of any adverse effect on our business plan for the current or subsequent fiscal year as a result of the payment of any dividend. We cannot provide assurance that we will continue to pay dividends or that future dividends will be comparable to our previous dividends. Our ability to pay dividends may be further restricted if we fail to make timely interest payments under our credit agreements. See “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources.” Our dividend policy may also be amended at any time by our shareholders.

As of December 31, 2019, we had accumulated approximately Ps.4.8 billion of distributable earnings that had been subject to the corporate income tax and that could be declared at the relevant shareholders’ meeting and paid to shareholders free of the corporate level dividend tax, but a 10% withholding tax may apply to Mexican individuals or any foreign residents.

We pay dividends in pesos. In the case of Series B shares represented by ADSs, the cash dividends are paid to the depositary and, subject to the terms of the Deposit Agreement, converted into and paid in U.S. dollars at the prevailing rate of exchange, net of conversion expenses of the depositary and applicable Mexican withholding tax. Fluctuations in exchange rates will affect the amount of dividends that ADS holders receive.

Item 9. The Offer and Listing

TRADING MARKETS

Our publicly traded share capital consists of our Series B common shares without par value, which are publicly traded in Mexico on the Mexican Stock Exchange under the ticker symbol “GAP B.”  The Bolsa Institucional de Valores, or the “Institutional Stock Exchange,” launched operations on July 25, 2018. The Institutional Stock Exchange competes with the Mexican Stock Exchange for trades, and all shares traded on the Mexican Stock Exchange, including our Series B common shares, are now trading on the Institutional Stock Exchange, as well.  Both stock exchanges operate a system of automatic suspension of trading in shares of a particular issuer as a means of controlling excessive price volatility, but under current regulations this system does not apply to securities such as the Series B common shares represented by common ADSs that are directly or indirectly quoted on a stock exchange outside of Mexico.  Most securities traded on the Mexican Stock Exchange and on the Institutional Stock Exchange, including our Series B common shares, are on deposit with Indeval, a privately owned securities depositary that acts as a clearinghouse for transactions on the Mexican Stock Exchange and on the Institutional Stock Exchange.

Our common ADSs, each representing 10 Series B common shares, are traded on the NYSE under the ticker symbol “PAC.”  The Bank of New York Mellon serves as the depositary for our common ADSs.  On April 30, 2020, there were 74,093,050 common ADSs outstanding, representing 15.5% of our total share capital.

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Item 10. Additional Information

CORPORATE GOVERNANCE

Organization and Register

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. is a corporation (sociedad anónima bursátil de capital variable) organized under the laws of Mexico under the Mexican General Law of Commercial Corporations (Ley General de Sociedades Mercantiles) and the Mexican Securities Market Law. It is registered with the Public Registry of Commerce of Mexico City under the number 238,578.

Purpose

Our main corporate purpose is to operate airports pursuant to airport concessions.

Bylaws

This section summarizes certain provisions of Mexican law and our bylaws (estatutos sociales).

At our Extraordinary Shareholders’ Meeting held on October 27, 2006, our shareholders adopted resolutions amending and restating of our bylaws to organize the company as a sociedad anónima bursátil (a form then newly required by law for publicly traded companies in Mexico), and to conform our bylaws to the provisions of the Securities Market Law.  Many of the changes related to the enhancement of our corporate governance.

During 2010, our Audit Committee proposed to our board of directors an amendment to our bylaws relating to the Corporate Practices articles (Practicas Societarias, as described in the Mexican Securities Market Law) in order to more closely align our bylaws with the terms of the Mexican Securities Market Law with respect to Corporate Practices.  After reviewing the amendment proposal, our board of directors instructed the Audit Committee to submit the proposal to the CNBV to obtain their opinion regarding how the amended articles compared with the Mexican Securities Market Law, specifically as it relates to Corporate Practices. In response, the CNBV provided recommendations both with respect to the Corporate Practices articles as well as with respect to other articles contained in the proposed amendment.  We accepted the CNBV’s recommendations and re-submitted the proposed amendments to the CNBV. As of the date of this report, we have not received a response from the CNBV.

Board of Directors

Our bylaws provide that our board of directors will generally have eleven members (increasing to twelve or thirteen members only when necessary to preserve minority shareholders’ voting rights in cases of multiple appointments by persons with 10% interests (as described below)).

At each shareholders’ meeting for the election of directors, the holders of Series BB shares are entitled to elect four directors. The remaining members of the board of directors are to be elected by the holders of the Series B shares.

Each person (or group of persons acting together) holding 10% of our capital stock in the form of Series B shares is entitled to appoint one director. The remaining positions on the board of directors will be filled based on the vote of all holders of Series B shares that have not elected to appoint a director by virtue of owning 10% of our capital stock. The candidates to be considered for election as directors by the Series B shareholders are proposed to the shareholders by the Nominations and Compensation Committee. All directors are elected based on a simple majority of the votes cast at the relevant shareholders’ meeting. Our bylaws do not currently require mandatory retirement of directors after they reach a certain age. The compensation of our directors is proposed by the Nominations and Compensation Committee to all of our shareholders at shareholders’ meetings for their approval. Pursuant to the Securities Market Law, 25% of our directors must be independent within the definition of that term specified therein.

Authority of the Board of Directors

The board of directors is our legal representative. The powers of the board include, among others, the following:

• to define our strategic planning decisions and approve our annual business plans and investment budgets;

• to approve our Master Development Programs and modifications thereto;

• to call shareholders’ meetings and act upon shareholders’ resolutions; and

• to create special committees and grant them the powers and authority as it sees fit, provided that said committees will not be vested with the authorities which by law or under our bylaws are expressly reserved for the shareholders or the board of directors.

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Meetings of the board of directors will be validly convened and held if a majority of the members are present. Resolutions at said meetings will be valid if approved by a majority of the members of the board of directors, unless our bylaws require a higher number. Notwithstanding the board’s authority, under general principles of Mexican law, our shareholders, pursuant to a decision validly taken at a shareholders’ meeting, may at any time override the board.

Powers of Series BB Directors

The Series BB directors are entitled to: (i) appoint and remove our chief executive officer and our other top-level executive officers (upon consultation with our Nominations and Compensation Committee); (ii) appoint three members of the Operating Committee and their respective alternates; (iii) appoint 20% of the total members of the Audit Committee, the Acquisitions Committee and the Nominations and Compensation Committee (a minimum of one member per committee), and their respective alternatives; and (iv) consent to the appointment of individuals appointed to the Operating Committee who are not members of our board of directors or our officers.

In addition to the foregoing, each of the following actions of our board of directors, among certain others, may only occur with the approval of the Series BB directors:

• approval of our airports’ five-year Master Development Programs or amendments thereto;

• approval of our annual business and investment plans;

• approval of capital expenditures outside of our annual investment plans;

• approval of any sale of our fixed assets, individually or jointly, in an amount exceeding U.S$3.0 million;

• approval for us to enter into any type of loan or credit agreement, other than for certain loans granted by us to our subsidiaries;

• approval of the granting by us of guarantees (avales) or other security interests other than for the benefit of our subsidiaries;

• proposing to increase our capital stock or that of our subsidiaries;

• approval of sales of shares in our subsidiaries;

• approval of our dividend policies; and

• proposing individuals to join our Audit Committee or our Nominations and Compensation Committee.

Our Capital Stock

The following table sets forth our authorized capital stock and our issued and outstanding capital stock as of May 22, 2020:

Capital Stock

Capital Stock	Authorized		Issued and Outstanding
Series B shares		476,850,000		476,850,000
Series BB shares		84,150,000		84,150,000
Total		561,000,000		561,000,000

Our bylaws provide that our shares have the following characteristics:

• Series B: Series B shares currently represent 85% of our capital, and may represent up to 100% of our share capital. Series B shares may be held by any Mexican or foreign natural person, company or entity, except for foreign governments.

• Series BB: Series BB shares currently represent 15% of our capital and may not represent a greater percentage of our share capital. Like Series B shares, Series BB shares may be held by any Mexican or foreign natural person, company or entity, except for foreign governments and subject to the other requirements of our bylaws.

Under the Mexican Airport Law and the Mexican Foreign Investments Law (Ley de Inversión Extranjera), foreign persons may not directly or indirectly own more than 49% of the capital stock of a holder of an airport concession unless an authorization from the Mexican Commission of Foreign Investments is obtained. We have obtained this authorization, and as a consequence these restrictions do not apply to our Series B or Series BB shares.

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All ordinary shares confer equal rights and obligations to holders within each series. Series BB shares are subject to transfer restrictions under our bylaws and generally must be converted to Series B shares before they can be transferred. Up to 49% of the Series BB shares can be converted into Series B shares at any time. On or after August 25, 2014, one-fifth of the remaining 51% of Series BB shares could be converted into Series B shares each year. On or after August 25, 2014, none of the Series BB shares may be converted into Series B shares if (i) the Technical Assistance Agreement between AMP and us has not been renewed; and (ii) the Series BB shareholders so request. Notwithstanding the foregoing, if at any time after August 25, 2014, Series BB shares represent less than 7.65% of our share capital, those shares will be mandatorily converted into Series B shares and the Technical Assistance Agreement will be terminated.

Voting Rights and Shareholders’ Meetings

Each Series B share and Series BB share entitles the holder to one vote at any general meeting of our shareholders. Holders of Series BB shares are entitled to elect four members of our board of directors and holders of Series B shares are entitled to elect the remaining members of the board of directors.

Under Mexican law and our bylaws, we may hold three types of shareholders’ meetings: ordinary, extraordinary, and special. Ordinary shareholders’ meetings are those called to discuss any issue not reserved for extraordinary shareholders’ meeting. An annual ordinary shareholders’ meeting (our “General Ordinary Shareholders’ Meeting”) must be convened and held within the first four months following the end of each fiscal year to discuss, among other things, the report prepared by the board on our financial statements, the appointment of members of the board of directors, the declaration of dividends and the determination of compensation for members of the board.

Extraordinary shareholders’ meetings (our “Extraordinary Shareholders’ Meeting”) are those called to consider any of the following matters:

• the extension of our duration or our voluntary dissolution;

• an increase or decrease in our minimum fixed capital;

• a change in corporate purpose or nationality;

• any transformation, merger or spin-off involving the company;

• any stock redemption or issuance of preferred stock or bonds;

• the cancellation of the listing of our shares with the National Securities Registry or on any stock exchange;

• amendments to our company’s bylaws; and

• any other matters for which applicable Mexican law or the bylaws specifically require an extraordinary meeting.

Special shareholders’ meetings are those called and held by shareholders of the same series or class to consider any matter particularly affecting the relevant series or class of shares.

Shareholders’ meetings are required to be held in our corporate domicile, which is the city of Guadalajara, in the state of Jalisco. Calls for shareholders’ meetings must be made by the board of directors or the Audit Committee. Any shareholder or group of shareholders representing at least 10% of our capital stock has the right to request that the board of directors or the Audit Committee call a shareholders’ meeting to discuss the matters indicated in the relevant request. In certain circumstances specified in Mexican law, any individual shareholder may also make such a request. If the board of directors or the Audit Committee fails to call a meeting within fifteen calendar days following receipt of the request, the shareholder or group of shareholders may request that the call be made by a competent court.

Calls for shareholders’ meetings must be published in the Mexican Federal Gazette or in one newspaper of general circulation in Mexico at least fifteen calendar days prior to the date of the meeting. Each call must set forth the place, date and time of the meeting and the matters to be addressed. Shareholders’ meetings will be validly held and convened without the need for a prior call or publication whenever all the shares representing our capital are duly represented.

To be admitted to any shareholders’ meeting, shareholders must be registered in our share registry and comply with the requirements set forth in our bylaws. Shareholders may be represented at any shareholders’ meeting by one or more attorneys-in-fact who may not be our directors.

At or prior to the time of the publication of any call for a shareholders’ meeting, we will provide copies of the publication to the depositary for distribution to the holders of ADSs. Holders of ADSs are entitled to instruct the depositary as to the exercise of voting rights pertaining to the Series B shares.

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Quorums

Ordinary shareholders’ meetings are regarded as legally convened pursuant to a first call when more than 50% of the shares representing our capital are present or duly represented. Resolutions at ordinary shareholders’ meetings are valid when approved by a majority of the shares present or duly represented at the meeting. Any number of shares represented at an ordinary shareholders’ meeting convened pursuant to a second or subsequent call constitutes a quorum. Resolutions at ordinary shareholders’ meetings convened in this manner are valid when approved by a majority of the shares represented at the meeting.

Extraordinary and special shareholders’ meetings are regarded as legally convened pursuant to a first or subsequent call when at least 75% of the shares representing our capital (or 75% of the relevant series) are present or duly represented. Resolutions at extraordinary shareholders’ meetings are valid if taken by the favorable vote of shares representing more than 50% of our capital (or 50% of the relevant series).

Notwithstanding the foregoing, resolutions at extraordinary shareholders’ meetings called to discuss any of the issues listed below are valid only if approved by a vote of shares representing at least 75% of our capital:

• any amendment to our bylaws that: (i) changes or deletes the authorities of our committees; or (ii) changes or deletes the rights of minority shareholders;

• any actions resulting in the cancellation of the concessions granted to us or our subsidiaries by the Mexican government or any assignment of rights arising therefrom;

• termination of the participation agreement between us and AMP;

• the cancellation of registration of our shares with the National Securities Registry (Registro Nacional de Valores), with the Mexican Stock Exchange (BMV) or with any other domestic or foreign stock exchanges in which they are registered;

• a merger by us with an entity the business of which is not directly related to our business or that of our subsidiaries; or

• a spin-off, dissolution or liquidation of our business.

Our bylaws also establish the following voting requirements:

• the amendment of the restrictions in our bylaws on ownership of shares of our capital stock requires the vote of holders of 85% of our capital stock;

• a delisting of our shares requires the vote of holders of 95% of our capital stock; and

• the amendment of the provisions in our bylaws requiring that a shareholder exceeding our share ownership limits conduct a public sale of his excess shares requires the vote of holders of 85% of our capital stock.

Veto Rights of Holders of Series BB Shares

So long as the Series BB shares represent at least 7.65% of our capital stock, resolutions adopted at shareholders’ meetings with respect to any of the issues listed below will only be valid if approved by a vote of a majority of the Series BB shares:

• approval of our financial statements;

• liquidation or dissolution;

• capital increases or decreases;

• declaration and payment of dividends;

• amendment to our bylaws;

• mergers, spin-offs or share-splits;

• grant or amendment of special rights to any series of shares; and

• any decision amending or nullifying a resolution validly taken by the board of directors with respect to: (i) appointment of our top-level executive officers; (ii) appointment of the three members of our Operating Committee and of the members of the Audit, Acquisitions and Nominations and Compensation committees to be designated by the directors elected by the holders of the Series BB shares; and (iii) appointment of the members of the Operating Committee whose appointment requires the consent of the directors elected by the holders of the Series BB shares, and decisions of the board of directors that require the affirmative vote of the directors elected by the holders of our Series BB shares.

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Dividends and Distributions

At our General Ordinary Shareholders’ Meeting, the board of directors will submit to the shareholders for their approval our audited consolidated financial statements for the preceding fiscal year. Five percent of our net income (after profit sharing and other deductions required by Mexican law) must be allocated to a legal reserve fund until the legal reserve fund reaches an amount equal to at least 20% of our capital stock (without adjustment for inflation). Additional amounts may be allocated to other reserve funds as the shareholders may from time to time determine including a reserve to repurchase shares. The remaining balance, if any, of net earnings may be distributed as dividends on the shares of common stock. A full discussion of our dividend policy may be found in “Item 8, Financial Information – Dividends.”

At the General Ordinary Shareholders’ Meeting held on April 25, 2017, we declared a dividend of Ps.3,006.3 million, or Ps.5.72 per common shares outstanding. The first payment for that dividend in the amount of Ps.1,503.1 million was made on August 15, 2017, and the remaining Ps.1,503.2 million was paid on November 7, 2017.  In an Extraordinary Shareholders’ Meeting also held on April 25, 2017, our shareholders approved an additional capital distribution of Ps.1,750.2 million, or Ps.3.33 per outstanding share.  The payment was made on May 8, 2017.

At the General Ordinary Shareholders’ Meeting held on April 25, 2018, we declared a dividend of Ps.4,004.9 million, or Ps.7.62 per common share outstanding. The first payment for that dividend in the amount of Ps.2,002.4 million was made on August 21, 2018, and the remaining Ps.2,002.4 million was paid on November 20, 2018. In an Extraordinary Shareholders’ Meeting also held on April 25, 2018, our shareholders approved an additional capital distribution of Ps.1,250.9 million, or Ps.2.38 per outstanding share. The payment was made on May 11, 2018.

At the General Ordinary Shareholders’ Meeting held on April 23, 2019, we declared a dividend of Ps.4,425.4 million, or Ps.4.21 per common shares outstanding. The first payment for that dividend in the amount of Ps.2,212.7 million was made on August 29, 2019, and the remaining Ps.2,212.7 million was paid on November 20, 2019. In an Extraordinary Shareholders’ Meeting also held on April 23, 2019, our shareholders approved an additional capital distribution of Ps.1,592.5 million, or Ps.3.03 per outstanding share.  The payment was made on May 8, 2019.

Registration

Our shares have been registered with the National Securities Registry, as required under the Securities Market Law and regulations issued by the Mexican National Banking and Securities Commission. If we wish to cancel our registration, or if it is cancelled by the Mexican National Banking and Securities Commission, we will be required to make a public offer to purchase all outstanding shares, prior to such cancellation. Unless the Mexican National Banking and Securities Commission authorizes otherwise, the price of the offer to purchase will be the higher of: (i) the average of the trading price of our shares during the prior thirty trading days (during a period of no more than six months); or (ii) the book value of the shares in accordance with the most recent quarterly report submitted to the Mexican National Banking and Securities Commission and to the Mexican Stock Exchange. Any waiver to the foregoing provisions included in our bylaws requires the prior approval of the Mexican National Banking and Securities Commission and the approval, at an extraordinary shareholders’ meeting, of 95% of our outstanding capital stock.

Shareholder Ownership Restrictions and Antitakeover Protection

Holders of our shares are subject to the following restrictions:

• holders of Series B shares, either individually or together with their related parties, may not directly or indirectly own more than 10% of our Series B shares;

• although there is no limit on individual holdings of Series BB shares, Series BB shares may represent no more than 15% of our outstanding capital stock;

• holders of Series BB shares may also own Series B shares;

• no shareholder may vote more than 10% of our capital stock. Shares in excess of this threshold will be voted in the same manner as the majority of our shares;

• the aforementioned limits may not be circumvented by means of any special trust; collective ownership or voting agreement or any other scheme that could confer a higher percentage of share ownership or voting powers; and

• foreign governments acting in a sovereign capacity may not directly or indirectly own any portion of our capital stock.

A person exceeding the 10% threshold described above with respect to our Series B shares must conduct a public offer of his excess shares.

Any amendment to the ownership restrictions described above requires the vote of shares representing 85% of our capital stock.

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Changes in Capital Stock

Increases and reductions of our minimum fixed capital must be approved at an extraordinary shareholders’ meeting, subject to the provisions of our bylaws and the Mexican General Law of Business Corporations. Increases or reductions of the variable capital must be approved at an ordinary shareholders’ meeting in compliance with the voting requirements of our bylaws.

Pursuant to Article 53 of the Securities Market Law, we may issue unsubscribed shares that will be kept in treasury, to be subsequently subscribed by the investing public, provided that

• an extraordinary shareholders’ meeting approves the maximum amount of the capital increase and the conditions upon which the corresponding placement of shares shall be made,

• the subscription of issued shares is made through a public offer following registration in the National Securities Registry and complying with the provisions of the Securities Market Law and other applicable law, and

• the amount of the subscribed and paid-in capital of the company is announced when the company makes the authorized capital increase public.

The preferential subscription right provided under Article 132 of the General Law of Commercial Corporations (Ley General de Sociedades Mercantiles) is not applicable to capital increases through public offers.

Subject to the individual ownership limitations set forth in our bylaws, in the event of an increase of our capital stock our shareholders will have a preemptive right to subscribe and pay for new stock issued as a result of such increase in proportion to their shareholder interest at that time, unless: the capital increase is made under the provisions of Article 53 of the Securities Market Law. Said preemptive right shall be exercised by any method provided in Section 132 of the Mexican General Corporations Law, by subscription and payment of the relevant stock within fifteen business days after the date of publication of the corresponding notice to our shareholders in the Mexican Federal Gazette and in one of the newspapers of greater circulation in Mexico, provided that if at the corresponding meeting all of our shares are duly represented, the fifteen business day period shall commence on the date of the meeting.

Our capital stock may be reduced by resolution of a shareholders’ meeting taken generally pursuant to the rules applicable to capital increases. Our capital stock may also be reduced upon repurchase of our own stock in accordance with the Securities Market Law. See “Item 10, Additional Information – Corporate Governance – Share Repurchases” below.

Share Repurchases

We may choose to acquire our own shares or negotiable instruments representing such shares through the Mexican Stock Exchange on the following terms and conditions:

• The acquisition and sale on the Mexican Stock Exchange is made at market price (except when dealing with public offerings or auctions authorized by the National Banking and Securities Commission).

• If the acquisition is charged against shareholder’s equity, the shares may be kept by us without the need to make a reduction in our capital stock. Otherwise, if the acquisition is charged against our capital stock, the shares will be converted into unsubscribed shares kept in our treasury, without need for a resolution by our shareholders’ at a shareholders’ meeting.

• The company must announce the amount of the subscribed and paid-in capital when the amount of the authorized capital represented by the issued and unsubscribed shares is publicly announced.

• The ordinary shareholders’ meeting will expressly determine for each fiscal year the maximum amount of resources that we may use to purchase our own shares or negotiable instruments that represent such shares, with the only limitation that the sum or total of the resources that may be used for such purpose may not exceed, at any time, the total balance of the net profits of the company, including retained profits.

• We must be up to date in the payment of obligations under debt instruments issued and registered in the National Securities Registry that we may have issued.

Shares of the company belonging to us may not be represented or voted in shareholders’ meetings, nor may corporate or economic rights of any kind be exercised, nor will the shares be considered as outstanding for the purpose of determining the quorum or voting in shareholders’ meetings.

See “Item 16E, Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

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Ownership of Capital Stock by Subsidiaries

Our subsidiaries may not, directly or indirectly, invest in our shares, except for shares of our capital stock acquired as part of any employee stock option plan, which may not exceed 25% of our capital stock, or through asset managers (Sociedades de Inversión).

Liquidation

Upon our dissolution, one or more liquidators must be appointed at an extraordinary shareholders’ meeting to wind up our affairs. All fully paid and outstanding shares will be entitled to participate equally in any distribution upon liquidation. Partially paid shares participate in any distribution in the same proportion that such shares have been paid at the time of the distribution.

Other Provisions

Liabilities of the members of the Board of Directors

As in any other Mexican corporation, and due to the provisions contained in Article 38 of the Securities Market Law, any shareholder or group of shareholders holding at least 5% of our capital stock may directly exercise a civil liability action under Mexican law against the members of the board of directors.

In addition to the foregoing, our bylaws provide that, a member of the board of directors will be liable to us and our shareholders for breaching his or her duties, as provided under articles 29 to 37 of the Securities Market Law.

Our bylaws provide that the members of the board of directors, or the board committees, and the secretary shall be indemnified by us in case of violations of their duty of care (deber de diligencia), as long as they did not act in bad faith, violate their duty of loyalty or commit an illicit act under the Securities Market Law or other applicable law. Additionally, our bylaws provide that we shall indemnify the members of the board of directors and the secretary for any indemnification liability which they may incur as long as they have not acted in bad faith, violated their duty of loyalty or committed an illicit act under the Securities Market Law or other applicable law.

Information to Shareholders

The Securities Market Law establishes that we, acting through our boards of directors, must annually present a report at a shareholders’ meeting that includes the following:

• A report prepared by the chairman of our Audit Committee, as required by Article 43 of the Securities Market Law, which must cover, among other things: (i) the performance of our top-level officers; (ii) transactions with related parties; (iii) the compensation packages for our directors and officers; (iv) waivers granted by the board of directors regarding corporate opportunities; (v) the situation of our, and our subsidiaries’ internal controls and internal auditing; (vi) preventive and corrective measures adopted in connection with non-compliance with operational and accounting guidelines; (vii) the performance of our external auditor; (viii) additional services provided by our external auditor and independent experts; (ix) the main results of the review of our and our subsidiaries’ financial statements; and (x) the effects of changes to our accounting policies.

• The report prepared by the chief executive officer under article 44, paragraph XI of the Securities Market Law. This report must be accompanied by the report (dictamen) of the external auditor, and should include, among other things: (i) a report of the directors on the operations of the company during the preceding year, as well as on the policies followed by the directors and on the principal existing projects of the company, (ii) a statement of the financial condition of the company at the end of the fiscal year, (iii) a statement regarding the results of operations of the company during the preceding year, as well as changes in the company’s financial condition and capital stock during the preceding year, and (iv) the notes which are required to complete or clarify the foregoing information.

• The board’s opinion on the contents of the report prepared by the chief executive officer and mentioned in the preceding paragraph.

• A report explaining the principal accounting and information policies and criteria followed in the preparation of the financial information.

• A report regarding the operations and activities in which the board participated, as provided under the Securities Market Law.

In addition to the foregoing, our bylaws specify additional information obligations of the board of directors, including that the board of directors should also prepare the information referred to in Article 172 of the General Law on Business Entities with respect to any subsidiary that represents at least 20% of our net worth (based on the financial statements most recently available).

Duration

The duration of our corporate existence has been set at 100 years, expiring in 2098.

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Shareholders’ Conflict of Interest

Under Mexican law, any shareholder that has a conflict of interest with respect to any transaction must abstain from voting thereon at the relevant shareholders’ meeting. A shareholder that votes on a transaction in which its interest conflicts with ours may be liable for damages in the event the relevant transaction would not have been approved without such shareholder’s vote.

Directors’ Conflict of Interest

Under Mexican law, any director who has a conflict of interest in any transaction must disclose such fact to the other directors and abstain from voting on such transaction. Any director who violates such provision will be liable to us for any resulting damages or losses. Additionally, under our bylaws, certain conflicts of interest will have the effect of disqualifying a person from serving on our board of directors.

MATERIAL CONTRACTS

Our Mexican subsidiaries are parties to the airport concessions granted by the SCT under which we are required to construct, operate, maintain and develop the airports in exchange for certain benefits. See “Item 4, Information on the Company – Regulatory Framework – Sources of Mexican Regulation,” “Item 4, Information on the Company – Regulatory Framework – Mexican Airport Concessions – Scope of Concessions” and “Item 4, Information on the Company – Regulatory Framework – Mexican Airport Concessions – General Obligations of Concession Holders.”

MBJA and PACKAL are parties to airport concessions granted by the AAJ under which MBJA and PACKAL are required to operate, maintain and develop the Montego Bay and Kingston airports, respectively, in exchange for certain benefits. See “Item 4, Information on the Company – Regulatory Framework –Sources of Jamaican Regulation,” “Item 4, Information on the Company – Regulatory Framework – Jamaican Airport Concession Agreements.” See “Item 5, Recent Developments – Kingston Airport Concession." 

We are a party to a participation agreement with AMP and the SCT which establishes the framework for several other agreements to which we are a party. See “Item 7, Major Shareholders and Related Party Transactions – Related Party Transactions.”

We have entered into a Technical Assistance Agreement with AMP providing for management and consulting services. See “Item 7, Major Shareholders and Related Party Transactions – Related Party Transactions.”

TAXATION

The following summary contains a description of the material U.S. and Mexican federal income tax consequences of the purchase, ownership and disposition of our Series B shares or ADSs by a beneficial holder that is a citizen or resident of the United States or a U.S. domestic corporation or that otherwise is subject to U.S. federal income tax on a net income basis in respect of our Series B shares or ADSs, that is a “non-Mexican holder” (as defined below), and that is fully eligible for benefits under the Tax Treaty, as defined below (a “U.S. holder”), but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, hold or dispose of our Series B shares or ADSs. In particular, the summary of U.S. tax considerations deals only with U.S. holders that hold our Series B shares or ADSs as capital assets and does not address the tax treatment of special classes of U.S. holders such as entities treated as a partnership for U.S. federal income tax purposes or a partner in such partnership, dealers in securities or currencies, U.S. holders whose functional currency is not the U.S. dollar, U.S. holders that own or are treated as owning 10% or more of our outstanding shares by vote or value, tax-exempt organizations, financial institutions, U.S. holders liable for the alternative minimum tax or net investment income tax, securities traders who elect to account for their investment in Series B shares or ADSs on a mark-to-market basis and investors holding Series B shares or ADSs in a hedging transaction or as part of a straddle, conversion or other integrated transaction for U.S. federal income tax purposes. The summary of Mexican tax considerations does not purport to be a comprehensive description of all the Mexican tax considerations that may be relevant to a decision to purchase, own or dispose of the Series B shares or ADSs and does not address all of the Mexican tax consequences that may be applicable to specific holders of the Series B shares or ADSs (including a holder that controls the Company, an investor that holds 10% or more of the Series B shares or ADSs by vote or value or holders that constitute a group of persons for purposes of Mexican law that controls the Company or that holds 10% or more of the Series B shares or ADSs by vote or value, or a holder that is a resident of Mexico or that is a corporation resident in a tax haven (as defined in the Mexican Income Tax Law)). In addition, the summary does not address any U.S. or Mexican state or local tax considerations that may be relevant to a U.S. holder.

The summary is based upon the federal income tax laws of the United States of America (hereinafter “United States”) and the United Mexican States (hereinafter “Mexico”) as in effect on the date of this annual report on Form 20-F, including the provisions of The Convention between the Government of the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with related Protocols and Competent Authority Agreements (hereinafter “Tax Treaty”), all of which are subject to change, possibly with retroactive effect in the case of U.S. federal income tax law. Prospective investors in our Series B shares or ADSs should consult their own tax advisors as to the U.S., Mexican or other tax consequences of the purchase, ownership and disposition of the Series B shares or ADSs, including, in particular, the effect of any foreign, state or local tax laws and their entitlement to the benefits, if any, afforded by the Tax Treaty.

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For purposes of this summary, the term “non-Mexican holder” shall mean a holder that is not a resident of Mexico for federal tax purposes and that does not hold the Series B shares or ADSs or a beneficial interest therein in connection with the conduct of a trade or business through a permanent establishment or fixed base in Mexico.

For purposes of Mexican taxation, the definition of residency is highly technical and residency results in several situations. Generally, an individual is a resident of Mexico if he or she has established his or her home in Mexico, and a corporation is a resident if it has its place of effective management or center of interests in Mexico. An individual who has a home in Mexico and another country will be considered to be a resident of Mexico if Mexico is the individual’s significant center of interest. However, any determination of residence should take into account the particular situation of each person or legal entity. If a legal entity or an individual is deemed to have a permanent establishment in Mexico for Mexican tax purposes, all income attributable to that permanent establishment will be subject to Mexican income taxes, in accordance with applicable tax laws.

In general, for U.S. federal income tax purposes, holders of ADSs are treated as the beneficial owners of the Series B shares represented by those ADSs. Accordingly, deposits and withdrawals of Series B shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.

Taxation of Dividends

Mexican Tax Considerations

Under the Mexican Income Tax Law, dividends paid to Mexican individuals or any foreign residents are subject to a 10% withholding tax if paid from earnings generated during and after 2014, but are not subject to Mexican withholding tax if paid from earnings generated before 2014. Non-Mexican holders may be subject to withholding tax at reduced rates if they are eligible for benefits under an applicable tax treaty with Mexico.

There is a tax incentive for Mexican individuals to claim a credit for dividends generated in 2014, 2015 and 2016 that are reinvested in our Company. This credit applies as follows: (i) if the dividends are paid in 2017, a net 9% tax would be withheld (comprising the 10% withholding tax less a 1% credit), such that 10% of the 10% withholding tax would be credited under the incentive; (ii) if the dividends are paid in 2018, a net 8% tax would be withheld (comprising the 10% withholding tax less a 2% credit), such that 20% of the 10% withholding tax would be credited under the incentive; or (iii) if the dividends are paid in 2019 or thereafter, a net 5% tax would be withheld (comprising the 10% withholding tax less a 5% credit), such that 50% of the 10% withholding tax would be credited under the incentive.

U.S. Federal Income Tax Considerations

The gross amount of any distributions paid with respect to the Series B shares or ADSs, to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, generally are includible in the gross income of a U.S. holder as ordinary income on the date on which the distributions are received by the depositary and are not eligible for the dividends received deduction allowed to certain corporations under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). To the extent that a distribution exceeds our current and accumulated earnings and profits, it is treated as a non-taxable return of basis to the extent thereof, and thereafter as capital gain from the sale of Series B shares or ADSs. We do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles. U.S. Holders therefore should expect that distributions generally will be treated as dividends for U.S. federal income tax purposes. Distributions, which are made in pesos, are includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date they are received by the depositary whether or not they are converted into U.S. dollars on the date of receipt. If such distributions are converted into U.S. dollars on the date of receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the distributions. Any gain or loss on a subsequent conversion or other disposition of the pesos generally will be treated as ordinary income or loss to such U.S. holder and generally will be income or loss from sources within the United States for U.S. foreign tax credit purposes.

Subject to certain exceptions for short-term and hedged positions, so long as certain holding period and other requirements are met, the U.S. dollar amount of dividends received by certain non-corporate U.S. holders with respect to the Series B shares or ADSs will be subject to taxation at preferential rates if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if: (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service (“IRS”) has approved for the purpose of the qualified dividend rules; and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The Tax Treaty has been approved for the purposes of the qualified dividend rule. In addition, based on our audited consolidated financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2018 taxable year. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2019 taxable year.

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Subject to certain exceptions for short-term and hedged positions, Mexican withholding tax imposed on distributions with respect to Series B shares or ADSs will generally give rise to a foreign tax credit or deduction against U.S. federal income tax liability. For purposes of applying the foreign tax credit limitation, dividend distributions generally constitute foreign-source, passive category income (or in the case of certain U.S. holders, general category income). The use of foreign tax credits is subject to complex rules and limitations. U.S. holders are urged to consult their tax advisors whether, and to what extent, a foreign tax credit will be available in light of their particular circumstances.

Taxation of Dispositions of Shares or ADSs

Mexican Tax Considerations

Subject to applicable tax treaties, any gain on the sale of our Series B shares by any holder is subject to a 10% withholding tax in Mexico on the net gain from the sale if the transaction is carried out through the Mexican Stock Exchange. These taxes are paid through withholdings made by the financial intermediary. However, these withholdings will not be applicable to a non-resident holder that demonstrates (before the relevant financial intermediary) residence in a country with which Mexico holds a tax treaty to avoid double taxation.

In accordance with current Mexican tax law, any gain on the sale or transfer of ADSs through a securities market recognized by the Mexican Tax Code (Codigo Fiscal de la Federacion), including the NYSE, by any non-resident holder who resides in a country with which Mexico holds a tax treaty is exempt from income tax payment in Mexico. However, the current Mexican tax law is not clear with respect to the treatment of sales of ADSs by non-resident holders who also do not reside in a country with which Mexico has a tax treaty.

The sale or transfer of shares not in the form of ADSs outside of the Mexican Stock Exchange will give rise to a 25% Mexican withholding tax on the gross proceeds realized from the transaction. Subject to certain exceptions, a non-Mexican holder may elect to pay taxes on the gains realized from the sale of shares on a net basis at a rate of 35.0%.

U.S. Federal Income Tax Considerations

Upon the sale or other disposition of the Series B shares or ADSs, a U.S. holder will generally recognize gain or loss in an amount equal to the difference between the amount realized and such U.S. holder’s tax basis in the Series B shares or ADSs (in U.S. dollars). Such gain or loss will generally be capital gain or loss. Gain or loss recognized by a U.S. holder on such sale or other disposition generally is treated as long-term capital gain or loss if, at the time of the sale or other disposition, the Series B shares or ADSs had been held for more than one year. Long-term capital gain recognized by a non-corporate U.S. holder is taxable at reduced rates. The deduction of a capital loss is subject to limitations. A U.S. holder that receives non-U.S. currency from a sale or other disposition of the Series B shares or ADSs generally will recognize an amount equal to the U.S. dollar value of such non-U.S. currency on the date the Series B shares or ADSs are disposed of. A cash basis or electing accrual basis taxpayer will determine the U.S. dollar value of the amount realized by translating such amount at the spot rate on the settlement date of the sale. If an accrual basis U.S. holder makes the election described above, it must be applied consistently from year to year and cannot be revoked without the consent of the IRS. A U.S. holder will have a tax basis in any non-U.S. currency received in respect of the sale or other disposition of its Series B shares or ADSs equal to its U.S. dollar value calculated at the exchange rate in effect on the date of such sale or other disposition (or in the case of a cash basis or electing accrual basis taxpayer the exchange rate in effect on the date of the receipt).

Gain, if any, realized by a U.S. holder on the sale or other disposition of the Series B shares or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, if a Mexican withholding tax is imposed on the sale or disposition of the Series B shares or ADSs, a U.S. holder that does not receive significant foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of these Mexican taxes. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, Series B shares or ADSs.

Other Taxes

Other Mexican Taxes

There are no Mexican inheritance, gift, succession or value-added taxes applicable to the ownership, transfer or disposition of the Series B shares or ADSs by non-Mexican holders; provided, however, that gratuitous transfers of the Series B shares or ADSs may in certain circumstances causes a Mexican federal tax to be imposed upon the recipient. There are no Mexican stamp, issue, registration or similar taxes or duties payable by non-Mexican holders of the Series B shares or ADSs.

U.S. Backup Withholding Tax and Information Reporting Requirements

Dividends paid on, and proceeds from the sale or other disposition of, the Series B shares or ADSs to a U.S. holder generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless the U.S. holder provides an accurate taxpayer identification number and makes any other required certification or otherwise establishes an exemption. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the required information is furnished to the U.S. Internal Revenue Service in a timely manner.

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U.S. Foreign Financial Asset Reporting

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. The understatement of income attributable to “specified foreign financial assets” in excess of U.S.$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors are encouraged to consult with their own tax advisors regarding the possible application of these rules, including the application of the rules to their particular circumstances.

DOCUMENTS ON DISPLAY

We file reports, including annual reports on Form 20-F, and other information electronically with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. Any materials filed with the SEC are available to the public over the Internet at the SEC’s website at http://www.sec.gov/ and at our website at https://www.aeropuertosgap.com.mx/en/financial-information_html. (This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this annual report.)

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

See Note 4 to our audited consolidated financial statements for disclosure about market risk.

Foreign Currency Exchange Rate Risk

Our principal exchange rate risk involves changes in the value of the Mexican peso relative to the U.S. dollar. Historically, a significant portion of the revenues generated by our Mexican airports (principally derived from passenger charges for international passengers) has been denominated in or linked to the U.S. dollar but collected in pesos based on the average exchange rate for the prior month. In 2017, 2018 and 2019, approximately 29.8%, 28.0% and 27.4%, respectively, of our total revenues were derived from passenger charges for international passengers (in 2017, 2018 and 2019, 33.4%, 31.1% and 31.0%, respectively, of the sum of our aeronautical and non-aeronautical revenues were derived from passenger charges for international passengers). A depreciation of the peso as compared to the U.S. dollar, particularly late in the year, could cause us to exceed the maximum rates at one or more of our airports, in which case, we may provide discounts to passenger charges or to the airlines. In addition, if the peso appreciates as compared to the U.S. dollar, we may underestimate the specific prices we can charge for regulated services and be unable to adjust our prices upwards to maximize our regulated revenues. Approximately 23.2% of our 2019 aeronautical and non-aeronautical revenues were denominated in U.S. dollars. We estimate that approximately 18.8% of our consolidated costs and expenses are denominated in U.S. dollars. Based upon a 10% annual depreciation of the peso compared to the U.S. dollar as of December 31, 2019, we estimate that our revenues would have increased by approximately Ps.332.8 million, and our costs and expenses would have increased approximately Ps.146.1 million.

As of December 31, 2017, 2018 and 2019, respectively, 20.4%, 59.6% and 55.2% of our cash and marketable securities were denominated in U.S. dollars and 0.4%, 0.0% and 0.01% were denominated in euros.

In 2017, we did not incur any additional U.S. dollar indebtedness, and as of December 31, 2017, we had U.S.$215.5 in U.S. dollar-denominated debt. In 2018, we obtained U.S.$28.0 million in loans and prepaid U.S.$9.1 million. In 2019, we obtained U.S.$5.0 million in loans. We had a total of U.S.$235.4 million in U.S. dollar-denominated debt as of December 31, 2019. Future decreases in the value of the peso relative to the U.S. dollar will increase the cost in pesos of servicing such indebtedness.

At December 31, 2017, 2018 and 2019, we did not have any outstanding forward foreign exchange contracts.

Interest Rate Risk

Historically, we have funded the majority of our capital expenditures with bank loans. However, due to a strategic shift, we now fund the most significant portion of our capital investments through debt issuances on the Mexican capital markets. We expect to continue to do so, subject to market conditions.  For more information regarding our funding and liquidity strategies, see “Item 5, Operating and Financial Review and Prospects – Liquidity and Capital Resources – Indebtedness.”

As of December 31, 2019, we had approximately Ps.10.5 billion in variable rate debt, in 2017 and 2019 we contracted an interest rate swap to cover the risk for increased interest rate, related to the issuance of the GAP 17, GAP 17-2 and GAP 19 covering Ps.6.8 billion. We have Ps.1.5 billion in fixed rate debt, for a total of Ps.12.0 billion.

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In addition, on September 24, 2015, we signed two unsecured credit agreements for the refinancing of the bridge loans obtained for the acquisition of DCA. The new loans, from Bank of Nova Scotia and BBVA Bancomer, for U.S.$95.5 million each, generate interest at the variable one-month Libor rate plus 99 and 105 basis points, respectively. The Bank of Nova Scotia and BBVA Bancomer loans were disbursed on January 19, 2016 and February 15, 2016, respectively, and have a five-year maturity.

In 2016, we contracted hedges with an interest rate floor and two interest rate collars, such that if the relevant rate surpasses the level established (strike) in the contract, the cap generates positive cash flows, which offsets the negative effects of the increase in the interest rates from the underlying bank loans. The derivative financial instruments are negotiated in the over-the-counter (OTC) market, through national and international banks. The hedge covered by the cap is for the GAP 15 debt securities, the first reopening issued in February 2015, the reopening issued in January 2016 and the loans for the acquisition of DCA contracted in January and February 2016 with Bank of Nova Scotia and BBVA Bancomer.

On May 2, 2017, we contracted HSBC for a derivative financial transaction by exchange of interest rates (swap) in order to cover the risk derived from the tranche of the GAP 17 long-term debt securities.  The contract is for a value of Ps.1.5 billion and pays a fixed interest rate of 7.21% at the maturity of the long-term debt securities.

On February 26, 2019, we contracted Scotiabank for a derivative financial transaction by exchange of interest rates (swap) in order to cover the risk derived from the tranche of the GAP 17-2 long-term debt securities.  The contract is for a value of Ps.2.3 billion and pays a fixed interest rate of 8.0315% at the maturity of the long-term debt securities.

On February 27, 2019, we contracted Scotiabank for a derivative financial transaction by exchange of interest rates (swap) in order to cover the risk derived from the tranche of the GAP 19 long-term debt securities.  The contract is for a value of Ps.3.0 billion and pays a fixed interest rate of 8.03% at the maturity of the long-term debt securities.

Changes in fair value are recognized temporarily through other comprehensive income within equity and profit and loss as hedging reserve and are recycled to financial expenses as the interest of the debt securities is recognized.

During 2017, we paid (i) Ps.440.8 million of interest expense under variable interest rate loans, with an average TIIE-28 rate of 7.05% plus a contractual fixed spread and average Libor rate of 1.5% plus a contractual fixed spread and (ii) Ps.138.3 million of interest expense under fixed-rate loans. Based upon a 100 basis points increase of the TIIE-28 and the Libor rate, we estimate that our interest expense would have increase by Ps.112.1 million.

During 2018, we paid (i) Ps.765.6 million of interest expense under variable interest rate loans, with an average TIIE-28 rate of 7.78% plus a contractual fixed spread and average Libor rate of 1.45%, plus a contractual fixed spread and (ii) Ps.138.1 million of interest expense under fixed-rate loans. Based upon a 100 basis points increase of the TIIE-28 and the Libor rate, we estimate that our interest expense would have increase by Ps.121.7 million.

During 2019, we paid (i) Ps.989.8 million of interest expense under variable interest rate loans, with an average TIIE-28 rate of 7.78% plus a contractual fixed spread and average Libor rate of 1.5%, plus a contractual fixed spread and (ii) Ps.153.5 million of interest expense under fixed-rate loans. Based upon a 100 basis points increase of the TIIE-28 and the Libor rate, we estimate that our interest expense would have increase by Ps.84.3 million.

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Because both our U.S. dollar loans and our peso bond debt have variable interest rates, an increase without interest rate hedges would reduce our cash flows. To reduce our exposure, we have contracted interest rate hedges with HSBC and Scotiabank. These financial instruments with HSBC and Scotiabank to cover our GAP 15 debt securities for Ps. 2,200,000 were not entered into for speculative purposes, but were also not formally designated and therefore did not qualify as hedging instruments for accounting purposes.As a result changes in their fair value are recognized in the profit or loss within finance cost. The financial instruments with Scotiabank to cover the GAP 17-2 and GAP 19 debt securities were entered into for speculative purposes and were formally designated.Therefore,these instruments qualify as hedging instruments for accounting purposes, and as a result, changes in their fair value are recognized in other comprehensive income and profit or loss in the cash flow hedges reserve.

	Notional amount		Coverage												Market value at December 31, 2019
	(millions)		start date	Rate	Floor			CAP 1			CAP 2			Due date	(in millions)
HSBC	U.S.$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	January 2021	Ps.	0.7
HSBC	U.S.$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	February 2021		0.6
Scotiabank	Ps.	2,200.0	April 2016	TIIE-28		4.05	%		5.75	%		6.75	%	February 2020		3.4
Total															Ps.	4.7
HSBC	Ps.	1,500.0	May 2017	7.21%		—			—			—		March 2022	Ps.	(18.0	)
Scotiabank	Ps.	2,300.0	February 2019	8.0315%		—			—			—		November 2022		(87.0	)
Scotiabank	Ps.	3,000.0	February 2019	8.03%		—			—			—		March 2024		(160.9	)
Total															Ps.	(265.9	)

For the year ended December 31, 2019, we recognized a loss of Ps.149.7 million within finance cost as expense of the period, due to the value of the premium paid, for the effect of the intrinsic value of these hedges. In 2019, we recognized Ps.172.1 in the reserve for the loss of fair value of the coverage for cash flow hedges of the GAP 17-2 and GAP 19 debt securities.

On March 4, 2016, we entered into a hedge on our bank loans. Because the current Libor 1M rates were below the first cap, which is 1.75%, the hedging instrument was not used in 2016 and 2017. During 2018, we used the coverage because the 30-day Libor exceeded the first cap of 1.75%. As of December 31, 2018 and 2019, we recognized interest income of Ps. 9.9 million and Ps.19.3 million, respectively for the application of the hedge in the financial cost.

On April 1, 2016, we entered into a hedge on our variable interest rates debt securities. In 2017, 2018 and 2019, we used the hedge because the TIIE-28 rate surpassed the first cap of 5.75%. At December 31, 2017, 2018 and 2019, we recognized Ps.19.6 million, Ps.22.9 million and Ps.22.3 million, respectively, for the application of the hedge in the financial cost.

On May 4, 2017, we entered into a hedge on our long-term debt securities issued in April 2017 at a TIIE-28 plus 49 base points, for which we contracted a swap at 7.21%. As of December 31, 2018 and 2019, we recognized Ps.11.5 million and Ps.17.3 million, respectively, for the application of the hedge.

On February 26, 2019, we entered into a hedge of the variable interest rate generated by the debt securities issued in November 2017. These debt securities were issued at a 28-day TIIE variable rate plus 44 basis points, so a swap was contracted to convert it to a fixed rate of 8.0315%. As of December 31, 2019 we recognized Ps.6.5 million as finance income and Ps.0.6 million as finance expense as a result of the application of the hedge because the fixed rate contracted in the swap was lower than the TIIE.

On February 27, 2019, we entered into a hedge of the variable interest rate generated by the debt securities issued in March 2019; These debt securities were issued at a 28-day TIIE variable rate plus 45 basis points, so a swap was contracted to convert it to a fixed rate of 8.03%. As of December 31, 2019 we recognized Ps.6.8 million as finance income and Ps.0.7 million as finance expense as a result of the application of the hedge because the fixed rate contracted in the swap was lower than the TIIE.

Item 12. Description of Securities Other Than Equity Securities

Not applicable.

Item 12A. Debt Securities

Not applicable.

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Item 12B. Warrants and Rights

Not applicable.

Item 12C. Other Securities

Not applicable.

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Item 12D. American Depositary Shares

Deposit Agreement

The Bank of New York Mellon serves as the depositary for our ADSs. ADS holders are required to pay various fees to the depositary. The following is a summary of the fees payable by holders of our ADRs. For more complete information regarding ADRs, you should read the entire deposit agreement and the form of ADR.

Service	Fee or Charge Amount	Payee
Execution and delivery of ADRs	U.S.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	Bank of New York Mellon
Surrender of ADRs	U.S.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)	Bank of New York Mellon
Any cash distribution to ADR registered holders	U.S.$0.02 (or less) per ADS	Bank of New York Mellon
Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR registered holders	A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs	Bank of New York Mellon
Registration of transfers of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares	Registration or transfer fees	Bank of New York Mellon
Cable, telex and facsimile transmissions (as expressly provided in the deposit agreement)	Expenses of the depositary	Bank of New York Mellon
Converting foreign currency to U.S. dollars	Expenses of the depositary	Bank of New York Mellon
Taxes and other governmental charges the Bank of New York Mellon or the custodian has to pay on any ADR or share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes	As necessary	Bank of New York Mellon
Other fees, as necessary	Any charges incurred by Bank of New York Mellon or its agents for servicing the deposited securities	Bank of New York Mellon

The depositary of our ADSs, The Bank of New York Mellon, collects its fees directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal, or from intermediaries acting for them, by deducting the fees from the amounts distributed or by selling a portion of distributable property to pay the fees. For example, the depositary may deduct from cash distributions, directly bill investors or charge the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for these services are paid.

Reimbursements by the Depositary

The Bank of New York Mellon, as depositary of our ADSs, pays us an agreed amount, which includes expenses related to the administration and maintenance of the ADS facility including, but not limited to, investor relations expenses, the annual NYSE listing fees (as invoiced in the reimbursement request to the depositary) or any other program related expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the depositary collects from investors. In 2017, we received U.S.$194.6 thousand in reimbursements from the depositary for expenses corresponding to 2015 and 2016. In 2018, we received U.S.$74.0 thousand in reimbursements from the depositary for expenses corresponding to 2017. In 2019, we received U.S.$36.9 thousand in reimbursements from the depository for expenses corresponding to 2018.

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

Item 15. Controls and Procedures

a) Disclosure Controls and Procedures

We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2019.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

b) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with international financial reporting standards. Our internal control over financial reporting includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with international financial reporting standards, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management assessed the design and effectiveness of our internal control over financial reporting as of December 31, 2019. In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control — Integrated Framework (2013).

Based on our assessment and those criteria, our management has concluded that our company maintained effective internal control over financial reporting as of December 31, 2019.

Our independent registered public accounting firm that audited the financial statements included in this filing has issued an attestation report on the effectiveness of our internal control over financial reporting.

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c) Report of Independent Registered Public Accounting Firm on Internal Controls

Opinion on Internal Control Over Financial Reporting

We have audited Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and subsidiaries (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2017, 2018 and 2019, and the related consolidated statements of profit or loss and other comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated May 28, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG Cárdenas Dosal, S.C.

Guadalajara, Jalisco, Mexico

May 28, 2020

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 16. Reserved

Item 16A. Audit Committee Financial Expert

Carlos Cárdenas Guzmán, an independent director under NYSE listing standards, joined our board of directors and our Audit Committee in 2011, and we believe that he is qualified to serve as our “audit committee financial expert” as defined in Item 16A of Form 20-F under the Securities and Exchange Act of 1934. Our board of directors appointed Mr. Cárdenas as President of the Audit Committee and also as the financial expert of that Committee. For a discussion of Mr. Cárdenas qualifications, see “Item 6, Directors, Senior Management and Employees – Directors.”

Item 16B. Code of Ethics

We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our chief executive officer and chief financial officer, and personnel performing similar functions as well as to our other officers and employees. Our code of ethics is an exhibit to this annual report on Form 20-F and is available on our website at www.aeropuertosgap.com.mx. If we amend the provisions of our code of ethics that apply to our chief executive officer and chief financial officer, and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address. The information found on our website, other than as specifically incorporated by reference into this annual report on Form 20-F, is not part of this annual report on Form 20-F.

Item 16C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditors, KPMG Cárdenas Dosal S.C. (“KPMG Mexico”), during the fiscal years ended December 31, 2017, 2018 and 2019:

	Year ended December 31,
	2017		2018		2019
	(thousands of pesos)
Audit fees	Ps.	7,694	Ps.	9,799	Ps.	9,856
Audit-related fees		3,668		2,197		2,526
Other fees		331		562		458
Total fees	Ps.	11,693	Ps.	12,558	Ps.	12,840

Audit fees in the above tables are the aggregate fees billed by our independent auditors in connection with the audit of our annual consolidated financial statements, the audit of the financial statements of certain subsidiaries and other statutory audit reports.

Audit-related fees in the above table are fees billed by our independent auditors for services related to the Sarbanes-Oxley Act of 2002 and other audit related-services.

We have not engaged our independent auditors for tax compliance, tax advice or tax planning services in the fiscal years ended December 31, 2017, 2018 and 2019.

Other fees in the above table are fees billed by our independent auditors for transfer pricing services and other services contracts.

Audit Committee Pre-Approval Policies and Procedures

Our audit committee has not established pre-approval policies and procedures for the engagement of our independent auditors for services. Our audit committee expressly approves on a case-by-case basis any engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or to us.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

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Item 16F. Change in Registrant’s Certifying Accountant.

Not applicable.

Item 16G. Corporate Governance

Pursuant to Section 303A.11 of the Listed Company Manual of the NYSE, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards. We are a Mexican corporation with shares listed on the Mexican Stock Exchange. Our corporate governance practices are governed by our bylaws, the Securities Market Law and the regulations issued by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores). We also generally comply on a voluntary basis with the Mexican Code of Best Corporate Practices (Código de Mejores Prácticas Corporativas), which was created in January 2001 by a group of Mexican business leaders and was endorsed by the Mexican Banking and Securities Commission. On an annual basis, we file a report with the Mexican Banking and Securities Commission and the Mexican Stock Exchange regarding our compliance with the Mexican Code of Best Corporate Practices.

The table below discloses the significant differences between our corporate governance practices and the NYSE standards:

NYSE Corporate Governance Rule for U.S. Domestic Issuers	Our Corporate Governance Practices
Director Independence.
§303A.01 specifies that listed companies must have a majority of independent directors. To qualify as independent, a director must satisfy the criteria set forth in §303A.02. In particular, a director is not independent if such director is: (i) not a person who the board affirmatively determines has no material direct or indirect relationship with the company, its parent or a consolidated subsidiary; (ii) an employee, or an immediate family member of an executive officer, of the company, its parent or a consolidated subsidiary, other than employment as interim chair or CEO; (iii) a person who receives, or whose immediate family member receives, more than $120,000 during any twelve-month period within the last three years in direct compensation from the company, its parent or a consolidated subsidiary, other than director and committee fees or deferred compensation for prior services only (and other than compensation for service as interim chair or CEO or received by an immediate family member for service as a non-executive employee); (iv) a person who is affiliated with or employed, or whose immediate family member is affiliated with or employed in a professional capacity, by a present or former internal or external auditor of the company, its parent or a consolidated subsidiary; (v) an executive officer, or an immediate family member of an executive officer, of another company whose compensation committee’s membership includes an executive officer of the listed company, its parent or a consolidated subsidiary; or (vi) an executive officer or employee of a company, or an immediate family member of an executive officer of a company, that makes payments to, or receives payments from, the listed company, its parent or a consolidated subsidiary for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues (charities are not included, but any such payments must be disclosed in the company’s proxy (or, if no proxy is prepared, its Form 10-K / annual report)).	Pursuant to the Securities Market Law and Article 15 of our bylaws, at least 25% of the members of our board of directors must be independent. Determinations regarding independence must be made by our shareholders applying the provisions of the Securities Market Law and our bylaws (which incorporate Section 10A-3 of the Exchange Act). The determination of independence under the Securities Market Law differs in certain respect from the provisions of §303A.02. Under Article 26 of the Securities Market Law, a director is not independent if such director is: (i) an employee or officer of the company or of another company that is a member of the same corporate group ( consorcio o grupo empresarial ) as the company (or a person who has been so within the prior year); (ii) a person that, without being an employee or officer of the company, has influence or authority over the company or its officers, or over another company that is a member of the same corporate group as the company; (iii) an important client, supplier, debtor or creditor (or a partner, director or employee thereof). A client or supplier is considered important if its sales to or purchases from the company represent more than 10% of its total sales or purchases within the prior year. A debtor or creditor is considered important if the aggregate amount of the relevant loan represents more than 15% of its or the company’s aggregate assets; (iv) a shareholder that is a part of the control group of the company; or (v) a family member, spouse or concubine of any of the persons mentioned in (i) through (iv) above. Currently, our board of directors consists of eleven directors. Six of such directors qualify as independent in accordance with the Securities Market Law and our bylaws, and one director has been designated by a holder of 10% of our capital stock in the form of Series B shares in accordance with our bylaws.

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Executive Sessions.
§303A.03 specifies that non-management directors must meet at regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year.	Mexican law, our bylaws and the Mexican Code of Best Corporate Practices, which we adhere to, do not provide for non-management executive sessions. None of our managers are members of either our board of directors or our other committees, except that our chief executive officer is the chair of our Operating Committee, as provided for in Article 27 of our bylaws.
Committees for Director Nominations and Compensation and for Corporate Governance.
§303A.04 (a) specifies that listed companies must have a nominating/corporate governance committee composed entirely of independent directors. §303A.05 (a) specifies that listed companies must have a compensation committee composed entirely of independent directors.	We have a “Nominations and Compensation Committee.” We also have an Audit Committee, which, pursuant to Article 31 of our bylaws, has been assigned certain corporate governance ( prácticas societarias ) oversight obligations mandated by the Securities Market Law. Under Mexican corporate law, a corporation’s “board committees,” except for audit and corporate governance committees need not be composed only of members of the corporation’s board of directors. Article 28 of our bylaws provides that at least a majority of the members of our Nominations and Compensation Committee must be members of our board of directors. No express independence requirements apply to this committee. Currently, the committee consists of 2 members, both of whom are members of our board of directors, and one of whom is independent as defined under the Securities Market Law and Section 10A-3 of the Exchange Act.
Audit Committee.
§303A.06 specifies that listed companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Exchange Act. §303A.07 specifies other requirements for audit committees, including a minimum of three members who satisfy the independence requirements of Section 3003A.02.	Foreign private issuers, such as us, are subject to §303A.06 and thus must comply with Rule 10A-3. We are in compliance with Rule 10A-3 and, as such, our Audit Committee consists entirely of members of our board of directors who meet the independence requirements prescribed in that rule. (The Securities Market Law likewise contains a requirement that our Audit Committee be entirely independent.) We are not subject to §303A.07. As such, our Audit Committee charter (contained in Article 32 of our bylaws) does not make provision for every one of the specific duties required by §303A.07. See above for a description of the composition of our Audit Committee.
Corporate Governance Guidelines.
§303A.09 specifies that listed companies must adopt and disclose corporate governance guidelines.	Mexican law does not require us to disclose corporate governance guidelines and we have not done so. However, pursuant to the Securities Market Law, we have adopted board guidelines covering corporate governance matters such as the use of corporate assets, certain transactions with related parties (including loans to officers), repurchases of shares, communications with shareholders, managers and directors, and other matters.
Code of Ethics.
§303A.10 specifies that corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers.	We have adopted a code of ethics, which has been accepted by all of our directors and executive officers and other personnel. A copy of our code of ethics is available on our website: www.aeropuertosgap.com.mx.

149

Equity Compensation Plans.
§303A.08 & 312.03 specify that equity compensation plans require shareholder approval, subject to limited exemptions.	No equity-compensation plans have been approved by our shareholders. Shareholders’ approval is not expressly required under our bylaws for the adoption and amendment of an equity-compensation plan.
Shareholder Approval for Issuance of Securities.
§§312.03(b)-(d) specify that issuances of securities (1) that will result in a change of control of the issuer, (2) that are to a related party or someone closely related to a related party, (3) that have voting power equal to at least 20% of the outstanding common stock voting power before such issuance or (4) that will increase the number of shares of common stock by at least 20% of the number of outstanding shares before such issuance require shareholder approval.	Mexican law and our bylaws require us to obtain shareholder approval of the issuance of new equity securities.
Conflicts of Interest.
§314.00 specifies that the determination of how to review and oversee related party transactions is left to the listed company. The audit committee or comparable body, however, could be considered the forum for such review and oversight. §312.03(b) specifies that certain issuances of common stock to a related party require shareholder approval.	Pursuant to Mexican law, our bylaws and applicable internal guidelines, provided that the corporate practices committee of our board of directors has opined favorably, our board of directors must vote on whether or not to grant approval of certain transactions with a related party that (i) are outside the ordinary course of our business; or (ii) are at non-market prices. A director with an interest in the transaction is not permitted to vote on its approval.
Solicitation of Proxies.
§§402.01 & 402.04 specifies that the solicitation of proxies and provision of proxy materials is required for all meetings of shareholders. Copies of such proxy solicitations are to be provided to NYSE.	We are not required to distribute proxy materials to, or solicit the return of proxies from, our shareholders. In accordance with Mexican law and our bylaws, we inform shareholders of all meetings by public notice, which states the requirements for admission to the meeting and provides a mechanism by which shareholders can vote through a representative using a power of attorney. Under the new Mexican Securities Market Law, we have to make power of attorney forms available to shareholders at their request. Under the deposit agreements relating to our ADSs, holders of our ADSs receive notices of shareholders’ meetings and, where applicable, instructions on how to vote at the shareholders’ meeting through the depositary.

(1) Reference to sections are references to sections of the NYSE Listed Company Manual. Pursuant to Section 303A.00, foreign private issuers, such as us, are exempt from the corporate governance standards of the exchange, with certain exceptions.

150

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

Our consolidated financial statements are included in this filing beginning on page F-1. The following is an index to the consolidated financial statements:

Consolidated Financial Statements for Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

	Page
Report of Independent Registered Public Accounting Firm for the Years Ended December 31, 2017, 2018 and 2019	F-1
Consolidated Statements of Financial Position as of December 31, 2017, 2018 and 2019	F-3
Consolidated Statements of Profit or Loss and Other Comprehensive Income for the Years Ended December 31, 2017, 2018 and 2019	F-5
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2018 and 2019	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018 and 2019	F-8
Notes to Consolidated Financial Statements	F-9

151

Item 19. Exhibits

Documents filed as exhibits to this annual report:

Exhibit No.	Description
1.1	An English translation of the Amended and Restated Bylaws (Estatutos Sociales) of the Company.
2.1	Deposit Agreement among the Company, The Bank of New York Mellon (formerly The Bank of New York) and all registered holders from time to time of any American Depositary Receipts, including the form of American Depositary Receipt (incorporated by reference to our registration statement on Form F-1 (File No. 333-131220) filed on January 23, 2006).
3.1	Trust Agreement among the Company, AMP and Bancomext, together with an English translation (incorporated by reference to our registration statement on Form F-1 (File No. 333-131220) filed on January 23, 2006).
4.1	Amended and Restated Guadalajara Airport Concession Agreement and annexes thereto, together with an English translation and a schedule highlighting the differences between this concession and the Company’s other concessions (incorporated by reference to our registration statement on Form F-1 (File No. 333-131220) filed on January 23, 2006).
4.2	Participation Agreement and Amendment No. 1 thereto among the Registrant, the Mexican Federal Government through the SCT, Nacional Financiera, S.N.C., the Company, Servicios a la Infraestructura Aeroportuaria del Pacífico, S.A. de C.V., Aeropuerto de Aguascalientes, S.A. de C.V., Aeropuerto del Bajío, S.A. de C.V., Aeropuerto de Guadalajara, S.A. de C.V., Aeropuerto de Hermosillo, S.A. de C.V., Aeropuerto de La Paz, S.A. de C.V., Aeropuerto de Los Mochis, S.A. de C.V., Aeropuerto de Manzanillo, S.A. de C.V., Aeropuerto de Mexicali, S.A. de C.V., Aeropuerto de Morelia, S.A. de C.V., Aeropuerto de Puerto Vallarta, S.A. de C.V., Aeropuerto de San José del Cabo, S.A. de C.V., Aeropuerto de Tijuana, S.A. de C.V., AMP, AENA, Aeropuerto del Pacífico Ángeles, S.A. de C.V., Inversora del Noroeste, S.A. de C.V., Grupo Dragados, S.A., Grupo Empresarial Ángeles, S.A. de C.V., Bancomext and the ASA, together with an English translation (incorporated by reference to our registration statement on Form F-1 (File No. 333-131220) filed on January 23, 2006).
4.3	Technical Assistance and Technology Transfer Agreement among the Registrant, Servicios a la Infraestructura Aeroportuaria del Pacífico, S.A. de C.V., Aeropuerto de Aguascalientes, S.A. de C.V., Aeropuerto del Bajío, S.A. de C.V., Aeropuerto de Guadalajara, S.A. de C.V., Aeropuerto de Hermosillo, S.A. de C.V., Aeropuerto de La Paz, S.A. de C.V., Aeropuerto de Los Mochis, S.A. de C.V., Aeropuerto de Manzanillo, S.A. de C.V., Aeropuerto de Mexicali, S.A. de C.V., Aeropuerto de Los Mochis, S.A. de C.V., Aeropuerto de Puerto Vallarta, S.A. de C.V., Aeropuerto de San José del Cabo, S.A. de C.V., Aeropuerto de Tijuana, S.A. de C.V., AMP, AENA, Aeropuerto del Pacífico Ángeles, S.A. de C.V., Inversora del Noroeste, S.A. de C.V., Grupo Dragados, S.A., and Grupo Empresarial Ángeles, S.A. de C.V., together with an English translation (incorporated by reference to our registration statement on Form F-1 (File No. 333-131220) filed on January 23, 2006).
4.4	Professional Services Agreement between Aeropuerto de Guadalajara, S.A. de C.V. and AENA Desarrollo Internacional, S.A. dated as of August 4, 2008 (English translation) and a schedule highlighting the differences between this agreement and similar agreements with the Company’s other airport operating subsidiaries (incorporated by reference to our Form 20-F filed on June 29, 2010).
8.1	List of subsidiaries of the Company.
11.1	Code of Ethics of the Company*
12.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
12.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
13.1	Certifications of Chief Financial Officer and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101. INS	XBRL Instance Document.
101. SCH	XBRL Taxonomy Extension Schema Document.
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101. LAB	XBRL Taxonomy Extension Label Linkbase Document.
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101. DEF	XBRL Taxonomy Extension Definition Document.

* Filed herewith.

Omitted from the exhibits filed with this annual report are certain instruments and agreements with respect to our long-term debt, none of which authorizes securities or results in an incurrence of debt in a total amount that exceeds 10% of our total assets. We hereby agree to furnish to the SEC copies of any such omitted instruments or agreements as the SEC requests.

152

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement on its behalf.

Grupo Aeroportuario del Pacífico, S.A.B. de C.V.
By:	/s/ [Saúl Villarreal García]
Name:	Saúl Villarreal García
Title:	Chief Financial Officer

Dated: May 28, 2020

Grupo Aeroportuario del Pacífico,

S.A.B. de C.V. and Subsidiaries

Consolidated Financial Statements as of

December 31, 2017, 2018 and 2019 and for the

Years Ended December 31, 2017, 2018 and 2019

and Report of Independent Registered Public

Accounting Firms Dated May 28, 2020

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Report of Independent Auditors and 2017, 2018 and 2019 Consolidated Financial Statements

Contents	Page
Report of Independent Auditor	F-1
Consolidated Statements of Financial Position as of December 31, 2017, 2018 and 2019	F-3
Consolidated Statements of Profit or Loss and Other Comprehensive Income for the Years Ended December 31, 2017, 2018 and 2019	F-5
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2018 and 2019	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018 and 2019	F-8
Notes to Consolidated Financial Statements	F-9

i

Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Grupo Aeroportuario del Pacífico, S.A.B. de C.V.:

Opinion on the ConsolidatedFinancial Statements

We have audited the accompanying consolidated statements of financial position of Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and subsidiaries (the Company) as of December 31, 2019, 2018 and 2017, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 28, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of classification of expenditures as improvements to concession assets or maintenance costs

As discussed in the notes 3.d and 8 to the consolidated financial statements, the improvements to concession assets net balance as of December 31, 2019 was Ps. 12,063 million pesos. The Company is committed to carry-out numerous expenditures to each of its airports on an annual basis, in the case of Mexican airports, and every five years in Jamaica, under the Master Development Programs. Expenditures which are considered to be upgrades on or improvements to concession assets are recognized as intangible assets - improvements to concession assets. Additionally, the Company recognizes revenue and an expense of equal value for these expenditures. Expenditures in relation to general maintenance of the concession assets is recognized as an expense in the consolidated statement of profit and loss and other comprehensive income.

We identified the assessment of the classification of certain items of expenditure as either improvements to concession assets or as maintenance expenses as a critical audit matter because it required significant auditor judgment.

F-1

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company´s expenditures process including controls over the assessment made by the Company to classify expenditures as either improvements to concession assets or as maintenance expenses.  We read the Master Development Programs and evaluated the Company’s policy for classifying expenditures as either improvements to concession assets or as maintenance expenses, considering the relevant accounting literature. We checked that the Company’s policy was applied to a sample of expenditures recognized as intangible assets during the year ended December 31, 2019, and to a sample of maintenance expenses recognized during the year ended December 31, 2019.

/s/ KPMG CÁRDENAS DOSAL S.C.

We have served as the Company’s auditor since 2016

KPMG CÁRDENAS DOSAL S.C

Guadalajara, Jalisco, México

May, 28, 2020

F-2

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2017, 2018 and 2019

(In thousands of Mexican Pesos)

Assets

	December 31, 2017			December 31, 2018		December 31, 2019
Current assets:
Cash and cash equivalents (Note 5)	Ps.	7,730,143		Ps.	6,151,457	Ps.	7,500,193
Trade accounts receivable – net (Note 6)			997,370		1,395,362		1,479,410
Recoverable taxes and tax payments in excess (Note 12.b)			198,576		220,144		291,575
Other current assets			54,070		73,244		96,306
Total current assets			8,980,159		7,840,207		9,367,484
Advanced payments to suppliers			123,988		226,548		241,231
Machinery, equipment and improvements on leased assets – net (Note 7)			1,655,688		1,906,233		1,905,684
Improvements to concession assets – net (Note 8)			9,944,022		10,982,860		12,063,383
Airport concessions – net (Note 9)			11,754,661		11,412,118		10,821,596
Rights to use airport facilities – net (Note 10)			986,995		930,296		873,598
Other acquired rights – net (Note 11)			514,993		498,296		481,600
Derivative financial instruments (Note 16)			106,815		136,457		4,686
Deferred income taxes – net (Note 12.e)			5,354,282		5,472,279		5,648,944
Investments in associates (Note 13)			11,016		35		114
Right-of-use assets			—		46,696		34,628
Other assets – net			84,913		98,477		134,856
Total	Ps.	39,517,532		Ps.	39,550,502	Ps.	41,577,804

See accompanying notes to consolidated financial statements.

(Continued)

F-3

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2017, 2018 and 2019

(In thousands of Mexican Pesos)

Liabilities and Equity

	December 31, 2017				December 31, 2018			December 31, 2019
Current liabilities:
Banks loans, debt securities and current portion of the debt (Note 17.a and b)	Ps.	141,412			Ps.	—		Ps.	2,200,000
Concession taxes payable			302,573			347,972			394,422
Aeropuertos Mexicanos del Pacífico, S.A.P.I. de C.V. (Note 32.a)			252,622			298,376			355,361
Accounts payable (Note 14)			1,066,069			1,154,712			1,163,773
Taxes payable			74,342			165,156			131,511
Liabilities for assets in lease (Note 15.b)			—			14,510			12,577
Derivative financial instruments (Note 16)			—			—			265,979
Dividends payable			130,846			—			—
Income taxes payable (Note 12)			327,283			191,797			152,943
Total current liabilities			2,295,147			2,172,523			4,676,566
Deposits received in guarantee (Note 4)			1,082,537			1,130,740			1,143,485
Liabilities for assets in lease (Note 15.b)			—			33,689			24,615
Deferred income taxes (Note 12.e)			839,253			784,931			681,909
Retirement employee benefits (Note 18)			112,980			120,606			144,743
Long-term borrowings (Note 17.a)			4,110,846			4,535,863			4,437,043
Debt securities (Note 17.b)			9,000,000			9,000,000			9,800,000
Total long-term liabilities			15,145,616			15,605,829			16,231,795
Total liabilities			17,440,763			17,778,352			20,908,361
Equity (Note 19):
Common stock			9,028,446			7,777,576			6,185,082
Repurchased shares			(1,733,374	)		(1,733,374	)		(1,733,374	)
Legal reserve			1,119,029			1,345,709			1,592,551
Reserve for repurchase of shares			2,728,374			2,983,374			3,283,374
Retained earnings			9,001,269			9,552,071			9,940,035
Foreign currency translation reserve			876,300			775,619			525,992
Remeasurements of employee benefits – Net of income tax			8,171			8,010			6,606
Reserve for financial instruments of cash flow hedges – Net of income tax			—			—			(172,094	)
Total equity attributable to controlling interest			21,028,215			20,708,985			19,628,172
Non-controlling interest (Note 20)			1,048,554			1,063,165			1,041,271
Total equity			22,076,769			21,772,150			20,669,443
Total	Ps.	39,517,532			Ps.	39,550,502		Ps.	41,577,804

See accompanying notes to consolidated financial statements.

(Concluded)

F-4

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Consolidated Statements of Profit or Loss and Other Comprehensive Income

For the years ended December 31, 2017, 2018 and 2019

(In thousands of Mexican Pesos, except per share amounts)

	2017				2018			2019
Revenues (Note 21):
Aeronautical services	Ps.	8,280,522			Ps.	9,499,154		Ps.	10,547,720
Non-aeronautical services			2,772,905			3,183,532			3,771,500
Improvements to concession assets			1,312,491			1,440,204			1,906,801
			12,365,918			14,122,890			16,226,021
Operating costs:
Cost of services (Note 22)			2,110,407			2,453,722			2,744,864
Technical assistance fees (Note 32)			357,451			411,477			461,549
Concession taxes (Note 9)			944,197			1,076,350			1,318,220
Depreciation and amortization (Note 23)			1,443,562			1,569,637			1,776,137
Cost of improvements to concession assets (Note 25)			1,312,491			1,440,204			1,906,801
Other (income) expense – net (Note 26)			(83,921	)		(73,152	)		1,212
			6,084,187			6,878,238			8,208,783
Income from operations			6,281,731			7,244,652			8,017,238
Finance cost – net (Note 27):
Finance income			420,735			576,694			665,829
Finance cost			(619,207	)		(1,012,411	)		(1,425,746	)
Exchange gain – net			99,083			199,684			88,785
			(99,389	)		(236,033	)		(671,132	)
Share of (loss) profit of associate (Note 13)			(10,620	)		(947	)		79
Income before income taxes			6,171,722			7,007,672			7,346,185
Income tax (Note 12.c):
Current			1,849,551			2,117,491			2,055,783
Deferred			(408,910	)		(248,450	)		(164,340	)
			1,440,641			1,869,041			1,891,443
Profit for the year			4,731,081			5,138,631			5,454,742
Other comprehensive income:
Items that are or may be reclassified subsequently to profit or loss    Exchange differences on translating foreign operations		(226,494)				(103,569	)		(269,440	)
Cash flow hedges, effective portion of changes in fair value, net of income tax			-			-			(172,094	)
Items that will not be reclassified to profit or loss    Remeasurements of employee benefit – net of income tax			(2,602	)		(161	)		(1,404	)
Total comprehensive income for the year	Ps.	4,501,985			Ps.	5,034,901		Ps.	5,011,804
Profit for the year attributable to:
Controlling interest	Ps.	4,649,120			Ps.	5,037,368		Ps.	5,360,152
Non-controlling interest			81,961			101,263			94,590
	Ps.	4,731,081			Ps.	5,138,631		Ps.	5,454,742
Total comprehensive income for the year attributable to:
Controlling interest	Ps.	4,451,659			Ps.	4,936,526		Ps.	4,937,027
Non-controlling interest			50,326			98,375			74,777
	Ps.	4,501,985			Ps.	5,034,901		Ps.	5,011,804
Weighted average number of common shares outstanding		525,575,547				525,575,547			525,575,547
Basic and diluted earnings per share (in Mexican Pesos, Note 3.s)	Ps.	8.8457			Ps.	9.5844		Ps.	10.1986

(Continued)

See accompanying notes to consolidated financial statements.

F-5

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2017, 2018 and 2019

(In thousands of Mexican Pesos)

	Number of Shares		Common stock			Repurchased shares				Legal reserve		Reserve for repurchase of shares		Retained earnings			Foreign currency translation reserve			Remeasurements of employee benefits – Net of income tax			Total  equity attributable to controlling interest			Non-controlling interest			Total equity
Balances as of  January 1, 2017		561,000,000	Ps.	10,778,613		Ps.		(1,733,374	)	Ps.	960,943	Ps.	2,683,374	Ps.	7,561,527		Ps.	1,071,159		Ps.	10,773		Ps.	21,333,015		Ps.	1,071,554		Ps.	22,404,569
Dividends declared non-controlling interest (Note 20)		—		—				—			—		—		—			—			—			—			(73,326	)		(73,326	)
Transfer of earnings to legal reserve (Note 19.h)		—		—				—			158,086		—		(158,086	)		—			—			—			—			—
Dividends paid, Ps. 5.72 pesos per share (Note 19.b)		—		—				—			—		—		(3,006,292	)		—			—			(3,006,292	)		—			(3,006,292	)
Capital distribution Ps. 3.33 pesos per share    (Note 19.c)		—		(1,750,167	)			—			—		—		—			—			—			(1,750,167	)		—			(1,750,167	)
Reserve for repurchase of shares (Note 19.b)		—		—				—			—		45,000		(45,000	)		—			—			—			—			—
Comprehensive income:
Profit of the year		—		—				—			—		—		4,649,120			—			—			4,649,120			81,961			4,731,081
Other comprehensive income for the year		—		—				—			—		—		—			(194,859	)		(2,602	)		(197,461	)		(31,635	)		(229,096	)
Total comprehensive income for the year		—		—				—			—		—		4,649,120			(194,859	)		(2,602	)		4,451,659			50,326			4,501,985
Balances as of December 31, 2017		561,000,000		9,028,446			(1,733,374)				1,119,029		2,728,374		9,001,269			876,300			8,171			21,028,215			1,048,554			22,076,769
Dividends declared non-controlling interest (Note 20)		—		—				—			—		—		—			—			—			—			(83,764	)		(83,764	)
Transfer of earnings to legal reserve (Note 19.h)		—		—				—			226,680		—		(226,680	)		—			—			—			—			—
Dividends paid, Ps. 7.62 pesos per share (Note 19.d)		—		—				—			—		—		(4,004,886	)		—			—			(4,004,886	)		—			(4,004,886	)
Capital distribution Ps. 2.38 pesos per share (Note 19.e)		—		(1,250,870	)			—			—		—		—			—			—			(1,250,870	)		—			(1,250,870	)
Reserve for repurchase of shares (Note 19.d)		—		—				—			—		255,000		(255,000	)		—			—			—			—			—
Comprehensive income:
Profit of the year		—		—				—			—		—		5,037,368			—			—			5,037,368			101,263			5,138,631
Other comprehensive income for the year		—		—				—			—		—		—			(100,681	)		(161	)		(100,842	)		(2,888	)		(103,730	)
Total comprehensive income for the year		—		—				—			—		—		5,037,368			(100,681	)		(161	)		4,936,526			98,375			5,034,901
Balances as of December 31, 2018		561,000,000	Ps.	7,777,576		Ps.	(1,733,374)			Ps.	1,345,709	Ps.	2,983,374	Ps.	9,552,071		Ps.	775,619		Ps.	8,010		Ps.	20,708,985		Ps.	1,063,165		Ps.	21,772,150

(Continued)

See accompanying notes to consolidated financial statements.

F-6

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2017, 2018 and 2019

(In thousands of Mexican Pesos)

	Number of Shares		Common stock			Repurchased shares			Legal reserve		Reserve for repurchase of shares		Retained earnings			Foreign currency translation reserve			Remeasurements of employee benefits – Net of income tax			Reserve for financial instruments of cash flow hedges – Net of income tax			Total  equity attributable to controlling interest			Non- controlling interest			Total equity
Balances  as of  January 1, 2019		561,000,000	Ps.	7,777,576		Ps.	(1,733,374	)	Ps.	1,345,709	Ps.	2,983,374	Ps.	9,552,071		Ps.	775,619		Ps.	8,010		Ps.	—		Ps.	20,708,985		Ps.	1,063,165		Ps.	21,772,150
Dividends declared non-controlling    interest (Note 20)		—		—			—			—		—		—			—			—			—			—			(96,671	)		(96,671	)
Transfer of earnings to legal reserve    (Note 19.h)		—		—			—			246,842		—		(246,842	)		—			—			—			—			—			—
Dividends paid, Ps. 8.42 pesos per    share (Note 19.f)		—		—			—			—		—		(4,425,346	)		—			—			—			(4,425,346	)		—			(4,425,346	)
Capital distribution Ps. 3.03 pesos    per share (Note 19.g)		—		(1,592,494	)		—			—		—		—			—			—			—			(1,592,494	)		—			(1,592,494	)
Reserve for repurchase of shares    (Note 19.f)		—		—			—			—		300,000		(300,000	)		—			—			—			—			—			—
Comprehensive income:
Profit of the year		—		—			—			—		—		5,360,152			—			—			—			5,360,152			94,590			5,454,742
Other comprehensive income for the    year		—		—			—			—		—		—			(249,627	)		(1,404	)		(172,094	)		(423,125	)		(19,813	)		(442,938	)
Total comprehensive income for the    year		—		—			—			—		—		5,360,152			(249,627	)		(1,404	)		(172,094	)		4,937,027			74,777			5,011,804
Balances as of December 31, 2019		561,000,000	Ps.	6,185,082		Ps.	(1,733,374	)	Ps.	1,592,551	Ps.	3,283,374	Ps.	9,940,035		Ps.	525,992		Ps.	6,606		Ps.	(172,094	)	Ps.	19,628,172		Ps.	1,041,271		Ps.	20,669,443

(Concluded)

See accompanying notes to consolidated financial statements.

F-7

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2017, 2018 and 2019

(In thousands of Mexican Pesos)

	2017				2018			2019
Cash flows from operating activities:
Profit for the year	Ps.	4,731,081			Ps.	5,138,631		Ps.	5,454,742
Adjustments for:
Employee benefits			16,688			7,465			22,733
Allowance expected credit loss			866			(15,131	)		5,299
Depreciation and amortization			1,443,562			1,569,637			1,776,137
Loss on sale of machinery, equipment and improvements to leased assets			—			5,554			586
Share of loss (profit) of associate			10,620			947			(79	)
Net (gain) loss on derivative financial instruments			(34,361	)		(29,643	)		149,770
Interest expense for financing activity			600,813			896,165			1,142,086
Unrealized exchange (gain) loss			(172,849	)		10,827			(111,544	)
Provisions			6,480			(2,650	)		6,930
Income tax expense			1,440,641			1,869,041			1,891,443
			8,043,541			9,450,843			10,338,103
Changes in:
Trade accounts receivable			(394,746	)		(383,361	)		(101,537	)
Recoverable income tax and other current assets			9,275			93,827			(28,591	)
Concession taxes payable			55,422			43,672			57,378
Aeropuertos Mexicanos del Pacífico, S.A.P.I. de C.V.			54,110			45,754			56,985
Accounts payable			24,580			114,384			11,642
Taxes payable			49,169			90,811			(33,539	)
Deposits received in guarantee			147,714			43,121			26,673
Cash generated by operating activities			7,989,065			9,499,051			10,327,114
Income taxes paid			(1,820,363	)		(2,263,432	)		(2,163,057	)
Net cash provided by operating activities			6,168,702			7,235,619			8,164,057
Cash flows from investing activities:
Purchases of machinery, equipment, improvements on leased assets, improvements to concession assets and advance payments to suppliers			(1,923,893	)		(2,501,656	)		(2,478,988	)
Proceeds from sales of machinery and equipment			—			6,604			4,186
Equity reimbursement from associate			—			10,034			—
Cash flows by concession right			—			(50,354	)		(97,628	)
Other investment activities			(14,682	)		(15,039	)		(13,665	)
Net cash used in investing activities			(1,938,575	)		(2,550,411	)		(2,586,095	)
Cash flows from financing activities:
Dividends declared and paid			(3,006,292	)		(4,004,886	)		(4,425,346	)
Dividends paid to non-controlling interest			—			(274,685	)		(146,715	)
Capital distribution			(1,750,167	)		(1,250,870	)		(1,592,494	)
Proceeds from issuance of debt securities			3,800,000			—			3,000,000
Proceeds from bank loans			—			534,807			96,308
Repayments on bank loans			(151,724	)		(252,095	)		—
Interest paid on leasing			—			(3,733	)		(3,703	)
Payment of obligations for leases			—			(11,504	)		(16,261	)
Interest paid on financial loans			(579,133	)		(903,728	)		(1,143,318	)
Net cash used in financing activities			(1,687,316	)		(6,166,694	)		(4,231,529	)
Effects of exchange rate changes on cash held:			(806	)		(97,200	)		2,303
Increase (decrease) in cash and cash equivalents			2,542,005			(1,578,686	)		1,348,736
Cash and cash equivalents at beginning of year			5,188,138			7,730,143			6,151,457
Cash and cash equivalents at the end of year	Ps.	7,730,143			Ps.	6,151,457		Ps.	7,500,193
Non-cash investing activities:
Purchases of machinery, equipment, improvements on leased    buildings and improvements to concession assets	Ps.	409,271			Ps.	318,519		Ps.	286,409

See accompanying notes to consolidated financial statements.

F-8

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended December 31, 2017, 2018 and 2019

(In thousands of Mexican Pesos)

1. Activities of the Company and significant events

Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and subsidiaries (the “Company” or “GAP”) was incorporated in May 1998 as a state-owned entity to manage, operate and develop 12 airport facilities, mainly in Mexico’s Pacific region. The airports are located in the following cities: Guadalajara, Puerto Vallarta, Tijuana, San José del Cabo,  Guanajuato (Bajío), Hermosillo, Mexicali, Los Mochis, La Paz, Manzanillo, Morelia and Aguascalientes.  Moreover the Company operates, maintains and utilizes two airports in Jamaica, starting in April 2015,   the Sangster International Airport in Montego Bay, Jamaica by the subsidiary MBJ Airports Limited (MBJA), and on October 2019 the Norman Manley International Airport (NMIA) by the subsidiary PAC Kingston Airport Limited (PACKAL). The Company’s principal address is Mariano Otero Avenue 1249 B, six floor, Rinconada del Bosque, zip code 44530, Guadalajara, Jalisco, Mexico.

a. Activities

The Company began operations on November 1, 1998. Prior to that date, the Company’s activities were carried out by Aeropuertos y Servicios Auxiliares (ASA), a Mexican Governmental agency, which was responsible for the operation of all public airports in Mexico.

In June 1998, the subsidiaries of Grupo Aeroportuario del Pacífico, S.A.B. de C.V. were granted concessions by the Ministry of Communications and Transportation (SCT) to manage, operate and develop each of the Pacific Group’s 12 airports and benefit from the use of the airport facilities, for a 50-year term beginning November 1, 1998 (The Concession or Concessions). The cost of the concessions, which totaled Ps.15,938,359, was determined by the Mexican Government in August 1999, based upon the price paid by Aeropuertos Mexicanos del Pacífico, S.A.P.I. de C.V. (AMP, the strategic shareholder of the Company) for its interests in GAP. On August 20, 1999, GAP entered into a Liabilities Assumption Agreement with each of its subsidiaries, whereby it assumed the liabilities incurred by each subsidiary derived from obtaining the concession. Such liabilities were capitalized by GAP as equity in favor of the Mexican Government on the same date.

The term of the concession is 50 years as of November 1, 1998 and may be extended by the SCT on one or more occasions for up to 50 additional years under certain circumstances. Beginning on November 1, 1998, the Company is required to pay an annual tax to the Mexican Government, through the SCT, for use of the public property, equivalent to 5% of each concessionaire’s annual gross revenues, according to the concession terms and the Mexican Federal Duties Law.

Title to all of the long-term fixed assets within the airports is retained by the Mexican Government. Accordingly, upon expiration of the term of the concessions granted to the Company, the assets, including all of the improvements made to the airport facilities during the term of the concessions, shall automatically revert to the Mexican Government. Additionally, ASA and other agencies of the Mexican Government maintain the rights to provide certain services such as air traffic control, fuel supply and immigration control.

On February 24, 2006, the Company made an initial public offering of its Series B shares, under which the Mexican Government, which held 85% of the voting common stock of the Company sold its 100% shares participation, both in the United States of America, via the New York Stock Exchange (NYSE) and in Mexico, via the Mexican Stock Exchange (BMV). Consequently, as of this date, the Company became a public entity in both Mexico and in the United States of America and is required to meet various legal obligations and regulations for public entities applicable in each country.

On April 20, 2015, the Company carried out a transaction for the acquisition of 100% of the shares of the Spanish company Desarrollo de Concesiones Aeroportuarias, S.L. (DCA). The transaction was fully paid on the same date. The acquisition was the result of a private and confidential bidding process among various participants, which concluded in favor of GAP. The total amount of the transaction was USD$192 million.  

DCA has a 74.5% stake in MBJA, the entity that operates Sangster International airport in Montego Bay in Jamaica. MBJA holds the concession to operate, maintain and utilize the airport for a period of 30 years, beginning April 2, 2003. Vantage Airport Group Limited (Vantage) owns the remaining 25.5% stake in MBJA.

F-9

DCA also has a 14.77% stake in SCL Terminal Aéreo Santiago, S.A. (SCL), the operator of the international terminal in Santiago, Chile until September 30, 2015. On September 30, 2015, the concession to operate the Santiago de Chile airport expired, consequently, those assets were immediately returned to the Chilean government and the new operator without any significant incidents. Though SCL will no longer have operations, SCL must remain in effect for an additional year after the transfer. After that first year, SCL will remain in effect until its dissolution in accordance with tax regulations in Chile.

On October 10, 2018, the Company through its subsidiary PACKAL, entered into a concession agreement with Airport Authority of Jamaica (AAJ), with which the authority guaranteed to PACKAL the right to rehabilitate, develop, operate and maintain NMIA for a period of 25 years with a possible extension of 5 years, as of October 10, 2019. In accordance with the terms of the concession agreement, the Company paid USD $7.1 million (USD $2.1 million to the International Finance Corporation (IFC) and USD $5.0 million to the AAJ). Once the operation begins, PACKAL is obliged to pay the AAJ a concession right of 62.01% of the total aeronautical and commercial revenues. All long-lived assets located in the NMIA are owned by AAJ. Upon the expiration of the term of the concessions agreement granted to the Company, the assets, including all the improvements made to the airport facilities during the term of the concessions, will automatically revert in favor of AAJ.

b. Significant events

– On March 29, 2019, the Company issued 30 million long-term debt securities for a total Ps. 3,000,000 which are unsecured and payment of principal at maturity corresponding to the tranche of GAP 19. Interest will be payable every 28 days at a variable rate of TIIE-28 plus 45 basis points, and the principal payment will be made upon maturity, on March 22, 2024. Proceeds from the issuance will be allocated to the Mexico´s finance Company’s Master Development Plan (MDP).

– In an Annual General Ordinary Shareholders’ Meeting held on April 23, 2019, the Shareholders approved a dividend payment of Ps. 8.42 per outstanding share on the date of each payment, excluding shares repurchased in accordance with Article 56 of the Mexican Securities Market Law. The first payment for Ps. 4.21 per share was in cash on August 29, 2019 for a total of Ps. 2,212,673, and the second payment for Ps. 4.21 per share was made on November 20, 2019 for a total of Ps. 2,212,673. The total payment for dividends was Ps. 4,425,346, as mentioned in Note 19.f.      

– In a General Extraordinary Shareholders’ Meeting held on April 23, 2019, the Shareholders approved a capital reduction of Ps. 3.03 per share. The payment was made on May 17, 2019 for Ps. 1,592,494 as described in Note 19.g.    

– On October 10, 2019, the Company took control and began to operate NMIA in the city of Kingston, Jamaica.     

2. Basis of presentation

a. Statement of Compliance – These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), its amendments and interpretations issued by the International Accounting Standards Board (IASB) issued and outstanding or issued and adopted early on the date of preparation of these consolidated financial statements.

b. Translation into English –The accompanying consolidated financial statements have been translated from Spanish into English for use outside of Mexico.

c. Basis of preparation – The consolidated financial statements have been prepared on the historical cost basis except for assets and liabilities assumed in the business combinations on the date of purchase, which were recorded at fair value, derivative financial instruments and non-derivative financial instruments with changes in profit and loss and the liabilities for defined benefits are recognized at present value.

– Historical cost – Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

– Fair value – 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 on the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability on the measurement date. When there are no market and/or market participants willing to create a market, IFRS establishes a fair value hierarchy that gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

F-10

The levels of fair value hierarchy are as follows:

• Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity can access on the measurement date;

• Level 2 inputs are other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability

d. Consolidation of financial statements – The consolidated financial statements include those of Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and its subsidiaries in which the Company has control, for the years ended December 31, 2017, 2018 and 2019. The consolidated subsidiaries are as follows:

Company	% participation			Location	Activity
Aeropuerto de Aguascalientes, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto del Bajío, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Guadalajara, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Hermosillo, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de La Paz, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Los Mochis, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Manzanillo, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Mexicali, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Morelia, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Puerto Vallarta, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de San José del Cabo, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Aeropuerto de Tijuana, S.A. de C.V.		99.99	%	Mexico	Operation of airport
Corporativo de Servicios Aeroportuarios, S.A. de C.V. (CORSA)		99.99	%	Mexico	Provides personnel services
Fundación Grupo Aeroportuario del Pacífico, A.C. (Fundación GAP)		99.99	%	Mexico	Non-profit Organization dedicated to social orientation and infrastructure support of educational institutions
Puerta Cero Parking, S.A. de C.V. (PCP)		99.99	%	Mexico	Operation of parking lot
Servicios a la Infraestructura Aeroportuaria del Pacífico, S.A. de C.V. (SIAP)		99.99	%	Mexico	Administrative services
Aerocomercializadora del Pacifico, S.A. de C.V. (ADP)		99.99	%	Mexico	Operation of hotel infrastructure and other commercial services (without operation since 2018)
Desarrollo de Concesiones Aeroportuarias, S.L. (DCA)		100.0	%	Spain	Management administration, maintenance, servicing of all types of infrastructure
MBJ Airports Limited (MBJA)		74.50	%	Jamaica	Operation of airport
PAC Kingston Airport Limited (PACKAL)		100.0	%	Jamaica	Operation of airport
GA del Pacífico es do Brasil, LTDA		99.99	%	Brazil	No operation

Control is achieved when the Company:

• Has power over the investee;

• Is exposed, or has rights, to variable returns from its involvement with the investee; and

• Has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included in the

F-11

consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the consolidated financial statements of subsidiaries to bring their accounting policies into line with the Company's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminated in full on consolidation. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

e. Application of new and revised International Financing Reporting Standards.

Modification of International Financing Reporting Standards (“IFRSs” or “IAS”) and new interpretations that are mandatorily effective for the current year

Annual Improvements to IFRS 2015 - 2017

Amendments to IFRS 9 Prepayment Features with Negative Compensation

The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the SPPI condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, prepayment features with negative compensation do not automatically fail SPPI.

IAS 12 Income Taxes

The amendments clarify that an entity should recognize the income tax consequences of dividends in profit or loss, and other comprehensive income or equity according to where the Company originally recognized the transactions that generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits.

IFRS 3 Business Combinations

The amendments clarify that when a Company obtains control of a business that is a joint operation, the entity applies the requirements for a business combination achieved in stages, including remeasuring its previously held interest (PHI) in the joint operation at fair value. The PHI to be remeasured includes any unrecognized assets, liabilities and goodwill relating to the joint operation.

IFRS 11 Joint Arrangements

The amendments clarify that when a party that participates in, but does not have joint control of, a joint operation that is a business obtains joint control of such a joint operation, the Company does not remeasure its PHI in the joint operation.

Amendments to IAS 19 Employee Benefits Plan Amendment, Curtailment or Settlement  

The amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring the defined benefit liability (asset) using updated assumptions and comparing benefits offered before and after the plan amendment (or curtailment or settlement) but ignoring the effect of the asset ceiling (that may arise when the defined benefit plan is in a surplus position). IAS 19 is now clear that the change in the effect of the asset ceiling that may result from the plan amendment (or curtailment or settlement) is determined in a second step and is recognized in the normal manner in other comprehensive income.

The paragraphs that relate to measuring the current service cost and the net interest on the net defined benefit liability (asset) have also been amended. A Company will now be required to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. In the case of the net interest, the amendments make it clear that for the period post plan amendment, the net interest is calculated by multiplying the net defined benefit liability (asset) as remeasured under IAS 19 with the discount rate used in the remeasurement (also taking into account the effect of contributions and benefit payments on the net defined benefit liability (asset)).

F-12

IFRIC 23 Uncertainty over Income Tax Treatments

IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The interpretation requires an entity to:

• determine whether uncertain tax positions are assessed separately or as an entity; and

• assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings:

- If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings.

- If not, the entity should reflect the effect of uncertainty in determining its accounting tax position the most probable amount or the expected value method.

The application of these amendments and standards had no effect on the Company's consolidated financial statements.

The Company has adopted IFRS 9 (using the cumulative effect method, which allows the Company not to restate comparative consolidated financial statements), IFRS 15 (using the cumulative effect method) and early adopted IFRS 16 (using the modified retrospective effect method) from January 1, 2018 and other new IFRS standards and new interpretations issued by the IASB, which did not have a significant effect on the consolidated financial statements of the Company and were disclosed in the 2018 period.

f. Functional and presentation currency – The consolidated financial statements and notes as of December 31, 2017, 2018 and 2019, and for the years then ended, are prepared in pesos, which is both, the functional and reporting currency of the Company and are presented in thousands of pesos.

The assets and liabilities of foreign operations, including the fair value of assets arising on acquisition, are translated at the exchange rates as of year–end for each period.

Income and expenses of foreign operations are translated at the average exchange rate for the period of transactions. During 2017, 2018 and 2019, were as follows:

Currency	2017		2018			2019
Pesos / USD	Ps.	18.9326	Ps.		19.2357	Ps.		19.2616
USD / Euros		USD$1.1293		USD$1.1815			USD$1.1196

g. Use of estimates and critical judgments in preparing the consolidated financial statements – The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies relating to the reported amounts of assets, liabilities and income and expenses of the relevant period. Actual results could differ from these estimates. Information on the uncertainty in the use of assumptions and estimates that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

– Expected credit loss (Note 6)

– Definition of useful lives and depreciation and amortization periods (Notes 3.c. and 3.d.)

– Capitalization of improvements to concession assets (Notes 3.d and 8)

– Cash flow hedges (Notes 3.h and 16)

– Identification and classification of leases (Note 15)

– Probability of recovery of deferred income tax from tax loss carryforwards (Note 12.g)

– Recovery of tax on assets paid in prior years (Note 12.i)

– Assumptions used to determine liabilities for retirement benefits (Note 18)

– Contingency liabilities (Note 29)

F-13

In addition to the estimates, the Company makes critical judgments in applying its accounting policies, which have a material effect on the amounts recognized in the consolidated financial statements. Management believes that the decisions made are the most reasonable based on the information available, on the judgments made and the way it manages the operation of the Company. Critical judgments relate to the following:

- Accounting for the Concession – Management believes it has carried out a comprehensive implementation of the standards applicable to the accounting treatment of its concessions in Mexico and Jamaica and it determined that, among others, International Financial Reporting Interpretation (IFRIC) 12 Service Concession Arrangements is applicable to the Company. The Company treats its investments related to improvements and upgrades to be performed in connection with the MDP for Mexican and Jamaican Entities under the intangible asset model established by IFRIC 12 and does not recognize a provision for maintenance, as all investments required by the MDP, regardless of their nature, directly increase the Maximum Tariff per traffic unit (MT).  Accordingly, all amounts invested under the MDP have a direct correlation to the amount of fees the Company will be able to charge each passenger or cargo service provider, and thus, a direct correlation to the amount of revenues the Company will be able to generate. As result, management defines all expenditures associated with investments required by the MDP as revenue generating activities given that they ultimately provide future benefits, whereby subsequent improvements and upgrades made ​​to the concession are recognized as intangible assets based on the principles of IFRIC 12. Additionally, compliance with the committed investments per the MDP is mandatory, as well as the fulfillment of the MT and therefore, in case of default in any of these obligations (MDP or MT), the Company could be subject to sanctions and even its concession could be revoked.  To determine the amortization period of the intangible associated with the improvements and upgrades made to comply with the MDP, the Company focuses on the period in which it will generate future economic benefits or the concession term, whichever is less.

h. Income from operations – This line item is comprised of total revenues less the operating costs, including other income, net, Note 26. Although the presentation of income from operations is not required by nor is it defined under IFRS, it is included in the consolidated statements of profit or loss and other comprehensive income because management believes it represents a useful and reliable measure of the economic and financial performance of the Company.

i. Comprehensive income – Comprehensive income comprised the net income of the period, plus other comprehensive income (loss) items of the same period. For the years ended December 31, 2017, 2018 and 2019, other comprehensive income is represented by the effects of translation of foreign subsidiaries, actuarial remeasurements and the reserve of cash flow hedges of financial instruments. At the moment the assets and liabilities giving rise to other comprehensive income are realized, the latter are recognized in the income statement as long as permitted under IFRS.

j. Classification of cost and expenses – Costs and expenses presented in the consolidated statements of profit or loss and other comprehensive income were classified according to their nature.

3. Significant accounting policies

The consolidated financial statements comply with the IFRS as issued by the IASB. Its preparation requires management to make certain estimates and use certain assumptions that affect certain items of the consolidated financial statements and their related disclosures required therein. However, actual results could differ from those estimates. The Company's management, upon applying professional judgment, considers that estimates and assumptions used were adequate under the circumstances (Note 2.g). The significant accounting policies of the Company are as follows:

a. Financial instruments

i. Recognition and initial measurement

All other financial assets and financial liabilities are initially recognized when the Company becomes party to the contractual provisions of the instrument. Trade account receivables are initially recognized when they are originated.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at Fair Value Through Profit or Loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.A commercial debtor without a significant financing component is initially measured at the transaction price.

ii. Classification and subsequent measurement Financial assets and liabilities

F-14

Financial assets – Policy applicable from January 1, 2018.

All regular way purchases or regular incomes of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.  

All recognized financial assets are measured subsequently in their entirety at either amortized cost or fair value, depending on the classification of the financial assets.

Financial asset that meet the following conditions is subsequently measured at amortized cost:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• the contractual terms of the financial asset give rise to specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments that meet the following conditions are measured subsequently at Fair Value Trough Other Comprehensive Income (FVTOCI):

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

• the contractual terms of the financial asset give rise to specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

By default, all other financial assets are measured subsequently at fair value through profit or loss. This election is made on an investment-by-investment basis.

– Financial assets – Business model assessment: Policy applicable from January 1, 2018.

The Company makes an assessment of the objective of the business model in which a financial asset a level of trade account receivables because this best reflects the way the business is managed and information is provided to management. The information considered includes:

• the stated policies and objectives for the trade account receivables and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets;

• how the performance of the trade account is evaluated and reported to key management personnel;

• the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

• how managers of the business are compensated; and

• the frequency, volume and timing of the sale of financial assets in prior periods, the reasons for such sales and the expectations regarding future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose and is consistent with the Company continuing recognition of the assets.

Financial assets are held for trading and are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

- Assessment whether contractual cash flows are solely payments of principal and interest: Policy applicable from January 1, 2018.

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.

F-15

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument.

This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers:

• contingent events that would change the amount or timing of cash flows;

• terms that may adjust the contractual coupon rate, including variable-rate features;

• prepayment and extension features; and

• terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).

A prepayment feature is consistent with the sole payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or Premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

- Subsequent measurement and gains and losses: Policy applicable from January 1, 2018

Amortized cost and effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period.

For financial assets other than purchased or originated credit-impaired financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated by discounting the estimated future cash flows, including expected credit losses, to the amortized cost of the debt instrument on initial recognition.

The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss provision.

Interest income is recognized using the effective interest method for debt instruments measured subsequently at amortized cost and at FVTOCI. For financial assets other than purchased or originated credit-impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired, interest income is recognized by applying the effective interest rate to the amortized cost of the financial asset. If, in subsequent reporting periods, the credit risk of the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognized by applying the effective interest rate to the gross carrying amount of the financial asset.

For purchased or originated credit-impaired financial assets, the Company recognizes interest income by applying the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. The calculation does not revert to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset is no longer credit-impaired.

Interest income is recognized in profit or loss and is included in the net finance income and in other comprehensive income – Finance income line item (Note 27).  

- Debt securities measured at FVTOCI

F-16

Financial instruments held by the Company are classified at FVTOCI. The fair value is determined in the manner as is described in Note 16. Financial instruments are specifically measured at a fair value plus transaction costs. Subsequently, changes in the carrying amount of these financial instruments as a result of foreign exchange gains and losses, changes in profit or loss, and interest income affected through the effective interest method are recognized in the consolidated statements of profit or loss and other comprehensive income. The amounts that are recognized as profit or loss are the same as the amounts that would have been recognized as profit or loss if they had been measured at amortized cost. All other changes in book value are at amortized cost. All other changes in the carrying amount of these financial instruments are recognized in other comprehensive income or accumulated under the reserve of the cash flow hedges of the financial instruments. When these debt securities are written off, the accumulated gains or losses previously recognized in other comprehensive income are reclassified as profit or loss in the finance cost.

- Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL.

Specifically:

• Investments in equity instruments are classified as at FVTPL, unless the Entity designates an equity investment that is neither held for trading nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition.

• Debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria are classified as at FVTPL. In addition, debt instruments that meet either the amortized cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency (so called ‘accounting mismatch’) that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. The Entity has not designated any debt instruments as at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss to the extent that they are not part of a designated hedging relationship. The net gain or loss recognized in profit or loss includes any interest earned on the financial asset and is included in the finance cost.

Debt investments at fair value through other comprehensive income (FVOCI) are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.  

Equity investments at FVOCI are subsequently measured at fair value. Interest are recognized in profit or loss unless the interest clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

- Foreign exchange gains and losses

The carrying amount of financial assets that is denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.

Specifically:

• for financial assets measured at amortized cost that are not part of a designated hedging relationship, exchange differences are recognized in profit or loss in the line of finance cost;

• for debt instruments measured at FVTOCI that are not part of a designated hedging relationship, exchange differences on the amortized cost of the debt instrument are recognized in profit or loss in the line of finance cost. Other exchange differences are recognized as changes in fair value in profit or loss and other comprehensive income.

• for financial assets measured at FVTPL that are not part of a designated hedging relationship, exchange differences are recognized in profit or loss in the line of finance cost; and

• for equity instruments measured at FVTOCI, exchange differences are recognized in other comprehensive income in foreign currency translation reserve.

- Write-off policy

F-17

The Company writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Company recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognized in profit or loss.

- Measurement and recognition of expected credit losses

The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date; for financial guarantee contracts, the exposure includes the amount drawn down as at the reporting date, together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the Company understanding of the specific future financing needs of the debtors, and other relevant forward-looking information.

For financial assets, the expected credit loss (ECL) is estimated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original effective interest rate. For a lease receivable, the cash flows used for determining the expected credit losses is consistent with the cash flows used in measuring the lease receivable in accordance with IFRS 16 Leases. Revenue recognition for commercial leases contracts are detailed in Note 21.

If the Company has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Company measures the loss allowance at an amount equal to 12-month ECL at the current reporting date, except for assets for which simplified approach was used.

The Company recognizes a loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and accumulated in the investment revaluation reserve, and does not reduce the carrying amount of the financial asset in the statement of financial position.

- Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another Company. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On derecognition of a financial asset measured at amortized cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. In addition, on derecognition of an investment in a debt instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. In contrast, on derecognition of an investment in an equity instrument which the Entity has elected on initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings.

Financial assets – Policy applicable, subsequent measurement and gains and losses before January 1, 2018

The Company’s financial assets are classified into the following specified categories: i) financial assets at FVTPL and ii) trade accounts receivable.  

– Financial assets at FVTPL – Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

F-18

Financial assets at FVTPL are stated at fair value, with any gain or loss arising on remeasurement is recognized in profit or loss. The net gain or loss recognized in profit or loss includes any dividend or interest earned from the financial asset and is included in the finance income in the consolidated statements of profit or loss and other comprehensive income.

– Accounts receivable – Trade accounts receivable and other receivables, with fixed or determinable payments that are not quoted in an active market are classified as receivables. Interest income is recognized by applying the effective interest rate, except for the short term receivables, in the event that the recognition of interest is not material.

Financial liabilities – Policy applicable from January 1, 2018

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss.

– Derecognition of financial liabilities

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

Financial liabilities and equity instruments – Debt and equity instruments are classified as financial liability or equity liabilities according to the content of the contractual agreements and the definitions of a financial liability and an equity instrument.

– Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the resources received, that is, the net of direct costs from the emission.

Repurchase of the Company’s common stock is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss at the purchase, sale, issue or cancellation of the Company’s own equity instruments.

– Offsetting

Even when the Company has the right, in certain cases, for a compensation of financial assets and liabilities, as of the date of this consolidated financial statements, the Company does not have the intention of compensating a liability with an asset, nor expect in the short term to require it. Therefore, deposits received in guarantee are presented separately from accounts receivable.

b. Cash and cash equivalents – Cash and cash equivalents consist mainly of bank deposits in checking accounts and readily available daily investments of cash surpluses with immediate availability as well as cash equivalents designates for expenditure, held in trust (See Note 5). Cash is stated at nominal value and cash equivalents are valued at fair value that does not exceed their market value; the yields, which are recognized as interest income as it accrues.

c. Machinery, equipment and improvements on leased assets

– Recognition and valuation – Machinery, equipment and improvements to leased assets are recognized at acquisition cost less accumulated depreciation and any accumulated impairment losses. The acquisition cost includes expenses directly attributable to the acquisition of the asset.

When significant parts of an asset of machinery, equipment and improvements to leased assets have different useful lives, they are accounted for separately as a component of the asset.

Gains and losses from sales or retirements of machinery, equipment and improvements to leased assets are determined comparing the proceeds from the sale or retirement against the net amount of machinery, equipment and improvements to leased assets and are recognized net in other income in the consolidated statement of profit and loss and other comprehensive income.

F-19

– Subsequent costs – The cost to replace a part or item of machinery, equipment and improvements to leased assets are recognized in the value of the asset when it is probable that future economic benefits associated with that part will flow to the Company and its cost can be measured reliably. The net value of the replaced item is derecognized at its net book value. Minor maintenance costs are recognized in the consolidated statement of profit and loss and other comprehensive income.

– Depreciation – Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other substitute value of that cost based on the straight-line method, this is the value that reflects more certainty the expected pattern of consumption of future economic benefits implicit in the active. The Company does not determine residual values ​​for machinery, equipment, improvements and leased assets as they are not considered to be material.

– Depreciation of machinery and equipment is recognized in the consolidated statement of profit and loss and other comprehensive income and is calculated under the straight-line method based on the useful lives of the related assets. Also, improvements to leased assets are amortized by the straight-line method based on the remaining useful life of the improvements or the lease term, whichever is less. The estimated useful life and the depreciation method are reviewed at the end of each year, and the effect of any changes in the recorded estimate is recognized on a prospective basis.

Lands are not depreciated.

The estimated useful lives for the current period and comparative period are as follows:

	Useful life (years)		Annual depreciation rate
Machinery and equipment		10	10%
Office furniture and equipment		10	10%
Computer equipment	4  –  3.3		25% - 30%
Transportation equipment	5 – 4		20% - 25%
Communication equipment	10 – 4 – 3.3		10% - 25% - 30%
Improvements on leased assets		10	10%

d. Intangible Assets

– Improvements to concession assets – Improvements to concession assets are accounted for the improvements that are made pursuant to the MDP and improvements carried out by the daily operation of the Company’s airports. All infrastructure investments made ​​by the airports will be delivered to the Mexican government or the government of Jamaica as corresponds at the end of the term of the Concession. Under the Company’s concession agreements, through the MDP agreed with each government every five years, the Company is committed to carry out various improvements, upgrades and additions to each of its airports on an annual basis in the case of Mexican airports and every five years in Jamaica. In exchange for investing in those additions and upgrades, each government grants the Company the right to obtain benefits for services provided using those assets. The Company, as the operator of the concession assets, recognizes an intangible asset as it receives a right granted by each government to charge users for the public service associated with the use of its airports. Minor maintenance costs are recognized in the consolidated statement of profit and loss and other comprehensive income.  

– Airport concessions –  The Company recognized an intangible asset of the Concession granted by the SCT to manage and operate each of the airports in Mexico for 50 years since its acquisition. As regards to MBJA, the Company recognized an intangible asset at the fair value of the concession to operate and develop that airport until 2033 according to the determination of fair values resulting from the acquisition of DCA and MBJA accordance IFRS 3 Business Combinations. Likewise, PACKAL recognized an intangible asset for the amount specified in the contract with the AAJ for the right to operate the airport at the time of taking control and for a period of 25 years.

– Rights to use airport facilities – Rights to use airport facilities in Mexico are recorded through the acquisition cost of the assets recorded by ASA and transferred to the Company according to the Concession granted, in order to manage, operate and develop them during the Concession term. At MBJA and PACKAL no rights to use airport facilities were identified.

– Other acquired rights – These rights correspond to payments made by the Company after the date the Mexican concessions were granted, in order to early-terminate certain long-term leases contracts that existed at that time between ASA and third-party leaseholders, these rights are recorded through their acquisition cost. In MBJA and PACKAL there are no other acquired rights.

– Amortization – After its initial recognition, intangible assets are valued at acquisition cost plus capitalized borrowing costs, less accumulated amortization and accumulated impairment losses. Amortization is recognized in the consolidated statement of comprehensive income under the straight line method applied to the shorter of the estimated period of future economic benefits the intangible assets will generate, or the concession period, from the date they are available for use.

F-20

Amortization periods for the current and comparative period are as follows:

	Period (years)	Annual amortization rate
Improvements to concession assets	20 – 12.5	5% - 8%
Airport concessions	49 – 25 – 18	2% - 4% - 5.5%
Rights to use airport facilities	49 – 10	2% - 10%
Other acquired rights	44 – 48	2%

The amortization method and useful lives are reviewed at each year end date and adjusted prospectively if necessary.

e. Capitalized borrowing costs – Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

f. Impairment of financial and non-financial assets (Tangible and intangible)

– Financial assets – Policy applicable from January 1, 2018

The Company recognizes a loss allowance for expected credit losses on investments in debt instruments that are measured at amortized cost or at FVTOCI, lease receivables, trade receivables and contract assets, as well as on financial guarantee contracts. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

The Company always recognizes lifetime ECL for trade receivables, contract assets and lease receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.

For all other financial instruments, the Company recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

– Definition of default

The Company considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable:

• when there is a breach of financial covenants by the debtor; or

• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Company, in full (without taking into account any collateral held by the Company).

Irrespective of the above analysis, the Company considers that default has occurred when a financial asset is more than 90 days past due unless the Company has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

– Credit-impaired financial assets

F-21

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

(a) significant financial difficulty of the issuer or the borrower;

(b) a breach of contract, such as a default or past due event;

(c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

(d) it is becoming increasingly probable that the borrower will enter bankruptcy or other financial reorganization; or

(e) the disappearance of an active market for that financial asset because of financial difficulties.

– Financial assets – Policy applicable before January 1, 2018. A financial asset that is not recognized at FVTPL is evaluated by the Company at the close of each reporting period to determine whether there is evidence of potential impairment. A financial asset is impaired if there is objective evidence that a loss has occurred after the initial recognition of the asset and that loss has a negative effect on the estimated future cash flows of the asset, that can be estimated reliably.

For all other financial assets, objective evidence of impairment could include:

– Significant financial difficulty of the issuer or counterparty;

– Breach in the payment of the interests or the loan;

– It is probable that the borrower will enter in bankruptcy or into a financial reorganization; or

– The disappearance of an active market for that financial asset because of financial difficulties.

An impairment loss on financial assets carried at amortized cost is calculated as the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Losses are recognized in consolidated statements of profit or loss and other comprehensive income and are reflected in the expected credit loss included in the cost of services in the “other” category. When a subsequent event causes the amount of impairment loss to reverse, such an amount is recognized in consolidated statements of profit or loss and other comprehensive income on a prospective basis and cannot exceed the amount of the previously recognized impairment.

Individually significant financial assets are tested individually for impairment. The remaining financial assets are assessed in groups of similar credit risk characteristics.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

All impairment losses are recognized in the consolidated statement of profit and loss and other comprehensive income.

A reversal of an impairment loss occurs only if it can be associated objectively to an event that occurred after the date the loss was recognized.

– Non-financial assets – Non-financial assets of the Company are assessed at each period end date to determine whether there is any indication of impairment. If there is such an indication of impairment, management estimates the recoverable amount.

The recoverable amount of an asset or cash-generating unit is the higher of the asset´s value in use and fair value less costs of disposal. To determine the asset’s value in use, the estimated future cash flows are discounted to present value using an appropriate discount rate before tax that reflects current market conditions in relation to the time value of money and the risks specific to the asset. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating unit or CGU). An impairment loss is recognized immediately in profit and loss.

F-22

The individual airports of the Company in Mexico cannot be considered as separate cash-generating units, as the bidding process, in which it decided to sell up to 15% of the shares representing the capital stock of the holding company Shares of the companies that were received for the concession, and made by the Mexican Federal Government that included the package of twelve airports, and therefore the Company is required to operate and maintain all 12 airports independently of the results they generate individually. Considering the above, if there are indicators of impairment that exist, the Company performs an impairment assessment on a consolidated basis with Mexican companies. Moreover, the value of the assets of MBJA and PACKAL are individually valued at the end of each period to determine whether there are indications of impairment to be single separate cash-generating units.

When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimated recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of depreciation) had an impairment loss not been recognized for the asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in profit and loss, unless the relevant asset is recognized on a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

The CGU´s are tested for impairment annually or more frequently when there are indications that the CGU may be impaired. If the recoverable amount of a CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill, if it exists, and is allocated to the CGU and then to the other assets of the CGU pro rata basis and based on the book value of each asset within the CGU. Any impairment loss of goodwill is recognized directly in profit and loss.

g. Investment in associate – An associate is an entity in which control is not exercised over, but which the Company has significant influence. Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Entity’s share of the profit or loss and other comprehensive income of the associate.

Significant influence is the power to participate in decisions about the financial and operating policies of the entity in which it is investee, but does not imply joint control or control over those policies.

The Company discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale.

When the Company transacts with an associate of the Company, profits and losses resulting from the transactions with the associate are recognized in the Company’s consolidated financial statements only to the extent of interests in the associate that are not related to the Company.

h. Derivative financial instruments and hedge accounting – Policy applicable from January 1, 2018. The Company occasionally uses derivative financial instruments, specifically interest rate CAPS and SWAPS, to hedge its exposure to the risk of an increase in the interest rate arising primarily from debt instruments.

Derivatives are initially recognized at fair value at the date the derivative contract is entered into and subsequently valued at fair value at the end of each reporting period. The gain or loss is recognized in profit or loss and other comprehensive income immediately, unless the derivative is designated as a hedging instrument and is considered to be effective.  The timing of the recognition of the hedging instrument in earnings will depend on the nature of the hedge.

The Company may designate certain instruments as hedges for accounting purposes if at inception of the hedge, it documents the relationship between the hedging instrument and the hedged item, as well as the risk management and management strategy objectives for undertaking various hedging transactions.

Additionally, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting the exposure to changes in fair value or changes in cash flows of the hedged item attributable to the hedged risk, which is when the hedges meet all of the following hedge accounting requirements:

• There is an economic relationship between the hedging instrument and the hedged item;

• The effect of credit risk does not dominate the value of the changes that were related to the economic relationship; and

• The coverage ratio of the hedges is the same as the result of the amount of the hedged item that the Company actually covers and the amount of the hedging instrument that the Company actually uses to cover that amount of the hedged item.

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If a hedge fails to meet the coverage effectiveness requirement related to the hedging relationship, but the risk management objective for that designated hedging relationship remains the same, the Company adjusts the hedging relationship (i.e. rebalance coverage) to meet the qualification criteria again.

Cash flow hedges

The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the financial instrument of cash flow hedge reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the ‘financial cost’ line item.

Amounts previously recognized in OCI and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognized in other comprehensive income and accumulated in equity are removed from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. This transfer does not affect other comprehensive income. Furthermore, if the Company expects that some or all of the loss accumulated in the cash flow hedge reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.

The Company discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any gain or loss recognized in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in cash flow hedge reserve is reclassified immediately to profit or loss.

Cash flow hedges

When a derivative is designated as a cash flow hedge instrument, the effective portion of changes in the fair value of the derivative is recognized in the OCI and recognized in the cash flow hedge reserve. The effective portion of changes in the fair value of the derivative that is recognized in the OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from the inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognized immediately as profit or loss.

The Company designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts (“forward points”) is separately accounted for as a cost of hedging and recognized in a costs of hedging reserve within equity.

Net investment hedges

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the foreign currency forward contracts relating to the effective portion of the hedge is recognized in other comprehensive income and accumulated in the foreign currency translation reserve. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the other income line.

Gains and losses on the hedging instrument accumulated in the foreign currency translation reserve are reclassified to profit or loss on the disposal or partial disposal of the foreign currency translation reserve.

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Derivative financial instruments and hedge accounting – Policy applicable before January 1, 2018. The policy applied in the comparative information presented for 2017 is similar to that appliedfor 2018. However, for all cash flow hedges, includinghedges of transactions resulting in therecognition of non-financial items, the amounts accumulated in the cash flow hedge reserve werereclassified to profit or loss in the same period or periods during which the hedged expected futurecash flows affected profit or loss. Furthermore, for cash flow hedges that were terminated before2017, forward points were recognized immediately in profit or loss.

i. Business combinations – Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related costs are generally recognized in profit or loss and other comprehensive income as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, with the exception of:

• Deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee benefits respectively;

• Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based payment at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquire (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.

Non-controlling interests are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation, and may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis.

When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its fair value on the acquisition-date and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39 or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss.

Transaction costs, different from those associated with the issuance of debt or capital, and incurred by the Company in connection with a business combination are expensed as incurred.

F-25

j. Other intangible assets –Costs incurred in the development phase, as well as other intangible assets that meet certain requirements and which the Company has determined will have future economic benefits, are capitalized and amortized based on the straight-line method. Expenditures that do not meet such requirements, as well as research costs, are recorded in the results of the period in which they are incurred.

k. Leases – As a lessee as of January 1, 2018 – The Company has consistently applied the accounting policies to all periods presented in these consolidated financial statements, the Company applied IFRS 16 using the modified retrospective approach, as a result, the Company has changed its accounting policy for lease contracts as detailed below.

On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2018.

As a lessee, the Company previously classified the leases as operational or financial based on its assessment of if the lease significantly transferred all risks and rights to ownership of the underlying asset to the Company. Under IFRS 16, the Company recognizes the right-of-use assets and lease liabilities for most leases, that is, these leases are in the consolidated statement of financial position in the short and long term, except for short leases term (12 months or less) and those of low value assets, for these leases, the Company recognizes rent payments as an operating expense under the straight-line method through the term of the lease, unless another method is more representative of the pattern of time in which the economic benefits from the consumption of the leased assets.

The lease liability is initially measured at the present value of the lease paymentsthat are not paid at the commencement date, discounted using the interest rate implicit in the lease contract.

Lease payments included in the measurement of the lease liability comprise the following:

• fixed payments, including in-substance fixed payments;

• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable under a residual value guarantee; and

• the exercise price under a purchase option that the Company is reasonably certain to exercise, and

• lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option.

Amortization of assets by right of use – After initial recognition, amortization is recognized in the consolidated statements of profit or loss and other comprehensive income in accordance with the straight-line method applied to the period of the lease contract from the moment in which possession is held of the leased asset.

Lease payments are distributed between financial expenses and the reduction of lease obligations in order to achieve a constant interest rate on the remaining balance of the liability. Financial expenses are charged directly to income for the year.

Payments made by the Company as a lessee prior to January 1, 2018, under operating leases, were recognized in the consolidated statement of income and other comprehensive income on a straight-line basis over the term of the lease. The lease incentives received are recognized, as the case may be, as a decrease in total lease expenses during the term of the contract.

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease.

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The Company recognizes lease payments received under operating leases as income on a straight – line basis over the lease term as part of revenues.

– As a lessor, as of January 1, 2018

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.

The Company recognizes lease payments received under operating leases as income on a straight-line basis over the lease term. The initial direct costs incurred in the negotiation and arrangement of the operating lease are added to the book value of the leased asset and recognized under a straight line through the term of the lease.

The outstanding amounts of financial leases are recognized as receivable leases for the amount of the net investment in the leases. Income from financial leases is allocated to accounting periods to reflects a constant periodic rate of return on net insoluble investment with respect to leases.

If an arrangement contains lease and non-lease components, then the Company applies IFRS 15 to allocate the consideration in the contract.

– Policy as lessor applicable before January 1, 2018.

The Company lease space within the terminals is leased through operating lease agreements, based on either a monthly fixed rent or a charge based on the higher of a minimum monthly rent or a percentage of the lessee’s monthly revenues. Rental income from the Company’s leases is recognized on a straight-line basis over the term of the relevant lease.

The accounting policies applicable to the Company as a lessor in the comparative period were not different from IFRS 16.

l. Provisions and contingent liabilities – Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable 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.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, an account receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Provisions are classified as current or noncurrent based on the period of time estimated to meet the obligations covered.

A contingent liability is a possible obligation that arises from a past event and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Company, or a present obligation that arises from a past event but 1) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or 2) the amount of the obligation cannot be measured with sufficient reliability. A contingent liability is not recognized in the consolidated financial statements, but rather is disclosed unless the probability of an outflow of resources embodying economic benefits is remote.

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m. Direct employee benefits – The Company provides its employees in Mexico and abroad different types of benefits. In Mexico, the liabilities for direct employee benefits are recognized based on the services rendered by employees, considering their most recent salaries. These benefits primarily include statutory employee profit sharing (PTU) payable, compensated absences, a vacation and vacation premium and incentives. The PTU is recorded in the income year in which it is incurred and presented under cost of services in the consolidated statements of profit or loss and other comprehensive income.

n. Employee benefits – The seniority premium liability is calculated by independent actuaries at the projected unit credit method using nominal interest rates. The measurements of the defined benefit liability, which includes actuarial gains and losses and the effect of the asset ceiling, are recognized immediately in other comprehensive income. The Company has determined the net interest income for the defined benefit liability net of the period applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset), considering any change in the liability (asset) for net defined benefit during the period as a result of contributions and benefits payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit and loss in the year.

The past service cost is recognized in the profit or loss in the year of the plan amendment. Interest is calculated using the discount rate at the beginning of the period the balance of the defined benefit obligation. Defined benefit costs are classified as follows:

– Cost of service (including current service cost, past service cost and gains and losses on reductions and compensations).

– Interest expenses.

– Remeasurements.

The Company present the first two components of defined benefit cost as an expense in the cost of services. The reduction and early liquidation of obligations are recognized as past service costs.

Contributions to benefit plans to defined contribution retirement are recognized as expenses at the time the employees render services that give them the right to contributions.

Remeasurements of the net defined benefit liability, which comprises actuarial gains and losses and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in Other Comprehensive Income.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Any liability for compensation is recognized when the Company can no longer withdraw the offer of compensation and / or when the Company recognizes related restructuring costs.

o. Revenue recognition – The Company applied the standard IFRS 15 as of January 1, 2018. The adoption of this standard did not have effect on the consolidated financial statements as described in Note 2.e. Aeronautical and non-aeronautical revenues are recognized at their fair value, in the same period subsequent to the time passengers depart, planes land or other services are provided, as the case may be, considering that the events that occur and services that are rendered in any given month are invoiced and recognized within that same month.

– Aeronautical services – The majority of the revenues in México are derived from rendering aeronautical services, related to the use of airport facilities by airlines and passengers. These revenues are regulated by the SCT through a “maximum rate” per “workload unit.” The maximum rate is the maximum amount of revenues per workload unit that may be earned at an airport each year from regulated revenue sources. A workload unit is currently equivalent to one terminal passenger (excluding passengers in transit) or 100 kilograms (220 pounds) of cargo. Moreover, in MBJA and PACKAL aeronautical revenues correspond to the fee for passengers and security, which are collected by airlines who also invoice other charges for landing and parking aircraft.

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– Revenues from non-aeronautical services – Revenues from non-aeronautical services consist mainly of the leasing of commercial space at the airport terminals (other than space deemed essential to airline operations), car parking, access fees charged to third parties providing food catering and other services at the airports, other miscellaneous revenues and royalties for the use of Company´s brands.

Commercial space within the terminals is leased through operating lease agreements, based on either a monthly fixed rent or a charge based on the higher of a minimum monthly rent or a percentage of the lessee’s monthly revenues.  Rental income from the Company’s leases is recognized on a straight-line basis over the term of the relevant lease.

– Revenues and cost of improvements to concession assets – In conformity with IFRIC 12, the Company recognizes revenues and the associated costs of improvements to concession assets which it is obligated to perform at the airports as established by the MDP.  Revenues represent the value of the exchange between the Company and the government with respect to the improvements, given that the Company constructs or provides improvements to the airports as obligated under the MDP and in exchange, the government grants the Company the right to obtain benefits for services provided using those assets. The Company has determined that its obligations per the MDP should be considered to be a revenue-earning activity as all expenditures incurred to fulfill the MDP are included in the maximum tariff it charges its customers and therefore it recognizes the revenue and expense in profit or loss when the expenditures are performed.  The cost for such additions and improvements to concession assets is based on actual costs incurred by the Company in the execution of the additions or improvements, considering the investment requirements in the MDP. Through bidding processes, the Company contracts third parties to carry out such construction.

The amount of revenues for these services are equal to the amount of costs incurred, as the Company does not obtain any profit margin for these construction services. The amounts paid are set at market value.

p. Foreign currency transactions – Transactions in currencies other than the functional currency of the Company (foreign currencies) are recognized using exchange rates prevailing on the dates in which the transactions are made. At the end of each reporting period, monetary items denominated in foreign currencies are converted at the exchange rates prevailing at that time.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rates prevailing at the date of the consolidated financial statements. Exchange fluctuations are recorded in the results of the period within the financial costs and presented as exchange gain or loss, on a net basis in the consolidated profit or loss and other comprehensive income.

Non-monetary items that are valued at historical cost in a foreign currency are converted at the exchange rate at the date of the transaction.

Foreign currency differences are generally recognized in profit or loss and presented within finance costs.

However, currency translation reserve arising from the translation of the following items are recognized in OCI:

– an investment in equity securities designated as at FVOCI (2017: available-for-sale equity investments (except on impairment, in which case foreign currency differences that have been recognized in OCI are reclassified to profit or loss));

– a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective;

– and qualifying cash flow hedges to the extent that the hedges are effective.

q. Conversion of foreign operations – The assets and liabilities of foreign operations and the fair value adjustments arising from the acquisition, are translated at the exchange rates prevailing at the reporting date. Revenues and expenses of foreign operations are translated at the average exchange rate for the period of transactions.

The differences associated with foreign currency translation of foreign operations to the presentation currency (pesos) are recognized in other comprehensive income and presented in the foreign currency translation reserve in equity.

F-29

r. Income taxes – Current income tax (ISR) is recorded in the income statement of the year in which it is incurred. The expense for income taxes includes both the tax assessed and deferred tax. Deferred and current tax are recognized in the consolidated statement of profit or loss, except when they are related to items recognized in other comprehensive income, or directly in equity, in which case the deferred and current tax are also recognized in other comprehensive income or directly in equity, respectively.

Current tax expense is the tax payable that is determined for the year, using tax rates enacted or substantially enacted at the reporting date, plus any adjustment to tax payable in respect of previous years. Taxable income differs from income before income taxes reported in the consolidated statements of comprehensive income because there are items of income or expense that are taxable or deductible in other years and items that will never be taxable or deductible.

Deferred income tax is calculated by applying the statutory rate for temporary differences, resulting from comparing the accounting and tax assets and liabilities, and when applicable, the benefits from tax loss carryforwards and certain tax credits, such as the Tax on Assets (IMPAC) paid in previous years and expected to be recovered in future periods in accordance with the rules established in the tax laws, to the extent that it is probable the existence of future taxable profit that can be applied against such tax benefits. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the tax benefit can be recognized.

The rates applied to determine the deferred tax are those that correspond to the year in which it is expected the reversal of the temporary difference is expected.

The Company did not recognize deferred taxes for the following items:

– Initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor tax results.

– Differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future and where the Company has the power to control the reversal date.

s. Earnings per share – Basic earnings per common share are calculated by dividing consolidated net income by the weighted average number of outstanding shares during the period, adjusted by repurchased shares retained in treasury. The Company does not have any potentially diluted shares; and therefore, basic and diluted earnings per share are the same.

t. Finance cost and finance income – Finance income comprises interest income from investments in debt securities, changes in the market value of financial assets at FVTPL and gains on hedging instruments that are recognized in the consolidated statement of comprehensive income, among other concepts. Interest income is recognized when it is probable that the economic benefits will flow to the Company and the amount can be reliably measured. Interest income is recorded on a regular basis, with reference to the capital invested and the effective interest rate.

Finance cost comprise interest costs of loans net of interest cost capitalized on qualifying assets, changes in the market value of financial assets at FVTPL, losses on hedging instruments that are recognized in the consolidated statement of comprehensive income, interest paid to the tax authorities, among other items. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in the consolidated statement of comprehensive income, using the effective interest method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

– the gross carrying amount of the financial asset; or

– the amortized cost of the financial liability.

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

F-30

u. Operating segments – An operating segment is a component of the Company:1)  that is engaged in business activities from which it may earn revenue and incur expenses, including revenues and expenses relating to transactions with other components of the Company, 2) whose operating results are regularly reviewed by Company’s chief operating decision maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and 3) for which discrete financial information is available.  Each of the airports of the Company represents an operating segment. The Company has determined that its reportable segment, based on quantitative thresholding testing, to be the Guadalajara, Tijuana, Puerto Vallarta, San José del Cabo, Montego Bay, Hermosillo and Guanajuato airports. The operating segment information relating to the remaining seven airports are combined and reported under “Other airports”. The corresponding information related with SIAP (a company that provides technical assistance and highly-qualified professional services), CORSA (a company that provides specialized operational services in aeronautical industry), PCP (a company that manages the parking lot operation), Fundación GAP, ADP, DCA, as well as the Company’s own operation (including investments in subsidiaries), was combined and included under “Other Companies”. Segment profit and loss is determined based on income before income taxes. Segment assets represent total assets and segment liabilities represent total liabilities. The accounting policies used in reporting segment information are the same as those used in the preparation of these consolidated financial statements, except for those investments in subsidiaries that are accounted for under the equity method for the purposes of determining segment assets and segment profit and loss for purposes of what is reported for “Other Companies”. Intersegment transactions are based on prices available to third parties.  

v. Cash flow statement – The Company presents cash flows from operating activities using the indirect method, in which the net income is adjusted for the effects of transactions that do not require cash flows including those associated with investing and financing activities. Additionally, the Company has elected to present cash paid for interest as part of the financing activities and cash received from interest income as part of its operating activities.

4. Financial risk management

The Company is exposed to the following risks from the use of financial instruments:

- Credit risk

- Liquidity risk

- Market risk

This note presents information about the Company’s exposure to each of the above risks, the objectives, policies and processes of measuring and risk management of the Company. In different sections of these consolidated financial statements, the Company has included additional in-depth disclosures.

As of December 31, 2017, 2018 and 2019, financial instruments held by the Company are comprised of the following:

	December 31, 2017		December 31, 2018		December 31, 2019
Financial assets
Cash and cash equivalents	Ps.	7,730,143	Ps.	6,151,457	Ps.	7,500,193
Trade accounts receivables		997,370		1,395,362		1,479,410
Derivative financial instruments		106,815		136,457		4,686
Financial liabilities at amortized cost
Short and long-term debt securities	Ps.	9,000,000	Ps.	9,000,000	Ps.	12,000,000
Current and long-term bank loans		4,252,258		4,535,863		4,437,043
Accounts payable		1,075,996		1,181,049		1,215,264
Derivative financial instruments		-		-		265,979
Liabilities for assets in lease		-		48,199		37,192

Financial risk management objectives– The Board of Directors is responsible for developing and monitoring the Company’s risk management policies.

The Company’s risk management policies are established for identifying and analyzing potential risks, to set appropriate limits and controls, and for monitoring such risk on an ongoing basis. Policies and risk management systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop an environment of disciplined and constructive control in which all employees understand their roles and obligations.

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The Audit Committee of the Company supervises how management monitors compliance with policies and procedures of risk management, and reviews what is appropriate to the risk management framework in relation to the risks faced by the Company. The Audit Committee is supported in its oversight role by the Company's Internal Audit Function. Internal Audits perform routine and special reviews of controls and risk management procedures, and report their results directly to the Audit Committee.

Credit risk – Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company and arises primarily from trade accounts receivable and the Company’s investments, including investment funds and derivative financial instruments.

– Accounts receivable and others – The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographic characteristics of its customers, including the default risk of the industry and country in which its customers operate, as these factors could also affect credit risk, particularly considering the recent economic downturn. The main source of income for the Company is the Passenger Charge Fees (TUA) and leasing revenues from commercial areas in its airports. The TUA is charged to each departing passenger (except diplomat, infant or transit passenger), and is collected by the airlines and subsequently refunded to the airports. For the years ended December 31, 2017, 2018 and 2019 the revenues for TUA represented 54.6%, 54.9% and 52.9% of the total revenues, respectively. The leasing revenues from commercial areas are collected from other clients, which are not airline customers. The 27.9%, 28.9% and 29.2% of the Company’s revenues in 2017, 2018 and 2019 are derived from the TUA collected by three major client airlines, which collect the TUA and remit it to the airports. However, geographically there is no credit risk concentration because airports are located in different cities in Mexico and Jamaica, and therefore if one airport has an operating problem the other airports would not be affected. The 27.8%, 28.6% and 27.4% of aeronautical and non-aeronautical revenues earned during the periods ended December 31, 2017, 2018 and 2019 were generated by the Guadalajara airport. In addition, 92.7%, 92.3% and 91.0% of aeronautical and non-aeronautical revenues earned during the periods ended December 31, 2017, 2018 and 2019, respectively, were generated by seven of the Company's airports (Guadalajara, Tijuana, San José del Cabo, Puerto Vallarta, Montego Bay, Guanajuato and Hermosillo).            

The Company has a credit policy under which each new customer is analyzed individually for creditworthiness before offering the standard terms and conditions of payment and delivery of the services provided by the Company. The review of the Company includes external ratings, when they are available, and in some cases bank references. Every customer has established credit limits, which must be approved by the Company's management and are reviewed periodically.

The Company has entered into agreements with all its airline customers to collect the TUA in Mexico, by who receive the payment for the use of the airport services on behalf of the airports. According to these agreements, each customer airline could have a grace period of up to a maximum of 60 days to reimburse the airport for the TUA paid by passengers. If an airline customer needed a credit term of up to 60 days, it must provide a guarantee to the airport covering this period, bond, or cash equivalent of 30 days more than the estimated consumption for the credit period requested by that airline. In the event of insolvency of any airline or a notice by the authorities on suspension of operations, the Company may recover the pending amounts regarding TUA up to the value of the guarantee. In order to mitigate credit risk with its customers, mainly TUA, airlines have granted ​​cash guaranties, which are reported as deposits received, in the consolidated statements of financial position, in addition to the cash guaranties of other commercial customers. As of December 31, 2017, 2018 and 2019, the Company has customer deposits received in guarantee of Ps.1,082,537, Ps.1,130,740 and Ps.1,143,485, respectively. These deposits are considered long-term based on the duration of the contracts signed with these airlines and the expectation that they will maintain long-term operations at the Company’s airports.    

When reviewing credit risk, management groups the Company’s clients according to their credit characteristics that include whether the customer is an individual or a corporation, if they are airline customers, commercial customers, age and the existence of previous financial difficulties.  

The Company systematically and periodically reviews the aging and collection of trade accounts receivable and recognizes a change in credit loss according to the average loss rated (Note 6).

Credit risk:

For accounts receivable from commercial customers, the Company has applied the simplified approach in IFRS 9 to measure the provision for losses in the lifetime expected credit loss. The Company determines the expected credit losses in these items using a provision matrix, estimated based on the historical experience of credit losses based on the past due status of customers and adjusted as appropriate to reflect current conditions and estimates of future economic conditions. As a result, the credit risk profile of these assets is presented based on their matured status in terms of the provision matrix. Note 6 includes additional details on the provision for losses for these assets respectively.

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The following table presents information on the exposure to credit risk and expected credit losses for accounts receivable from customers as of December 31, 2019.

Balance of the trade account receivables as of December 31, 2019	Weighted average loss rate	Current balance of the Trade account		Amount of credit loss		Credit impairment
Current (not past due)	0.70%	Ps.	1,261,238	Ps.	8,867	No
1 to 30 days past due	5.97%		133,533		7,978	No
31 to 60 days past due	13.69%		91,640		12,546	No
61 to 90 days past due	18.72%		30,832		5,773	No
More than 90 days past due	37.50%		24		9	Yes
Legal	100.0%		13,165		13,165	Yes
		Ps.	1,530,432	Ps.	48,338

Loss rates are based on actual credit loss experience over the past three years. These rates are multiplied by scaling factors to reflect differences between economic conditions during the period in which the historical data has been collected, the current conditions and the Company’s view of economic conditions over the expected life of the trade account receivables.

– Financial instruments held for trading purposes – The Company limits its exposure to credit risk by investing in government-backed securities. Management constantly monitors credit ratings to anticipate any counterparty defaults.

– Liquid funds and derivative financial instruments – The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by recognized rating agencies.

Liquidity Risk– The risk of liquidity means the possibility that the Company will have difficulty to fulfill its obligations related to its financial liabilities that will be paid in cash or another financial asset. The Company focuses its liquidity management to ensure, as much as possible, that it will have sufficient liquidity to comply with its obligations at their maturity date, both in normal and in extraordinary conditions, without incurring in unacceptable losses or risking the reputation of the Company.

The Company utilizes its budget, prepared at a cost center level, to allocate resources to render its services, which helps to monitor cash flow requirements and to optimize the performance of its investments. Generally, the Company ensures availability of sufficient cash flows to cover operating expenses for a period of 60 days, including payment of its financial debt, the aforementioned excludes the possible impact of extreme circumstances that are not reasonably predictable, such as natural disasters.  The Company has external financing as described in Note 17 for compliance with its obligations under the MDP, whereas for other obligations it uses cash flows from operating activities and resources received at the maturity of its financial investments. As of December 31, 2017, 2018 and 2019 the Company has credit lines for USD$40.0 million, USD$12.0 million and USD$7.0 million, respectively.

The following is a table with a summary of the Company’s contractual maturities for its financial liabilities, including the interest to be paid, as of December 31, 2017, 2018 and 2019:

	December 31, 2017
	Weighted average of effective interest rate			Less than 1 month		From 1 to 3 months		From 3 months to 1 year		From 1 year to 5 years		More than 5 years		Total
Long-term debt securities (fixed rate)				Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	1,500,000	Ps.	1,500,000
Long-term debt securities (variable rate)					—		—		—		7,500,000		—		7,500,000
Fixed rate loans					694		1,403		6,548		26,725		225,908		261,278
Variable rate bank loans					—		73,021		59,688		3,858,271		—		3,990,980
Fixed rate interest		7.92	%		232		54,138		55,470		432,382		268,450		810,672
Variable rate interest		5.83	%		54,308		124,786		520,229		1,656,383		—		2,355,706
Trade accounts payable and other payables	N/A				200,056		623,318		—		—		—		823,374
AMP	N/A				—		—		252,622		—		—		252,622
				Ps.	255,290	Ps.	876,666	Ps.	894,557	Ps.	13,473,761	Ps.	1,994,358	Ps.	17,494,632

F-33

	December 31, 2018
	Weighted average of effective interest rate			Less than 1 month		From 1 to 3 months		From 3 months to 1 year		From 1 year to 5 years		More than 5 years		Total
Long-term debt securities (fixed rate)				Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	1,500,000	Ps.	1,500,000
Long-term debt securities (variable rate)					—		—		—		7,500,000		—		7,500,000
Fixed rate loans					—		—		—		—		225,307		225,307
Variable rate bank loans					—		—		—		4,200,331		110,225		4,310,556
Fixed rate interest		7.92	%		2,664		56,198		79,990		555,088		391,014		1,084,954
Variable rate interest		6.91	%		64,301		127,822		618,198		1,352,594		3,031		2,165,946
Trade accounts payable and other payables	N/A				188,659		694,015		—		—		—		882,674
Liabilities for assets in lease	N/A				1,235		2,594		10,684		33,689		—		48,199
AMP	N/A				—		—		298,376		—		—		298,376
				Ps.	256,859	Ps.	880,628	Ps.	1,007,245	Ps.	13,641,702	Ps.	2,229,577	Ps.	18,016,011

	December 31, 2019
	Weighted average of effective interest rate			Less than 1 month		From 1 to 3 months		From 3 months to 1 year		From 1 year to 5 years		More than 5 years		Total
Long-term debt securities (fixed rate)				Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	1,500,000	Ps	1,500,000
Long-term debt securities (variable rate)					—		2,200,000		—		8,300,000		—		10,500,000
Fixed rate loans					—		—		—		—		215,718		215,718
Variable rate bank loans					—		—		124,379		4,096,946		—		4,221,325
Fixed rate interest		7.92	%		2,551		7,425		129,976		538,534		305,422		983,907
Variable rate interest		6.55	%		77,908		190,603		526,134		1,278,134		—		2,072,779
Trade accounts payable and other payables	N/A				190,230		670,124		—		—		—		860,354
Liabilities for assets in lease	N/A				1,060		2,226		9,291		24,615		—		37,192
AMP	N/A				—		—		355,361		—		—		355,361
				Ps.	271,749	Ps.	3,070,378	Ps.	1,145,141	Ps.	14,238,229	Ps.	2,021,140	Ps.	20,746,637

The interest payable from loans with variable interest rates was determined based on projected interest rates, plus the basis point adjustment corresponding to each bank loan.

The Company has bank loans, which include, among other obligations, restrictions that limit the destination of the resources, in addition to maintaining some financial ratios, as described in Note 17.

Market risk – Is the risk that changes in market prices, such as exchange rates, interest rates and prices of equity instruments that may affect the amount of the Company’s financial instruments. The Company’s market risk management objectives include controlling the risk exposures between acceptable parameters, while optimizing profits.

The Company in certain cases enters into derivatives instrument contracts to manage market risks. These transactions are in-line within the policies established by management. The Company also applies hedge accounting to minimize the volatility in profit or loss associated with certain financial instruments.

– Foreign exchange risk – The Company is exposed to currency risk for its revenues and trade accounts receivable denominated in a currency other than the functional currency of the Company. The foreign currencies in which transactions are primarily denominated is the U.S. dollar (USD) (Note 31).

In Mexico, the tariffs to be charged to international passengers and international flights are published in the Official Gazette of the Federation (Diario Oficial de la Federación) in USD, however, in accordance with Mexican law these tariffs are billed and collected in Mexican pesos. A significant depreciation of the peso during the last two months in each year could lead to an increase in aeronautical revenues that could lead to exceeding the maximum tariff per traffic unit allowed, which may be a breach of compliance with the Concession’s maximum rates of each airport. If a significant appreciation of the peso occurs, the Company may be required to provide discounts to avoid exceeding the maximum tariffs. On the other hand, a significant appreciation of the peso could lead to our rates substantially decreasing. The Company has no way to recover the lost revenue if it charges less than the maximum rate as a result of a significant appreciation of the peso.

F-34

In MBJ, the tariffs are billed and charged to domestic and international passengers in USD, which are assimilated into a fixed amount for 12 months (from April to March), and then updated for inflation in the United States. In April 2015, the new tariffs approved by the Jamaican Civil Aviation Authority (JCAA) in November 2014 came into effect, where the increase in the rate for international passengers was USD$8.50 to USD$19.34 per person and domestic passengers tariffs remained at USD$5.52 per person. Therefore, the Company’s revenues would not be exposed to a possible devaluation or appreciation of the Jamaican dollar against the US dollar.

In PACKAL, the tariffs are billed and charged to domestic and international passengers in USD, which they are assimilated into a fixed amount for 12 months (from April to March), and then updated for inflation in the United States. In April 2015, the new tariffs approved by the Jamaican Civil Aviation Authority (JCAA) in November 2014 came into effect, where the increase in the rate for international passengers was USD$8.50 to USD$16.81 per person and domestic passengers tariffs remained at USD$5.83 per person. Therefore, the Company’s revenues would not be exposed to a possible devaluation or appreciation of the Jamaican dollar against the US dollar.

While the Company can ensure that it does not exceed the maximum rates in Mexico as mentioned above, the depreciation of the Mexican peso can have a positive effect on commercial revenues and aeronautical revenues, while that appreciation of the Mexican peso generally has a negative effect. The rates applied to international passengers, international flights and some of our commercial contracts are denominated in USD and are billed and collected in Mexican pesos translated at the average exchange rate of the previous month.  Therefore, the depreciation of the Mexican peso against the dollar results in the Company obtaining more Mexican pesos than before the depreciation, while the appreciation of the Mexican peso against the USD results in the Company obtaining less Mexican pesos. As the Mexican peso appreciates against the USD, the Company obtains fewer Mexican pesos which could result in a decrease in profit, especially if the appreciation continues or exceeds historical levels. In addition, although most of our operating costs are denominated in pesos, we cannot predict whether our cost of services will increase as a consequence of the depreciation of the peso, or as a result of other factors.

In MBJA and PACKAL, expenses are comprised 70% in USD, with the rest payable in Jamaican dollars. An appreciation of the Jamaican dollar would therefore increase expenses in USD terms.    

The following is a sensitivity analysis of the Company financial assets and liabilities denominated in USD, if the peso were to depreciate or appreciate by 10%, which is the amount management considers reasonably possible of occurring at year end:

	USD amounts on December 31, 2019				Peso amounts at exchange rate of Ps. 18.8452 on December 31, 2019				Peso amounts if exchange rate depreciated 10%				Peso amounts if exchange rate appreciated 10%
Thousands of U.S. dollars:
Financial assets:
Cash and cash equivalents		219,755		Ps.		4,141,336		Ps.		3,764,850		Ps.		4,555,469
Trade accounts receivable		19,910				375,204				341,095				412,725
		239,665				4,516,540				4,105,945				4,968,194
Financial liabilities:
Accounts payable		(39,105	)			(736,948	)			(669,953	)			(810,643	)
Bank loans		(235,447	)			(4,437,043	)			(4,033,675	)			(4,880,747	)
		(274,552	)	Ps.		(5,173,991	)	Ps.		(4,703,628	)	Ps.		(5,691,390	)
Net liability position		(34,887	)	Ps.		(657,451	)	Ps.		(597,683	)	Ps.		(723,196	)

Interest rate risk – The Company is exposed to fluctuations in interest rates on financial instruments, such as investments, loans and debt issuances. The Company monitors its interest rate risk and when bank loans are entered into with variable interest rates, it determines whether it should enter into derivative financial instruments, in order to reduce its exposure to the risk of volatility in interest rates type CAP and SWAPS. The negotiation with derivative financial instruments is only entered into with institutions of high repute and credit rating. The Company does not enter into financial instrumentsfor speculative purposes.

Fluctuations in interest rates impact primarily loans, changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy to determining how much exposure the Company should have to fixed or variable rates. However, when getting new loans, management uses its judgment to decide if it believes that a fixed or variable rate would be more favorable during the term of the loan.

F-35

The following sensitivity analysis has been determined based on the exposure to interest rates for both derivatives and non-derivative financial instruments at the end of the reporting period.  For loans with variable interest rates, an analysis is prepared assuming the amount of outstanding liability at the end of the reporting period under review has been the current liability for the year. The sensitivity analysis used assumes an increase or decrease of 100 basis points, which is the change management considers reasonably possible of occurring at year end.

The Company has financial debt denominated in pesos and U.S. dollars, which accrues interest at a variable rate based on TIIE 28-days and LIBOR 28-days, respectively. If on the 2019 of year-end closing date the variable interest rates to which the Company is exposed had been 100 basis points (higher) or lower than the interest rate at year-end with the other variables remaining constant, the effect on net income and stockholders’ equity for the years ended December 31, 2017, 2018 and 2019 would have been as follows:

	2017			2018			2019
Effect in case of interest rate increase in 100 basis points
Variable rate long term debt	Ps.	(112,134	)	Ps.	(121,747	)	Ps.	(84,251	)
Effect in case of interest rate decrease in 100 basis points
Variable rate long term debt	Ps.	112,134		Ps.	121,747		Ps.	84,251

In 2016, the Company contracted hedges of derivative financial instrument interest rate caps (CAP), whereby it agreed to exchange the difference between the amounts of the variable interest rate calculated over the principal amounts of the hedged items associated with its variable rate debt instruments. These contracts allow the Company to hedge the cash flow exposures on debt contracted at variable interest rates. The fair value at the end of the period of the interest rate CAP is determined at fair value.

On May 2, 2017, the Company contracted HSBC México, S.A. (HSBC) for a derivative financial transaction by exchange of interest rates (SWAPS) in order to hedge the risk of increasing the TIIE rate, the tranche of the “GAP 17” debt securities for a value of Ps.1,500,000 that accrues an interest rate TIIE and is swapped for 7.21%, until the end of the debt securities.

On February 26, 2019, the Company contracted Scotiabank Inverlat, S.A. (Scotiabank) for a derivative financial transaction by exchange of interest rates (SWAPS) in order to hedge the risk of increasing the TIIE rate the tranche of the “GAP 17-2” debt securities for a value of Ps.2,300,000 that accrues an interest rate TIIE and is swapped for 8.0315%, until the expiration of the debt securities. Changes in fair value are recognized temporarily through other comprehensive income within equity and profit and loss as hedging reserve and are recycled to financial expenses as the interest of the debt securities are recognized.

On February 27, 2019, the Company contracted Scotiabank for a derivative financial transaction by exchange of interest rates (SWAPS) in order to hedge the risk of increasing the TIIE rate the tranche of the “GAP 19” debt securities for a value of Ps.3,000,000 that accrues an interest rate TIIE and is swapped for 8.03%, until the expiration of the debt securities. Changes in fair value are recognized temporarily through other comprehensive income within equity and profit and loss as hedging reserve and are recycled to financial expenses as the interest of the debt securities are recognized.

The interest rate profile of the Company interest-bearing financial instruments as of December 31, 2017, 2018 and 2019 is as follows:

	2017			2018			2019
Fixed-rate instruments
Financial assets	Ps.	-		Ps.	-		Ps.	-
Financial liabilities		(1,500,000	)		(1,500,000	)		(1,500,000	)
Effect of interest rate swaps		(1,500,000	)		(1,500,000	)		(6,800,000	)
	Ps.	(3,000,000	)	Ps.	(3,000,000	)	Ps.	(8,300,000	)
Variable-rate instruments
Financial liabilities		(11,752,258	)		(12,035,863	)		(14,937,043	)
Effect of interest rate swaps		1,500,000			1,500,000			6,800,000
	Ps.	(10,252,258	)	Ps.	(10,535,863	)	Ps.	(8,137,043	)

F-36

As of December 31, 2019, the amounts at the reporting date relating to items designated as hedged items were as follows:

Interest rate risk	Change in value used for calculating hedge ineffectiveness			Cash flow hedge reserve			Costs of hedging hedge reserve		Balances remaining in the cash flow hedge reserve from hedging relationships for which hedge accounting is no longer applied
Variable-rate instruments	Ps.	(247,981	)	Ps.	(247,981	)	Ps.	-	Ps.	-

The amounts relating to items designated as hedging instruments and hedge ineffectiveness as of December 31, 2019, were as follows:

Interest rate risk

Nominal amount

Carrying amount (Liabilities)

Line item in the statement of financial position where the hedging instrument is included

Changes in the value of the hedging instrument recognized in OCI

Amount reclassified from costs of hedging reserve to profit or loss

Line item in profit or loss affected by the reclassification

Interest rate swaps

Ps.

5,300,000

Ps.

(247,981

)

Derivative financial instruments (liabilities)

Ps.

(247,981

)

Ps.

(1,045

)

Finance costs

The following table provides a reconciliation by risk category of components of equity and analysis of OCI items and net of tax, resulting from cash flow hedge accounting:

	2019
Cash flow hedges		Hedge Reserve
Balance on 1 January 2019	Ps.		—
Changes in fair value			(247,981	)
Amount reclassified to profit or loss			(1,045	)
Changes in deferred tax asset			76,931
Balance at 31 December 2019	Ps.		(172,094	)

– Sensitivity analysis for hedge accounting - The methodology used was a sensitivity analysis calculating the estimated fair value based on variations in each of the reference variables individually (keeping the other variables fixed). We emphasize that the sensitivities in the market value consider the change to international standards (IFRS), therefore, it is included in the counterparty risk in the valuation process and in the respective measurement of sensitivities in the fair market value. In the case of sensitivity to reference interbank interest rates, the three scenarios analyzed are:

- Likely: decrease over the entire curve of 25 basis points (0.25%)

- Possible: decrease over the entire 50 basis point curve (0.50%)

- Stress: decrease over the entire curve of 100 basis points (1.00%)

During 2019, GAP entered into SWAPS interest rate contracts to cover the interest payments of the “GAP 17-2” and “GAP 19” debt securities, referenced to floating interbank interest rates. With these instruments, GAP will pay amounts based on a fixed rate and will receive amounts based on the TIIE reference rate at the valuation date. For accounting purposes under IFRS, the Company has documented these contracts as cash flow hedges, so changes in fair value will be recognized through other comprehensive income. The fair value of these instruments is exposed to decreases in interbank interest rates, such exposure is included in the sensitivity table of derivative financial instruments.  

Decrease in interbank interest rates (basis points)
		Likely			Possible			Stress
Type of derivative, value or contract	Hedge type	(25 bps)			(50 bps)			(100 bps)
Hedge accounting derivatives	Cash flow	Ps.	(49,175	)	Ps.	(98,836	)	Ps.	(198,158	)
Total effect on fair value		Ps.	(49,175	)	Ps.	(98,836	)	Ps.	(198,158	)

Capital Management – The policy of the Board of Directors of the Company is to maintain a strong capital position to provide confidence to its investors, creditors, and the market and to sustain future development of the business. The Board of Directors monitors the return on equity, which the Company defines as the net profit divided by the total Shareholders' equity.

F-37

The Board of Directors seeks to maintain the optimal balance for the ratio between total liabilities and the Shareholders' equity, which may result from increased levels of bank loans up to the financial structure that it deems optimal, therefore, management seeks authorization from the Board of Directors for any additional debt issuances or for the prepayment of debt. While total liabilities grow in relation to equity and net profit continues to increase, the Company will generate higher returns on capital. The Company has no obligation to maintain a ratio of equity to total liabilities in particular.

The following is the ratio of stockholders’ equity to total liabilities of the Company at the end of the reporting period: 

	2017		2018		2019
Shareholders’ equity –controlling interest	Ps.	21,028,215	Ps.	20,708,985	Ps.	19,628,172
Total liabilities		17,440,763		17,778,352		20,908,361
Ratio of total Shareholders’ equity – controlling interest    to liabilities		1.2		1.2		0.9

The Company may elect to repurchase its own shares in the stock market, under the following terms and conditions:

– The acquisition has to be previously approved at a Stockholders Meeting and be at market price (except in the case of public offerings or auctions authorized by the stock market).

– If the acquisition is made against the Company´s stockholders equity and reflects the acquisition within the repurchased shares account. If the Company decides to cancel the shares it reduces common stock accordingly.

– Announcing the amount of common stock issued and paid when determining the authorized stock for repurchase. The Ordinary ShareholdersMeeting shall expressly agree, for each year, the maximum amount of funds that may be used for the repurchase of the Company’s shares, with the only limitation that the sum of the resources that can be used for this purpose, in no event shall exceed the total balance of retained earnings of the Company.

As long the shares belongs to the Company, they are not subject to vote at the Company’s ShareholdersMeeting, nor do they provide rights or economic benefits and are also not considered when determining a quorum to vote.  

During the year, there was no change in the Company’s capital management policy.  The Company is not subject to external equity requirements, except for those corresponding to the minimum common stock required by Mexican Companies Law (Ley General de Sociedades Mercantiles).

Fair value of the financial instruments – Except for loans and debt securities, management believes the carrying amounts of financial assets and financial liabilities, recognized at amortized cost in the consolidated financial statements, approximate their fair value due to their short-term maturities.

As of December 31, 2017, 2018 and 2019, the fair value of financial liabilities recognized at amortized cost was Ps.13,269,232, Ps.13,712,401 and Ps.16,648,280, respectively, while their book value is Ps.13,339,426, Ps.13,620,087 and Ps.16,535,925, respectively.

The fair value of loans is determined in accordance with generally accepted pricing models based on discounted cash flow analysis determined in accordance with Level 2 of fair value.

The fair value of financial assets and liabilities is determined as follows:

– Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

– Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and

– Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3)

The fair value of the derivative financial instruments is determined based on the effect of the relevant economic variables in the future, according to the market valuation curves as of the reporting date and is analyzed with the total exposure in which the Company assigns to variations in the interest rates.

Financial instruments recognized at fair value are categorized according to the fair value hierarchy into levels 1 to 3, and are based on the degree to which their fair value is objectively observable, are:

– Financial instruments classified as fair value – Are classified within Level 1 of the fair value hierarchy.

– Derivative financial instruments – Are classified within Level 2 of the fair value hierarchy.

F-38

5. Cash and cash equivalents

As of December 31, 2017, 2018 and 2019, the balances are comprised of the following:

	December 31, 2017		December 31, 2018		December 31, 2019
Cash	Ps.	1,616,408	Ps.	1,912,047	Ps.	3,593,756
Investments of cash surpluses		5,855,824		3,894,166		3,897,894
Cash equivalents designated for expenditure, held in trust		257,911		345,244		8,543
Total	Ps.	7,730,143	Ps.	6,151,457	Ps.	7,500,193

On December 20, 2016 the Company established four trusts for investment and administration with Casa de Bolsa Banorte S.A. de C.V., Grupo Financiero Banorte (Banorte), which acts as a trustee, while the airports of the Company are trustors and beneficiaries. The trusts are controlled by a Technical Committee consisting solely of executives of the Company, these trusts are revocable and can only be allocated for the to pay the execution of MDP in the Guadalajara airport, Hermosillo airport, Puerto Vallarta airport and San José del Cabo airport. On December 29, 2017 the Company signed an agreement with Banorte for the expansion of the trusts with the Guadalajara, Puerto Vallarta and San José del Cabo airports. During 2017, 2018 and 2019 the investments were made and paid in Guadalajara, Puerto Vallarta and San José del Cabo airports, while the trust of the Guadalajara airport has a remaining balance of  Ps.431, Puerto Vallarta of Ps.2,638, and San José del Cabo of Ps.5,474  including the contributed funds and interest earned for a total amount of Ps.8,543.  

On December 28, 2018 the Company signed an agreement with Banorte for the expansion of the trusts with the Guadalajara airport including the contributed funds and interest earned for a total amount of Ps.115,000. The resources must be invested in government securities denominated in local currency or bonds guaranteed by the Mexican Government, as instructed by the Company, and should be immediately available. The length of the trust is for the period in which the contracts with the airports are in force. The Company paid investments during 2019 for the trusts entirety, as of December 31, 2019 there is no balance for this extension.    

6. Trade accounts receivable

As of December 31, 2017, 2018 and 2019, the trade accounts receivable was comprised of the following:

	December 31, 2017			December 31, 2018			December 31, 2019
Trade accounts receivable	Ps.	1,028,898		Ps.	1,444,037		Ps.	1,530,432
Allowance for expected credit loss		(31,528	)		(48,675	)		(51,022	)
	Ps.	997,370		Ps.	1,395,362		Ps.	1,479,410

The accounts receivable includes balances to be reimbursed to the Company by domestic and international airlines for passenger charges fees (TUA) of Ps.644,142, Ps.995,929 and Ps.979,037 as of December 31, 2017, 2018 and 2019, respectively. Passenger charges are payable for each passenger (other than diplomats, infants, transfer and transit passengers) departing from the airport terminals operated by the Company and are collected by the airlines and subsequently remitted to the Company.

The movements for bad debt expense in the expected credit loss are recognized under cost of services in the consolidated statement of profit or loss and other comprehensive income.

	2017			2018			2019
Beginning balance	Ps.	(30,622	)	Ps.	(31,528	)	Ps.	(48,675	)
Bad debt expense		(12,006	)		(25,289	)		(22,125	)
Reversal of bad debts		11,100			8,142			19,778
Ending balance	Ps.	(31,528	)	Ps.	(48,675	)	Ps.	(51,022	)

The allowance for expected credit loss is comprised of customer balances that are in litigation or bankruptcy procedure and legal proceedings, which at the date of the consolidated financial statements are not yet completed. As of December 31, 2017, 2018 and 2019 these balances amounted to Ps.12,412, Ps.17,145 and Ps.16,626, respectively. The allowance also includes customer balances in arrears in their payments and in a process of regularization; therefore, they have not been sued. As of December 31, 2017, 2018 and 2019 the amount of these balances amounted to Ps.19,116, Ps.31,530 and Ps.34,396, respectively. During 2017, 2018 and 2019, the Company recognized reversals of bad debt of the balances that were in a legal process with an unfavorable outcome for the Company. The amount of these bad debt expense totaled Ps.11,100, Ps.8,142 and Ps.19,778 , respectively also decreasing the balance of accounts receivable. The reversal of bad debts had no effect on the operating results of the Company during 2017, 2018 and 2019.  In 2017, 2018 and 2019 cancellations were not made for allowance.

F-39

The allowance for expected credit loss of trade accounts receivable and asset by contracts are based on assumptions about the probability and severity of expected loss. The Company uses judgement to make these assumptions, selecting key and input data for the calculation of the said affirmation prospective at the end of each reporting period.

The following are past due balances of accounts receivable, for which there has not been a provision of allowance for doubtful accounts, according to the Company’s policy and their maturity date:

	December 31, 2017		December 31, 2018		December 31, 2019
Accounts receivables past due from 1 to 30 days	Ps.	45,895	Ps.	70,073	Ps.	133,533
Accounts receivables past due 31 to 60 days		11,588		25,934		91,640
Accounts receivables past due 61 to 90 days		5,966		14,482		30,832
Accounts receivables past due more than 90 days		207		93		24
	Ps.	63,656	Ps.	110,582	Ps.	256,029

The following is the percentage of the main clients of the Company with relation to the total of the trade accounts receivable, segregating the accounts receivable of airport services (SAE) and the passengers charges (TUA) that correspond to the amounts that airlines recover from passengers on behalf of the Company and subsequently pay:

	December 31, 2017						December 31, 2018						December 31, 2019
	% receivable of TUA			% receivable of SAE			% receivable of TUA			% receivable of SAE			% receivable of TUA			% receivable of SAE
Concesionaria Vuela Compañía de Aviación,    S.A.P.I. de C.V.		25.5	%		3.5	%		22.5	%		3.6	%		17.8	%		3.8	%
Aeroenlances Nacionales, S.A. de C.V.		6.7	%		1.4	%		11.4	%		1.1	%		8.7	%		1.4	%
ABC Aerolíneas, S.A. de C.V.		12.0	%		1.3	%		11.3	%		1.3	%		6.7	%		1.1	%
Aerovías de México, S.A. de C.V.		6.0	%		0.9	%		6.3	%		0.6	%		5.9	%		0.8	%

The Company has cash, bonds and goods that guarantee certain amounts from TUA as well as accounts receivable from clients as of December 31, 2017, 2018 and 2019. These guarantees could be applied to any unpaid balance in the event of a breach from clients and under certain circumstances.

7. Machinery, equipment and improvements on leased assets

As of December 31, 2017, 2018 and 2019, the machinery, equipment and improvements on leased assets are comprised as follows:

	Balance as of January 1, 2017			Additions			Divestitures			Currency translation effect			Balance as of December 31, 2017
Investment:
Machinery and equipment	Ps.	2,181,305		Ps.	175,457		Ps.	(49,970	)	Ps.	(37,872	)	Ps.	2,268,920
Office furniture and equipment		208,676			40,958			(6,427	)		(2,309	)		240,898
Computer equipment		596,652			136,915			(12,751	)		(10,232	)		710,584
Transportation equipment		42,037			6,650			(1,220	)		(399	)		47,068
Communication equipment		28,224			2,386			(178	)		—			30,432
Improvements on leased assets		41,458			30,140			—			—			71,598
Total investment		3,098,352			392,506			(70,546	)		(50,812	)		3,369,500
Accumulated depreciation:
Machinery and equipment		(926,836	)		(195,382	)		33,308			17,339			(1,071,571	)
Office furniture and equipment		(108,053	)		(16,363	)		5,641			1,682			(117,093	)
Computer equipment		(377,033	)		(101,207	)		11,373			7,354			(459,513	)
Transportation equipment		(30,374	)		(5,960	)		1,220			556			(34,558	)
Communication equipment		(14,281	)		(2,629	)		134			—			(16,776	)
Improvements on leased assets		(11,382	)		(2,919	)		—			—			(14,301	)
Total accumulated depreciation		(1,467,959	)		(324,460	)		51,676			26,931			(1,713,812	)
Net amounts	Ps.	1,630,393		Ps.	68,046		Ps.	(18,870	)	Ps.	(23,881	)	Ps.	1,655,688

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	Balance as of January 1, 2018			Additions			Divestitures			Currency translation effect			Balance as of December 31, 2018
Investment:
Machinery and equipment	Ps.	2,268,920		Ps.	444,495		Ps.	(62,642	)	Ps.	15,759		Ps.	2,666,532
Office furniture and equipment		240,898			61,414			(1,455	)		469			301,326
Computer equipment		710,584			107,381			(9,104	)		5,602			814,463
Transportation equipment		47,068			13,537			(3,072	)		562			58,095
Communication equipment		30,432			1,633			(911	)		—			31,154
Improvements on leased assets		71,598			3,995			(4,010	)		—			71,583
Total investment		3,369,500			632,455			(81,194	)		22,392			3,943,153
Accumulated depreciation:
Machinery and equipment		(1,071,571	)		(221,674	)		55,770			(2,229	)		(1,239,704	)
Office furniture and equipment		(117,093	)		(20,839	)		1,864			(197	)		(136,265	)
Computer equipment		(459,513	)		(135,272	)		9,054			(305	)		(586,036	)
Transportation equipment		(34,558	)		(8,177	)		3,066			(190	)		(39,859	)
Communication equipment		(16,776	)		(2,354	)		786			—			(18,344	)
Improvements on leased assets		(14,301	)		(3,328	)		917			—			(16,712	)
Total accumulated depreciation		(1,713,812	)		(391,644	)		71,457			(2,921	)		(2,036,920	)
Net amounts	Ps.	1,655,688		Ps.	240,811		Ps.	(9,737	)	Ps.	19,471		Ps.	1,906,233

	Balance as of January 1, 2019			Additions			Divestitures			Currency translation effect			Balance as of December 31, 2019
Investment:
Machinery and equipment	Ps.	2,666,532		Ps.	224,218		Ps.	(39,546	)	Ps.	(12,481	)	Ps.	2,838,723
Office furniture and equipment		301,326			60,415			(12,209	)		(1,965	)		347,567
Computer equipment		814,463			133,162			(30,576	)		(6,301	)		910,748
Transportation equipment		58,095			17,585			(1,178	)		(785	)		73,717
Communication equipment		31,154			1,261			(2,823	)		—			29,592
Improvements on leased assets		71,583			764			—			—			72,347
Total investment		3,943,153			437,405			(86,332	)		(21,532	)		4,272,694
Accumulated depreciation:
Machinery and equipment		(1,239,704	)		(260,223	)		37,221			17,968			(1,444,738	)
Office furniture and equipment		(136,265	)		(26,821	)		11,059			1,388			(150,639	)
Computer equipment		(586,036	)		(136,589	)		26,949			10,912			(684,764	)
Transportation equipment		(39,859	)		(10,210	)		1,023			387			(48,659	)
Communication equipment		(18,344	)		(2,274	)		2,663			—			(17,955	)
Improvements on leased assets		(16,712	)		(3,543	)		—			—			(20,255	)
Total accumulated depreciation		(2,036,920	)		(439,660	)		78,915			30,655			(2,367,010	)
Net amounts	Ps.	1,906,233		Ps.	(2,255	)	Ps.	(7,417	)	Ps.	9,123		Ps.	1,905,684

As of December 31, 2017, 2018 and 2019, the net balances of machinery, equipment and improvements on leased assets are:

	December 31, 2017		December 31, 2018		December 31, 2019
Net amounts:
Machinery and equipment	Ps.	1,197,349	Ps.	1,426,828	Ps.	1,393,985
Office furniture and equipment		123,805		165,061		196,928
Computer equipment		251,071		228,427		225,984
Transportation equipment		12,510		18,236		25,058
Communication equipment		13,656		12,810		11,637
Improvements on leased assets	57,297			54,871		52,092
Total amounts	Ps.	1,655,688	Ps.	1,906,233	Ps.	1,905,684

The Company has several buildings under operating leases for office use. In Note 33, the costs and obligations under these leases are disclosed.

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8. Improvements to concession assets

As of December 31, 2017, 2018 and 2019, the improvements to concession assets are comprised as follows:

	Balance as of January 1, 2017			Additions			Divestitures			Transfers			Currency translation effect			Balance as of December 31, 2017
Investment:
Improvements to concession assets	Ps.	10,902,668		Ps.	304,042		Ps.	(30,212	)	Ps.	746,710		Ps.	(143,440	)	Ps.	11,779,768
Construction in-progress		1,707,742			1,417,156			—			(746,710	)		(1,705	)		2,376,483
Total investment		12,610,410			1,721,198			(30,212	)		—			(145,145	)		14,156,251
Accumulated amortization		(3,697,866	)		(552,059	)		6,715			—			30,981			(4,212,229	)
Net amounts	Ps.	8,912,544		Ps.	1,169,139		Ps.	(23,497	)	Ps.	—		Ps.	(114,164	)	Ps.	9,944,022

	Balance as of January 1, 2018			Additions			Divestitures			Transfers			Currency translation effect			Balance as of December 31, 2018
Investment:
Improvements to concession assets	Ps.	11,779,768		Ps.	6,366		Ps.	(7,919	)	Ps.	1,669,128		Ps.	(5,694	)	Ps.	13,441,649
Construction in-progress		2,376,483			1,661,060			—			(1,669,128	)		13,703			2,382,118
Total investment		14,156,251			1,667,426			(7,919	)		—			8,009			15,823,767
Accumulated amortization		(4,212,229	)		(634,115	)		7,517			—			(2,080	)		(4,840,907	)
Net amounts	Ps.	9,944,022		Ps.	1,033,311		Ps.	(402	)	Ps.	—		Ps.	5,929		Ps.	10,982,860

	Balance as of January 1, 2019			Additions			Divestitures			Transfers			Currency translation effect			Balance as of December 31, 2019
Investment:
Improvements to concession assets	Ps.	13,441,649		Ps.	760,726		Ps.	(21,977	)	Ps.	2,804,400		Ps.	(141,702	)	Ps.	16,843,096
Construction in-progress		2,382,118			1,218,757			—			(2,804,400	)		(14,470	)		782,005
Total investment		15,823,767			1,979,483			(21,977	)		—			(156,172	)		17,625,101
Accumulated amortization		(4,840,907	)		(784,680	)		21,977			—			41,892			(5,561,718	)
Net amounts	Ps.	10,982,860		Ps.	1,194,803		Ps.	—		Ps.	—		Ps.	(114,280	)	Ps.	12,063,383

As of December 31, 2017, 2018 and 2019, the net amounts of improvements to concession assets are:

	Total balance as of
	December 31, 2017		December 31, 2018		December 31, 2019
Net amounts:
Improvements to concession assets	Ps.	7,567,539	Ps.	8,600,742	Ps.	11,281,378
Construction in-progress		2,376,483		2,382,118		782,005
Total amounts	Ps.	9,944,022	Ps.	10,982,860	Ps.	12,063,383

Improvements to concession assets are comprised by intangible assets from additions and improvements to such assets in accordance with IFRIC 12, as well as other investments that have been carried out to the infrastructure of the airports qualifying as intangible assets, even though they are not in committed investments in the MDP.  

As of December 31, 2017, 2018 and 2019, the balance of machinery, equipment, improvements on leased assets and improvements to concession assets includes investments pending to be paid in Mexican airports of Ps. 409,271, Ps. 318,519 and Ps. 286,409, respectively. Construction in-progress relates mainly to the rehabilitation of the expansion of the terminal building at the San José del Cabo airport, the renovation of the runway and expansion of the terminal building at Tijuana airport, expansion of the terminal building at the Morelia airport, the building of a taxiway at FBO in Puerto Vallarta airport and the expansion of the terminal building at the Montego Bay airport.     

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9. Airport concessions

a. Mexican Concessions

As described in Note 1.a, the Mexican Government granted concessions to manage, operate and develop 12 airports, and benefit from the use of the airport facilities over a 50-year term beginning November 1, 1998. The value of airport concessions and rights to use airport facilities was determined as explained in Note 1.a, and paid by GAP through the issuance of shares to the Mexican Government.

The table below shows the values of airport concessions and rights to use airport facilities as of December 31, 2017, 2018 and 2019:

Acquisition cost	Ps.	15,938,359
assigned to:
Rights to use airport facilities (Note 10):
Runways, aprons, platforms	Ps.	519,057
Buildings		577,270
Other facilities		91,241
Land		930,140
		2,117,708
Airport concessions		13,820,651
	Ps.	15,938,359

The original amortization term for the concessions is 49 years. As mentioned in Note 1.a, the concession value was assigned in August 1999, the date in which the amortization term began, and will run through November 2048.

Each airport concession agreement contains the following terms and basic conditions:

– The concessionaire has the right to manage, operate, maintain and use the airport facilities and carry out any construction, improvements, or maintenance of facilities in accordance with its MDP, and to provide airport, complementary and commercial services. The Company’s investment plans under the MDP must be updated every five years starting from 2000 and approved by the SCT. Each concessionaire is required to make minimum investments at each airport under the terms of its MDP.

– The concessionaire will use the airport facilities only for the purposes specified in the concession, will provide services in conformity with the law and applicable regulations, and be subject to inspections by the SCT.

– The concessionaire must pay a tax for the use of the assets under concession (currently 5% of the concessionaire’s annual gross revenues derived from the use of public property), in conformity with the Mexican Federal Tax Act. As of December 31, 2017, 2018 and 2019 the Company recognized Ps. 461,250, Ps. 533,492 and Ps. 599,053 , respectively for this tax.

– The concessionaire assumed ASA’s rights and obligations derived from airport-related agreements with third parties.

– ASA has the exclusive right to supply fuel for consumption at the airport.

– The concessionaire must grant free access to specific airport areas to certain Mexican Government agencies (such as customs and immigration) so that they may carry out their activities within the airport.

– According to Article 27 of the General Law on Airports, the concession may be revoked if the concessionaire breaches any of its obligations established therein or falls under any of the causes for revocation referred to in Article 26 of the law and in the concession agreement. The breach of certain concession terms may be cause for revocation if the SCT has applied sanctions in three different instances with respect to the same concession term.

– The SCT may modify concession terms and conditions that regulate the Company’s operations in accordance to the General Law on Airports.

– The concession may be renewed in one or more instances for terms that do not exceed an additional 50 years.

b. Sangster International Airport (MBJ)

As disclosed in Note 1.a, the Company acquired DCA in 2015, which holds a 74.5% stake in MBJA in 2015, located in Montego Bay, Jamaica. MBJA has a concession to operate, maintain and operate of the airport for a period of 30 years as of April 12, 2003.

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The concession of MBJ contains the following terms and conditions:

– On April 2003, MBJ entered into a concession agreement with AAJ in pursuant to which Authority granted MBJA the right to rehabilitate, develop, operate and maintain MBJ. The MBJA is thereby designated as the approved airport operator and permitted to undertake the functions of AAJ, regarding MBJ. The agreement was amended on December 16, 2005 and further amended on April 12, 2006.

– The concession agreement requires MBJA to provide the airport services set out therein at MBJ.

– Through its concession agreement, MBJA is obliged to pay AAJ a monthly concession fee on the basis of traffic units (passengers) multiplied by the rate established in the concession. The rate is subject to an annual adjustment according to the National Consumer Price Index in the United States (CPI). MBJA is also required to pay an additional concession fee equal to 45% of any revenues earned in excess of the forecast revenues established in the Concession Agreement. This additional concession fee is for over the period from April to March of each year, with payment required annually. For the years ended December 31, 2017, 2018 and 2019 the Company recognized USD$25.5 million, USD$28.2 million and USD$31.7 million, respectively.

– The concession agreement is governed by Jamaican laws and MBJA cannot assign its rights or obligations under the agreement (except by way of security for indebtedness, and without the prior written consent of AAJ).

– AAJ can terminate the concession agreement in the event of default of MBJA including insolvency of MBJA or its shareholders (if the latter had a material adverse effect on MBJA), cessation of business, material breach by MBJA of the concession agreement including non-payment of any amount due within 60 days after the due date, change of control, bribery or corruption or failure by the shareholders to provide equity funding required by applicable documents. In addition, the MBJA may terminate the concession agreement in the event of a material breach by the AAJ which has a material adverse effect on the business of the MBJ or expropriation or other material adverse action by the Jamaican Government.

c. Norman Manley International Airport (NMIA)

After a competitive public bidding process among various bidders the Company was selected by the Government of Jamaica to operate, modernize and expand the NMIA, located in the city of Kingston, through a 25-year concession agreement.

The NMIA Concession contains the following terms and conditions:

– On October 10, 2018, PACKAL entered into a concession agreement the NMIA with AAJ through which the Authorities granted to PACKAL the right to operate, modernize and expand NMIA, therefore, PACKAL is designated as the approved airport operator and permitted to undertake the functions of AAJ with respect to NMIA, and took over control on October 10, 2019.

– Through the Concession agreement, PACKAL is obliged to pay the AAJ a monthly concession fee of 62.01% of the total aeronautical and non-aeronautical revenues based on the gross revenues. As of December 31, 2019 the Company recognized USD$5.6 million.

– The concession agreement is governed by Jamaican laws and under the IFRS and PACKAL cannot assign its rights or obligations under the agreement (except by way of security for indebtedness, without the prior written consent of AAJ).

– On November 7, 2018 PACKAL paid to the IFC the fees of USD $2.1 million for the public bidding process.

– On October 8, 2019 PACKAL paid to the Authority of USD $5.0 million as an upfront payment before taking control of NMIA.

– The AAJ can terminate the concession agreement in the event of a default of PACKAL including insolvency of PACKAL or its shareholders, cessation of business, material breach by NMIA of the concession agreement including non-payment of any amount due within 60 days after the due date, change of control, bribery or corruption or failure by the shareholders to provide equity funding required by applicable documents. Furthermore, PACKAL may terminate the concession agreement in the event of a material breach by AAJ which has a material adverse effect on the business of NMIA or expropriation or other material adverse action by the Jamaican Government.

The value of the concessions as of December 31, 2017, 2018 and 2019 is as follows:

	December 31, 2017			December 31, 2018			December 31, 2019
Mexican airport concessions	Ps.	13,820,651		Ps.	13,820,651		Ps.	13,820,651
Concession airport MBJA (fair value on date of acquisition in    USD$176,086,000) (1)		3,475,128			3,465,882			3,318,376
Concession airport NMIA (upfront fees on date of acquisition    in USD$7,146,500)		—			140,664			134,677
Less - accumulated amortization (2)		(5,541,118	)		(6,015,079	)		(6,452,108	)
	Ps.	11,754,661		Ps.	11,412,118		Ps.	10,821,596

F-44

(1) The other airport concession includes translation effect for an amount of Ps. 791,102, Ps. 781,857 and Ps. 634,350 as of December 31, 2017, 2018 and 2019, respectively.

(2) Amortization includes translation effect for an amount of Ps. 7,719, Ps. 4,315 and Ps. (38,776) as of December 2017, 2018 and 2019, respectively.

The amortization charge for the years ended December 31, 2017, 2018 and 2019, amounts to Ps. 466,749, Ps.469,646 and Ps. 475,805, respectively.

10. Rights to use airport facilities

The value of the rights to use airport facilities as of December 31, 2017, 2018 and 2019 was as follows (only Mexican airports):

	December 31, 2017			December 31, 2018			December 31, 2019
Rights to use airport facilities	Ps.	2,117,708		Ps.	2,117,708		Ps.	2,117,708
Less - accumulated amortization		(1,130,713	)		(1,187,412	)		(1,244,110	)
	Ps.	986,995		Ps.	930,296		Ps.	873,598

The amortization charge for the years ended December 31, 2017, 2018 and 2019 amounts to Ps. 56,700, Ps. 56,699 and Ps. 56,698, respectively.

11. Other acquired rights

As of December 31, 2017, 2018 and 2019 the other acquired rights correspond to payments made by the Company after the date the concessions were granted, in order to early-terminate certain long-term lease contracts that existed at that time between ASA and third-party leaseholders in Mexican airports. The rights acquired are comprised as follows:

	December 31, 2017			December 31, 2018			December 31, 2019
Right to operate the charter and general aviation terminal and    FBO at San José del Cabo airport terminal	Ps.	344,443		Ps.	344,443		Ps.	344,443
Right to operate commercial space at Tijuana airport		15,935			15,935			15,935
Right to operate various space at Puerto Vallarta airport		309,616			309,616			309,616
Right to operate commercial space at Guadalajara airport		93,560			93,560			93,560
Right to operate various parking lots		5,673			5,673			5,673
		769,227			769,227			769,227
Less – accumulated amortization		(254,234	)		(270,931	)		(287,627	)
	Ps.	514,993		Ps.	498,296		Ps.	481,600

Amortization recognized for the years ended December 31, 2017, 2018 and 2019 amounted to Ps. 16,696, in each year. These assets have a useful life until the end of the concession, as their use and operation will continue until the term expires.

12. Income taxes

The Company is subject to income taxes, in accordance with the tax laws in Mexico, Spain and Jamaica.

Current income taxes – The income tax rate for the Mexican entities is 30%. With the exception of the airports of Mexicali and Tijuana located in the Border of Mexico with the United States of America, which for year 2020 will be 20%, applying the “Decreto de Estímulos Fiscales Región Fronteriza Norte” in which one third of the income tax will be applied as a credit. The tax rate for MBJA and PACKAL is 25% in Jamaica, while for DCA in Spain the tax rate is 25% and will continue in the same manner for the subsequent years.

To determine deferred income taxes as of December 31, 2017, 2018 and 2019 the Company applied the applicable tax rates to temporary differences based on their estimated reversal dates in Entities of the Company.

a. Recoverable income taxespaid on dividends – Dividends paid to Shareholderswhich are not derived from the net tax income account (CUFIN) generate current income taxes and can be credited against the taxes of the Company during the year of the dividend payment and the two subsequent years in the Mexican entities.

F-45

b. Recoverable taxes – In the regular course of operations, the Company generates receivable balances by the overpayment of taxes payable, according to the calculation mechanism established in the Tax Law, which are recoverable through tax returns or offsetting. The main recoverable taxes are Income Tax (ISR), the Asset Tax (IMPAC) and the Value Added Tax (IVA).

The balances of recoverable taxes are comprised as follows:

	December 31, 2017		December 31, 2018		December 31, 2019
Recoverable taxes:
IMPAC	Ps.	111,987	Ps.	57,759	Ps.	39,186
ISR		21,780		40,492		98,742
IVA		30,886		28,729		35,508
Tax to cash deposits		863		343		—
Business flat tax (IETU)		3,506		3,399		1,929
Withholding taxes		26,040		22,362		43,130
Corporation taxes		3,316		66,338		71,599
Other		198		722		1,481
	Ps.	198,576	Ps.	220,144	Ps.	291,575

c. Income Tax – Income tax expense (benefit) for the years ended December 31, 2017, 2018 and 2019 consists of the following:

	2017			2018			2019
ISR:
Current	Ps.	1,849,551		Ps.	2,117,491		Ps.	2,055,783
Deferred		(408,910	)		(248,450	)		(164,340	)
	Ps.	1,440,641		Ps.	1,869,041		Ps.	1,891,443

d. Effective tax rate – The reconciliation of the statutory income tax rate and the actual effective income tax rate as a percentage of income before income taxes for the years ended December 31, 2017, 2018 and 2019 is shown below:

	%			2017			%				2018			%			2019
Income before income taxes				Ps.	6,171,722					Ps.		7,007,672					Ps.	7,346,185
Income tax by applying the weighted    average statutory rate (1)		30.0	%		1,851,517			30.0	%			2,102,302			30.0	%		2,203,856
Effects of inflation over monetary assets		(7.8	)%		(478,609	)		(3.9	)%			(271,601	)		(3.5	)%		(260,249	)
(Unrecognized) applied tax loss carryforwards		1.0	%		62,975			0.8	%			57,733			0.8	%		61,953
Derecognition of deferred tax asset		1.0	%		63,657			0.9	%			60,115			—			—
Loss of goodwill impairment, not deductible		(0.1	)%		(4,043	)		—				—			—			—
Tax rate change in border area		—			—			0.3	%			19,391			(0.1	)%		(10,332	)
Employee benefits		(0.2	%)		(12,220	)		(0.1	%)			(603	)		(0.1	%)		(9,586	)
Cancellation of recoverable tax on assets - undue    payments		(0.1	)%		(7,587	)		(0.8	)%			(54,444	)		—			—
Other		(0.6	)%		(35,049	)		(0.6	)%			(43,852	)		(1.3	)%		(94,199	)
Effective tax rate		23.2	%	Ps.	1,440,641			26.6	%	Ps.		1,869,041			25.8	%	Ps.	1,891,443

(1) The tax rate used for the 2017, 2018 and 2019 previous reconciliations above is the average corporate tax rate, respectively payable by corporate entities in Mexico, Jamaica and Spain on taxable profits in accordance with tax laws in these jurisdictions.

e. Assets and liabilities Deferred income tax recognized –

Deferred taxes are presented according to the origin of the operations of the individual subsidiaries of the Company as IAS - 12 Income taxes does not allow the offsetting of taxes in accordance with the following:

An entity must offset deferred tax assets with tax deferred tax liabilities if, and only if:

(a) It has a legally enforceable right to offset before the tax authorities the amounts recognized in these items; and

(b) deferred tax assets and deferred tax liabilities arising from a tax on profits corresponding to the same fiscal authority, which fall under:

(i) the same company or taxable entity; or

F-46

(ii) different companies or individuals for tax purposes that seek to either liquidate assets and current tax liabilities on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which expected to be settled or recovered significant amounts of assets or liabilities for deferred taxes.

The net deferred income tax assets are from Mexican subsidiaries:

	December 31, 2017			December 31, 2018			December 31, 2019
Deferred ISR asset (liability):
Expected credit loss	Ps.	7,209		Ps.	10,636		Ps.	10,831
Machinery and equipment		37,645			46,723			50,590
Improvements to concession assets		511,166			567,497			605,052
Airport concessions and rights to use airport facilities		4,461,211			4,592,116			4,654,502
Other acquired rights		130,776			139,268			143,596
Derivative financial instruments		(30,667	)		(39,492	)		82,370
Other assets		387			445			449
Tax loss carryforwards		170,990			113,257			51,304
Employee benefits		27,257			27,805			30,373
Accruals		12,966			14,024			19,877
Recoverable tax on assets		25,342			—			—
Deferred income tax asset	Ps.	5,354,282		Ps.	5,472,279		Ps.	5,648,944

The net deferred income tax liability corresponds to the subsidiaries in Jamaica:

	December 31, 2017			December 31, 2018			December 31, 2019
Deferred tax (liability) asset:
Trade receivables	Ps.	(822	)	Ps.	(820	)	Ps.	(1,169	)
Machinery, equipment and improvements on leased    assets		(103,782	)		(96,496	)		(76,881	)
Improvements to concession assets		(2,008	)		(1,905	)		(1,712	)
Airport concessions		(748,879	)		(700,168	)		(615,751	)
Accruals		16,238			14,458			13,604
Deferred tax liability	Ps.	(839,253	)	Ps.	(784,931	)	Ps.	(681,909	)

f. Unrecognized deferred income tax assets – Unrecognized deferred income tax assets in the consolidated statement of financial position is comprised of the following items of the Mexican Companies:

	December 31, 2017		December 31, 2018		December 31, 2019
Tax loss carryforwards	Ps.	212,464	Ps.	235,475	Ps.	269,898
Deductible tax temporary difference		47,533		98,929		102,342
Recoverable tax on assets		225,209		—		—
	Ps.	485,206	Ps.	334,404	Ps.	372,240

The Company does not recognize deferred tax assets on tax loss carryforwards for which it is not probable to generate future taxable profits to utilize such tax losses.

As disclosed in subparagraph i. of this Note, the recoverable tax on assets expired in 2017. During 2018, the last recoverable amount of tax on assets was filed with the Mexican Tax Administration Service (SAT). Recoverable income tax from recoverable tax on assets detailed above has not been recognized.

The Company does not recognize deferred tax assets relating to temporary differences between the accounting and tax value of investments in subsidiaries, as it has the power to control the reversal date of those temporary differences, and does not expect them to reverse in the foreseeable future.

F-47

g. Deferred income tax from tax loss carryforwards – The Company generated tax loss carryforwards in the airports of Los Mochis, Manzanillo, and at Grupo Aeroportuario del Pacífico, S.A.B. de C.V. The Company estimates tax loss carryforwards will be recoverable in Grupo Aeroportuario del Pacífico, S.A.B. de C.V. With respect to tax legislation relating to concessions, such losses will expire in 2048, except for the tax losses of Grupo Aeroportuario del Pacífico, S.A.B. de C.V., which expire in 2026. Tax losses that can be recovered based on management’s financial projections are recognized as part of the deferred tax asset.

	December 31, 2017			December 31, 2018			December 31, 2019
Tax loss carryforwards	Ps.	1,278,180		Ps.	1,162,441		Ps.	1,070,673
Unrecognized tax loss carryforwards		(708,212	)		(784,917	)		(899,659	)
Recognized tax loss carryforwards	Ps.	569,968		Ps.	377,524		Ps.	171,014

h. Balances and movements of deferred taxes during the period.

	Balance as of January 1, 2017				Effects of profit and loss				Allocation to recoverable taxes				Other comprehensive income				Balance as of December 31, 2017
Temporary differences for the deferred tax asset:
Expected credit loss	Ps.	8,267			Ps.	(1,058)			Ps.	—			Ps.	—			Ps.	7,209
Machinery, equipment and improvements    on leased assets			31,854				5,791			—				—				37,645
Improvements to concession assets			411,620				99,546				—			—				511,166
Airport concessions and rights to use airport    facilities			4,162,475				298,736			—				—				4,461,211
Other acquired rights			118,215				12,561				—				—			130,776
Derivative financial instruments			(20,446	)			(10,221	)			—				—			(30,667	)
Other assets			268				119				—				—			387
Tax loss carryforwards			233,965				(62,975	)			—				—			170,990
Employee benefits			20,898				8,721				—				(2,362	)		27,257
Accruals			9,469				3,497				—				—			12,966
Recoverable tax on assets			94,259				2,656				(71,573	)			—			25,342
Total deferred tax asset	Ps.		5,070,844		Ps.		357,373		Ps.		(71,573	)	Ps.		(2,362	)	Ps.	5,354,282

	Balance as of January 1, 2018			Effects of profit and loss			Allocation to recoverable taxes				Other comprehensive income			Balance as of December 31, 2018
Temporary differences for the deferred tax asset:
Expected credit loss	Ps.	7,209		Ps.	3,427		Ps.	—			Ps.	—		Ps.	10,636
Machinery, equipment and improvements    on leased assets		37,645			9,078			—				—			46,723
Improvements to concession assets		511,166			56,331				—			—			567,497
Airport concessions and rights to use airport    facilities		4,461,211			130,905			—				—			4,592,116
Other acquired rights		130,776			8,492				—				—		139,268
Derivative financial instruments		(30,667	)		(8,825	)			—				—		(39,492	)
Other assets		387			58				—				—		445
Tax loss carryforwards		170,990			(57,733	)			—				—		113,257
Employee benefits		27,257			(5,236	)			—				5,784		27,805
Accruals		12,966			1,058				—				—		14,024
Recoverable tax on assets		25,342			54,444				(79,786	)			—		—
Total deferred tax asset	Ps.	5,354,282		Ps.	191,999		Ps.		(79,786	)	Ps.		5,784	Ps.	5,472,279

F-48

	Balance as of January 1, 2019			Effects of profit and loss			Other comprehensive income				Balance as of December 31, 2019
Temporary differences for the deferred tax asset:
Expected credit loss	Ps.	10,636		Ps.	195		Ps.	—			Ps.	10,831
Machinery, equipment and improvements    on leased assets		46,723			3,867			—				50,590
Improvements to concession assets		567,497			37,554			—				605,051
Airport concessions and rights to use airport facilities		4,592,116			62,386			—				4,654,502
Other acquired rights		139,268			4,328				—			143,596
Derivative financial instruments		(39,492	)		44,931				76,931			82,370
Other assets		445			4				—			449
Tax loss carryforwards		113,257			(61,953	)			—			51,304
Employee benefits		27,805			4,901				(2,333	)		30,373
Accruals		14,024			5,854				—			19,878
Total deferred tax asset	Ps.	5,472,279		Ps.	102,067		Ps.		74,598		Ps.	5,648,944

	Balance as of January 1, 2017			Effects of profit and loss			Other comprehensive income			Balance as of December 31, 2017
Temporary differences for the deferred tax liability:
Trade accounts receivable	Ps.	(10,991	)	Ps.	(185	)	Ps.	10,354		Ps.	(822	)
Machinery, equipment and improvements on leased    assets		(114,627	)		5,555			5,290			(103,782	)
Improvements to concession assets		(2,209	)		95			106			(2,008	)
Airport concessions		(835,432	)		45,675			40,878			(748,879	)
Accruals		16,586			398			(746	)		16,238
Total deferred tax liability	Ps.	(946,673	)	Ps.	51,538		Ps.	55,882		Ps.	(839,253	)

	Balance as of January 1, 2018			Effects of profit and loss			Other comprehensive income			Balance as of December 31, 2018
Temporary differences for the deferred tax liability:
Trade accounts receivable	Ps.	(822	)	Ps.	5,220		Ps.	(5,218	)	Ps.	(820	)
Machinery, equipment and improvements    on leased assets		(103,782	)		6,998			288			(96,496	)
Improvements to concession assets		(2,008	)		97			6			(1,905	)
Airport concessions		(748,879	)		46,399			2,312			(700,168	)
Accruals		16,238			(2,263	)		483			14,458
Total deferred tax liability	Ps.	(839,253	)	Ps.	56,451		Ps.	(2,129	)	Ps.	(784,931	)

	Balance as of January 1, 2019			Effects of profit and loss			Other comprehensive income			Balance as of December 31, 2019
Temporary differences for the deferred tax liability:
Trade accounts receivable	Ps.	(820	)	Ps.	-		Ps.	(349	)	Ps.	(1,169	)
Machinery, equipment and improvements on leased    assets		(96,496	)		(74,659	)		94,274			(76,881	)
Improvements to concession assets		(1,905	)		97			96			(1,712	)
Airport concessions		(700,168	)		46,461			37,956			(615,751	)
Accruals		14,458			90,374			(91,228	)		13,604
Total deferred tax liability	Ps.	(784,931	)	Ps.	62,273		Ps.	40,749		Ps.	(681,909	)

i As a result of the enactment of IETU law beginning in 2008, specifically with respect to the third transitory article, the Company has ten years to recover, under specific circumstances, existing IMPAC paid in previous years, which as of December 31, 2017 amounted to Ps.250,551.  The previously mentioned article establishes the right to recover the tax on assets paid prior to the IETU law enactment date. However, to obtain a refund there are certain requirements that must be met, including: i) the tax on assets subject to recovery must have been paid over the previous ten years, ii) the ISR has to be higher than the tax on assets for the three years prior to 2008, and iii) it establishes for its recovery an annual limit of up to 10% per year over the IMPAC effectively paid.

F-49

There were several interpretations as to how an entity could recover the tax on assets paid, but to date there has been no explicit definition from the tax authorities or a precedent from any court that provides clarity as to the proper manner in which to recover such amounts. The Company’s management believed it was not probable that they would recover certain amounts and has decided not to recognize it as an asset of Ps. 225,209 as of December 31, 2017. The remaining amount of recoverable tax on assets was comprised of Ps. 16,097 (nominal value) and Ps. 9,245 of interest for the period from 2002 to 2017. As of the end of 2018 and 2019, the Company had no right to recover the recoverable taxes paid in previous years in accordance with the mentioned rules before.

As of December 31, 2017, 2018 and 2019, the recoverable tax on assets is comprised as follows:

	December 31, 2017			December 31, 2018		December 31, 2019
Recoverable tax on assets paid	Ps.	250,551		Ps.	-	Ps.	-
Unrecognized recoverable tax on assets paid		(225,209	)		-		-
Recognized recoverable tax on assets	Ps.	25,342		Ps.	—	Ps.	—

As of December 31, 2019 there is no paid Tax on Assets susceptible to recoverability.

13. Investment in associate

Details of the associate of the Company at the end of the reporting period is as follow:

Name of associate	Place of constitution and operation	Proportion of ownership interest and voting power held by the Company
SCL Terminal Aérea de Santiago, S. A.	Santiago de Chile, Chile		14.77	%

As disclosed in Note 1, DCA has a stake of 14.77% in SCL, operator of the international terminal of Santiago de Chile’s airport until September 30, 2015. On that date, the operation of the airport was delivered to the new operator. Although it no longer has operations in accordance with the concession agreement, SCL must remain in effect for one year after delivery of the concession to address any potential contingencies. After that first year, SCL shall remain in force until its dissolution, in accordance with the tax regulations in Chile.

According to the estimates of the Company, it is expected that the associate will be liquidated in the year 2022, due to lawsuits which are expected to be resolved in that year, in accordance with the company administration and external advisors it is not expected to have an adverse effect on profit and loss. During the 2018, Ps. 10,034 were recovered.

At the date of acquisition, the book value of SCL is € 4,653,021 (Ps. 105,936). The results of DCA of the years ended December 31, 2017, 2018 and 2019 were recognized using the equity method in the consolidated financial statements.

As of December 31, 2017, 2018 and 2019, the net results of SCL is comprised as follows:

	2017			2018			2019
Net (loss) profit SCL	Ps.	19,330		Ps.	(6,411	)	Ps.	532
Proportion of ownership interest and voting power held    by the Company		14.77	%		14.77	%		14.77	%
Share of (loss) profit of associate	Ps.	2,855		Ps.	(947	)	Ps.	79

The Company owns less than 20% of the shares of SCL, however it concluded it has significant influence because it has a representation on its Board of Directors and participates in the process of setting its financial and operating policies.

The summarized financial information below represents the amounts shown in the financial statements of SCL prepared in accordance with IFRS.

F-50

The detail of the investment in the associate as of December 31, 2019 is as follows:

	Balance
Initial investment	Ps.	21,636
Adjustment to the investment SCL		(13,475	)
Share of loss of associate 2017		2,855
Balance as of December 31, 2017		11,016
Payment of capital reduction 2018		(10,034	)
Share of loss of associate 2018		(947	)
Balance as of December 31, 2018		35
Share of loss of associate 2019		79
Balance as of December 31, 2019	Ps.	114

Condensed statements of financial position as of December 31, 2017, 2018 and 2019:

	2017		2018		2019
Current assets	Ps.	142,672	Ps.	47,681	Ps.	11,935
Total assets		142,672		47,681		11,935
Total liability		51,189		37,845		7,354
Shareholders´ equity	Ps.	91,483	Ps.	9,836	Ps.	4,581

Condensed statement of comprehensive profit (loss) for the year ended December 31, 2017, 2018 and 2019:

	2017		2018			2019
Revenues	Ps.	56,373	Ps.	1,773		Ps.	585
Costs, expenses and income taxes		37,043		8,184			53
Net Profit (loss)	Ps.	19,330	Ps.	(6,411	)	Ps.	532

14. Accounts payable

The Company receives credit from its suppliers for 30 and 45 days without charging interest, whereby the provider payment policy is to pay the maximum term granted. As of the date of these consolidated financial statements there is no supplier that represents more than 10% of its investments in productive assets and/or the total operating costs.

	December 31, 2017		December 31, 2018		December 31, 2019
Suppliers	Ps.	784,533	Ps.	730,361	Ps.	735,729
Advance payments from clients		108,853		139,576		142,044
Interest payable		87,168		84,224		98,882
Direct employee benefits		46,674		48,239		62,494
Others suppliers		26,864		141,380		112,635
Others		11,977		10,932		11,989
Total	Ps.	1,066,069	Ps.	1,154,712	Ps.	1,163,773

Advanced payments from clients represent payments for future services that have not yet been provided and if they are not performed, the Company has the obligation to reimburse their customers for such.

The balance of direct employee benefits corresponding principally of provisions of vacation pay, bonuses and other employee benefits.

F-51

15. Leases Obligations

a. Lease contracts

The Company leased space for its corporate offices and the lease of utility vehicles and operating vehicles, under a lease agreement. The average lease term is from 2 to 4 years in 2019 and there are options to buy the equipment for a nominal amount at the end of the terms of the lease.

The obligations of the Company stem from financial leases that are guaranteed by the title of the lessors to the leased assets.

b. Liabilities for assets in a lease

The amount of liabilities for assets in a lease as of December 31, 2018 were as follows:

	Future minimum lease payments		Interest			Present value of minimum lease payments
Less than one year	Ps.	17,938	Ps.	(3,428	)	Ps.	14,510
Less than two years	Ps.	13,460	Ps.	(2,330	)	Ps.	11,130
Less than three years		11,819		(1,460	)		10,359
Less than four years		11,008		(618	)		10,390
Five years and over		1,851		(41	)		1,810
Liabilities for assets in lease long term		38,138		(4,449	)		33,689
Total liabilities for leased assets	Ps.	56,076	Ps.	(7,877	)	Ps.	48,199

	2018
Operating lease commitment as of December 31, 2017	Ps.	62,948
Discount of the present value using the incremental loan rate as of    January 1,  2018		(4,257	)
Short term leases		(680	)
Liabilities for assets in lease as of January 1, 2018		58,011
Acquisitions of assets in lease		5,425
Interest paid on leasing		(3,733	)
Payment of lease obligations		(11,504	)
Liabilities for assets in lease	Ps.	48,199

	Future minimum lease payments		Interest			Present value of minimum lease payments
Less than one year	Ps.	15,067	Ps.	(2,490	)	Ps.	12,577
Less than two years	Ps.	13,445	Ps.	(1,525	)	Ps.	11,920
Less than three years		11,496		(612	)		10,884
Less than four years		1,850		(39	)		1,811
Liabilities for assets in lease long term		26,791		(2,176	)		24,615
Total liabilities for leased assets	Ps.	41,858	Ps.	(4,666	)	Ps.	37,192

	2019
Liabilities for assets in lease as of December 31, 2018	Ps.	48,199
Acquisitions of assets in lease		8,957
Interest paid on leasing		(3,703	)
Payment of lease obligations		(16,261	)
Liabilities for assets in lease	Ps.	37,192

As of December 31, 2018 and 2019 the Company recognized Ps. 13,118 and Ps. 16,261 respectively for the amortization of assets for the rights of use.

F-52

The interest rates that underlie all obligations under lease agreements are fixed by an average discount interest of 8.23% as of January 1°, 2018, and 8.38% and 7.99% during the year 2018 and 2019. As of December 31, 2018 and 2019, Ps. 3,733 and Ps. 3,703 was recognized as interest on the liability for lease in the consolidated statement of income and other comprehensive income.

16. Derivative financial instruments

The Company has borrowings denominated in US dollars and debt securities at variable interest rates in pesos, which in case of an increase in interest rates, would reduce the Company’s cash flows. Through the contracting of the CAP´s and SWAP´s with HSBC and Scotiabank, in some of these borrowings, the Company seeks to limit the risk of interest rate increases. In 2016 the Company contracted some hedges in which it has a floor and two collars to the increase in interest rates, so that if the relevant rate surpasses the level established (strike) in the contract, the CAP generates positive cash flows to the Company, which offsets the negative effects of the increase in the interest rates from the underlying loans.

The Company’s derivative financial instruments are negotiated in the market Over The Counter (OTC), through national and international counter parties.

The issuance of debt securities “GAP 15” in February 2015 for Ps. 1,100,000 and the second tranche of the same debt securities “GAP 15” in January 2016 for Ps. 1,100,000, generates interest at a variable rate of TIIE-28 plus 24 basis points with a term of 5 years. This credit has a hedge of the interest rate Collar category with floor of 4.05%, CAP 1 5.75% and a second CAP of 6.75%.

During January and February 2016, the Company entered into unsecured credit agreement with Scotiabank and BBVA for USD$95.5 million with each institution, for a total of USD$191.0 million. The loans generate interest at Libor 1M  plus 99 and 105 basis points, respectively, with monthly interest payments, for a term of 5 years. For this credit an interest rate hedge Collar category was contracted, with floor of 0.42%, CAP 1 1.75% and a second CAP of 2.75%.

On May 2, 2017, the Company contracted an interest rate SWAP with HSBC, in order to cover the risk of an increased interest rate, related to the issuance of the “GAP 17” with a value of Ps.1,500,000, which were issued at an interest rate TIIE and was swapped to 7.21% fixed rate, until the end of the debt securities certificates.

On February 26, 2019, the Company contracted an interest rate SWAP with Scotiabank, in order to cover the risk of an increased interest rate, related to the issuance of the “GAP 17-2” with a value of Ps. 2,300,000 which were issued at an interest rate TIIE and was swapped to 8.0315% fixed rate, until the end of the debt securities. Changes in fair value are recognized in other comprehensive income in the statement of income and other comprehensive income and are presented in the hedge reserve and are recycled to financial expenses to the extent that the interest of the associated debt is recognized.

On February 27, 2019, the Company contracted an interest rate SWAP with Scotiabank, in order to cover the risk of an increased interest rate, related to the issuance of the “GAP-19” with a value of Ps. 3,000,000 which were issued at an interest rate TIIE and was swapped to 8.03% fixed rate, until the end of the debt securities. Changes in fair value are recognized in other comprehensive income in the statement of income and other comprehensive income and are presented in the hedge reserve and are recycled to financial expenses to the extent that the interest of the associated debt is recognized.

These financial instruments with HSBC and the financial instrument of Scotiabank to cover the debt security “GAP 15” for Ps. 2,200,000 were not entered into for speculative purposes, but neither were formally designated and therefore did not qualify as hedging instruments for accounting purposes and as a result changes in their fair value and are recognized in profit or loss within finance cost. The financial instruments with Scotiabank to cover the debt securities “GAP 17-2” and “GAP 19” were entered into for speculative purposes and were formally designated and therefore did qualify as hedging instruments for accounting purposes and as a result changes in their fair value are recognized in OCI and profit or loss in the financial instrument of cash flow hedges reserve.

The main characteristics and the fair value of these derivatives as of December 31, 2017, 2018 and 2019 are as follows:

	Notional amount (millions)			Hedge start date	Rate	Floor			CAP 1			CAP 2			Due date	Fair value as of December 31, 2017
HSBC	USD	$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	January 2021	Ps.	16,442
HSBC	USD	$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	February 2021		16,753
Scotiabank	Ps.		2,200.0	April 2016	TIIE 28		4.05	%		5.75	%		6.75	%	February 2021		37,577
HSBC	Ps.		1,500.0	May 2017	7.21%		—			—			—		March 2022		36,043
Total																Ps.	106,815

F-53

	Notional amount (millions)			Hedge start date	Rate	Floor			CAP 1			CAP 2			Due date	Fair value as of December 31, 2018
HSBC	USD	$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	January 2021	Ps.	25,572
HSBC	USD	$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	February 2021		26,369
Scotiabank	Ps.		2,200.0	April 2016	TIIE 28		4.05	%		5.75	%		6.75	%	February 2020		24,257
HSBC	Ps.		1,500.0	May 2017	7.21%		—			—			—		March 2022		60,259
Total																Ps.	136,457

	Notional amount (millions)			Hedge start date	Rate	Floor			CAP 1			CAP 2			Due date	Fair value as of December 31, 2019
HSBC	USD	$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	January 2021	Ps.	667
HSBC	USD	$	95.5	March 2016	Libor 30		0.42	%		1.75	%		2.75	%	February 2021		619
Scotiabank	Ps.		2,200.0	April 2016	TIIE 28		4.05	%		5.75	%		6.75	%	February 2020		3,400
Total																Ps.	4,686
HSBC	Ps.		1,500.0	May 2017	7.21%		—			—			—		March 2022	Ps.	(17,998	)
Scotiabank	Ps.		2,300.0	February 2019	8.0315%		—			—			—		November 2022		(86,998	)
Scotiabank	Ps.		3,000.0	February 2019	8.03%		—			—			—		March 2024		(160,983	)
Total																Ps.	(265,979	)

For the years ended December 31, 2017 and 2018 a gain of Ps. 34,361 and Ps. 29,642 respectively, were recognized within finance income as income of the period, due to the net income of the period for its extrinsic value presented net within the finance cost line and on December 31, 2019, an amount of Ps. 149,770 was recognized, as a net expense of the period for the extrinsic value, being presented net within the finance cost line. No amount has been recognized within other comprehensive income items during the year ended December 31, 2017 and 2018, due to the intrinsic value of the coverage. As of December 31, 2019, Ps. 172,094 has been recognized in the reserve for the loss of the fair value of the coverage for cash flow hedges of the “GAP 17-2” and “GAP 19” certificates.

On March 4, 2016, started the hedge of the variable interest rate generated. During 2019, coverage was used because the 30-day Libor exceeded the CAP 1 of 1.75%. As of December 31, 2018 and 2019, the Company recognized an income of Ps. 9,919 and Ps. 19,275, respectively, for the application of coverage in the comprehensive financing result in the interest line.

On April 1, 2016, started the hedge of the variable interest rate generated. During 2019, coverage was used because the 28-day TIIE rate exceeded the CAP 1 of 5.75%. As of December 31, 2017, 2018 and 2019, the Company recognized an income of Ps. 19,607, Ps. 22,856 and Ps. 22,305, respectively, in favor of the Company for the application of the coverage because the fixed rate agreed in the SWAP was lower than the TIIE.

On May 4, 2017, started the hedge of the variable interest rate generated by the debt securities issued in April 2017; These debt securities were placed at a 28-day TIIE variable rate plus 49 basis points, so a SWAP was contracted to convert it to a fixed rate of 7.21%. As of December 31, 2018 and 2019 an amount of Ps. 11,517 and Ps. 17,300 respectively, was recognized a finance income in favor of the Company for the application of the hedge, because the fixed rate contracted in the SWAP was lower than the TIIE.

On February 26, 2019, started the hedge of the variable interest rate generated by the debt securities issued in November 2017; These debt securities were placed at a 28-day TIIE variable rate plus 44 basis points, so a SWAP was contracted to convert it to a fixed rate of 8.0315%. As of December 31, 2019 an amount of Ps. 6,450 was recognized as a finance income in favor of the Company and Ps. 559 were recognized to finance cost for the application of the hedge, because the fixed rate contracted in the SWAP was lower than the TIIE.

On February 27, 2019, started the hedge of the variable interest rate generated by the debt securities issued in March 2019; These stock certificates were placed at a 28-day TIIE variable rate plus 45 basis points, so a SWAP was contracted to convert it to a fixed rate of 8.03%. As of December 31, 2019 an amount of Ps.6,828 was recognized as a finance income in favor of the Company and Ps. 725 were recognized to finance cost for the application of the hedge, because the fixed rate contracted in the SWAP was lower than the TIIE.

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17. BankLoans and issuance of Debt Securities

a. Bank Loans

During 2015, the Company obtained loans to finance the acquisition of 100% of the shares of the DCA Company with BBVA and Bank of Nova Scotia, which were refinanced later. With the acquisition of MBJA, the Company assumed loans previously hired by MBJA. All the loans contracted with banking institutions and third parties are described below with the unpaid balance at each date.

	December 31 2017			December 31 2018		December 31 2019
On September 14, 2007, MBJA signed a simple unsecured loan,    with the International Finance Corporation (IFC) for up to    USD$20 million. The loan bears interest at a variable rate    of 6 month Libor plus 392  basis points, for a period of    12 years from this disposition and semi-annual instalments.    The loan was settled on August 2018.	Ps.	148,014		Ps.	-	Ps.	—
MBJA signed a simple unsecured loan with its shareholder    Vantage in June 2007 for USD$10,936,000, which is    repayable at the same maturity date as the IFC´s    loans but are subject to restrictions. Interest is    accrued at an interest rate of 14% per annum.    The loan does not have an expiration date nor    an amortization schedule.		215,843			215,269		206,107
In February 2009, MBJA signed a simple unsecured loan    with its shareholder Vantage for    USD$510,000 to finance expenses related to a    construction project of MBJA. The interest rate    was set at 8%. The loan does not have an expiration    date nor an amortization schedule.		10,065			10,038		9,610
On December 12, 2012, MBJA signed a simple unsecured loan    with IFC for USD$13 million. The loan bears interest at a    variable rate of six month Libor plus 450 basis points,    for a period of 5 years from each disposition.    The loan was settled on August 2018.		73,504			—		—
In 2014 MBJA signed two finance lease arrangements, one    with SITA Information Networking Computing BV for    USD$1,792,096, for equipment and the other with    SITA Information Networking BV. USA for software support    for USD$1,231,858. Both leases are for seven years    with a fixed interest rate of 8% per annum. The monthly    lease payment totals USD$47,132.    The loans were settled on August 2018.		35,370			—		—
On January 19, 2016, GAP refinanced with Bank of Nova    Scotia the simple unsecured loan contracted previously    in the short term for amount of USD $95.5 million,    with a five-year maturity. The loan bears interest at Libor    1M plus 99 basis points.		1,884,731			1,879,717		1,799,717
On February 15, 2016, GAP refinanced with BBVA Bancomer    the simple unsecured loan contracted previously in the short    term for amount of USD $95.5 million, with a five-year    maturity. The loan bears interest at Libor 1M plus 105    basis points.		1,884,731			1,879,717		1,799,717
On December 28, 2017, MBJA signed a simple unsecured loan with The    Bank of Nova Scotia Jamaica Limited for USD$40,000,000. The loan bears    interest at Libor 1M plus 280 basis points for a period of 7 years from this    disposition and semi-annual instalments. As of December 31, 2019 the    balance amounted to USD$33.0 million.		—			551,122		621,891
Total unpaid balance of bank loans and long-term debt		4,252,258			4,535,863		4,437,043
Less - Current portion		(141,412	)		—		—
Long-term portion	Ps.	4,110,846		Ps.	4,535,863	Ps.	4,437,043

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b) Issuance of Debt Securities

	December 31 2017		December 31 2018		December 31 2019
Unsecured debt securities issued in the Mexican    market on February 20, 2015, for Ps. 1,100,000    under the "GAP 15" name, at a variable interest    rate of 28-day TIIE plus 24 basis points for a    period of five years, maturing on February 14,    2020. On January 29, 2016, the first reopening    was made the long-term debt securities GAP 15    for the total Ps. 1,100,000. It has the same maturity    as the originally and accrue the same interest rate.    As of December 31, 2019, the TIIE rate is 7.5555%.	Ps.	2,200,000	Ps.	2,200,000	Ps.	2,200,000
Unsecured debt securities issued in the Mexican market    on February 20, 2015, for Ps. 1,500,000 under the name    "GAP 15-2" at a fixed annual interest rate of 7.08% over    a period of 10 years, maturing on February 7, 2025.		1,500,000		1,500,000		1,500,000
Unsecured debt securities issued in the Mexican market    on July 8, 2016, for Ps. 1,500,000 under the "GAP 16"    name, at a variable interest rate of 28-day TIIE plus 49    basis points for a period of five years. As of December    31, 2019, the TIIE rate is 7.5555%.		1,500,000		1,500,000		1,500,000
Unsecured debt securities issued in the Mexican market    on April 6, 2017, for Ps. 1,500,000 under the "GAP 17"    name, at a variable interest rate of 28-day TIIE plus 49    basis points for a period of five years. As of December    31, 2019, the TIIE rate is 7.5555%.		1,500,000		1,500,000		1,500,000
Unsecured debt securities issued in the Mexican market    on November 9, 2017, for Ps. 2,300,000 under the "GAP    17-2" name, at a variable interest rate of 28-day TIIE plus    44 basis points for a period of five years. As of December    31, 2019, the TIIE rate is 7.5555%.		2,300,000		2,300,000		2,300,000
Unsecured debt securities issued in the Mexican market on    March 29, 2019, for Ps. 3,000,000 under the "GAP 19" name, at a    variable interest rate of 28-day TIIE plus 44 basis points for a period    of five years. As of December 31, 2019, the TIIE rate is 7.5555%.		—		—		3,000,000
Total unpaid balance of bank loans and long-term debt		9,000,000	Ps.	9,000,000	Ps.	12,000,000
Less - Current portion		—	Ps.	—	Ps.	(2,200,000	)
Long-term portion	Ps.	9,000,000	Ps.	9,000,000	Ps.	9,800,000

The proceeds in 2017 from the issuance of the long-term debt securities were allocated to finance capital investments set forth in the Master Development Program  for the Mexican Airports of Ps. 3,800,000. Issuance expenses of Ps.9,313 were recognized.

The proceeds in 2019 from the issuance of the long-term debt securities were allocated to finance capital investments set forth in the Master Development Program for the Mexican Airports of Ps. 3,000,000. Issuance expenses of Ps.7,183 were recognized.

The long-term debt previously described, matures as follows:

Year	Amount
2020	Ps.	2,200,000
2021		5,223,812
2022		3,924,378
2023		124,378
2024		3,124,378
Thereafter		1,840,097
	Ps.	16,437,043

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As of December 31, 2017, 2018 and 2019, debts are payable by the following companies:

	At December 31, 2017
Company	Current		Long-Term		Total
GAP	Ps.	—	Ps.	12,769,461	Ps.	12,769,461
MBJA		141,412		341,385		482,797
Total	Ps.	141,412	Ps.	13,110,846	Ps.	13,252,258

	At December 31, 2018
Company	Current		Long-Term		Total
GAP	Ps.	—	Ps.	12,759,435	Ps.	12,759,435
MBJA		—		776,428		776,428
Total	Ps.	—	Ps.	13,535,863	Ps.	13,535,863

	At December 31, 2019
Company	Current		Long-Term		Total
GAP	Ps.	2,200,000	Ps.	13,399,433	Ps.	15,599,433
MBJA		—		837,610		837,610
Total	Ps.	2,200,000	Ps.	14,237,043	Ps.	16,437,043

The loan agreements limit the Company’s use of proceeds for the financing of capital expenditures, working capital and prepayments of loans, in addition to prohibiting the merger of the airport creditors with any other entity, as well as the prohibition of sales or transfers of assets in an amount greater than Ps. 1,000, without previous authorization from the creditors and requires the Company to maintain certain financial ratios which have been fulfilled. If the individual airports are unable to fulfill their commitments and maintain the minimum financial ratios under the credit agreements, dividends cannot be declared.

As a result of the issuance of the debt securities, the Company has covenants which have been fulfilled during 2017, 2018 and 2019. The principal payment of the debt securities will be made at the end of the contractual term. Direct costs incurred in the issuance or incurrence of debt are deferred and amortized as part of interest expense, using the effective interest rate over the term of each transaction. These costs include commissions and professional fees.

c) Reconciliation of liabilities arising from financing activities

						Non-cash changes
	Balance as of January 1, 2019			Repayments on bank loans		Proceeds from issuance of Debt securities		Proceeds from Debt long-term		Exchange effects			Long-term reclassification			Fair value adjustments
Debt securities current portion	Ps.	—		Ps.	—	Ps.	—	Ps.	—	Ps.	—		Ps.	2,200,000		Ps.	—
Long-term borrowings		4,535,863			—		—		96,308		(195,128	)		—			—
Debt securities		9,000,000			—		3,000,000		—		—			(2,200,000	)		—
Derivative financial instruments    (Note 16)		(136,457	)		—		—		—		—			—			397,750
Total	Ps.	13,399,406		Ps.	—	Ps.	3,000,000	Ps.	96,308	Ps.	(195,128	)	Ps.	—		Ps.	397,750

18. Retirement employee benefits

a. Defined contribution plans – Under Mexican legislation, the Company makes payments equivalent to 2% of its workers’ daily comprehensive salary to a defined contribution plan that is part of the retirement savings system. The expense was Ps. 6,001,       Ps. 7,162 and Ps. 8,016 in 2017, 2018 and 2019, respectively.

In Jamaica, the Company operates a defined contribution pension plan, which is managed by an independent trust. The Company has no further obligation other than its contribution mandated under the plan. The pension plan is financed primarily by payments from employees and the Company.

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b. Defined benefit plans – According to the Federal Labor Law in Article 162, the Company is required to pay in Mexico a seniority premium as postemployment benefits if an employee leaves and if have at least 15 years of service, which consist of a payment of 12 days per worked year based on the last salary, not to exceed twice the legal minimum wage established by law. The present value of the retirement benefit obligation and the current service cost and past service costs were calculated by independent experts using the projected unit credit method.

The defined benefit plans in Mexico usually expose the Company to actuarial risks such as: interest rate risk, longevity risk and salary risk.

Interest risk	A decrease in the interest rate bond will increase the plan liability.
Longevity risk	The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of the plan participants, during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.
Salary risk	The present value of the defined benefit plan liability is calculated by reference to the future salaries of the plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.

The amount included in the statement of financial position arising from the obligation of the entity for defined benefit plans on December 31, 2017, 2018 and 2019 is as follows:

	2017		2018		2019
Present value of defined benefit obligations	Ps.	112,980	Ps.	120,606	Ps.	144,743

The table below shows the movements in the present value of defined benefit obligations:

	2017		2018			2019
Opening defined benefit obligation	Ps.	92,575	Ps.	112,980		Ps.	120,606
Plan modifications		—		—			956
Current service cost		9,459		12,775			13,152
Interest cost		8,344		8,907			12,048
Actuarial gains		—		(3,359	)		(115	)
Cost per service passed for    modification or reduction		—		(10,858	)		—
New measurement (gains) / losses:
Actuarial losses resulting from changes in    financial and demographic assumptions		2,602		161			1,404
Benefits paid		—		—			(3,308	)
Ending defined benefit obligation	Ps.	112,980	Ps.	120,606		Ps.	144,743

Below are the amounts for the years ended December 31, 2017, 2018 and 2019 that were recognized in the consolidated statements of profit or loss and other comprehensive income:

	2017		2018			2019
Current service labor cost	Ps.	9,459	Ps.	12,775		Ps.	13,152
Interest cost		8,344		8,907			12,048
Actuarial gains		—		(3,359	)		(115	)
Cost per service passed for modification or reduction		—		(10,858	)		—
Cost per service for plan modification		—		—			956
Benefits paid		—		—			(3,308	)
Components of defined benefit costs recognized in net income    (Note 24)		17,803		7,465			22,735
Measurement of net defined benefit liability:
Actuarial losses arising from changes in financial    and demographic assumptions recognized in other    comprehensive income		2,602		161			1,404
Total recognized as employee benefit cost	Ps.	20,405	Ps.	7,626		Ps.	24,139

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The main actuarial assumptions at the reporting date (expressed as weighted average nominal rates) are shown below:

	2017	2018	2019
Discount of the projected benefit obligation at present value	7.6%	9.2%	7.4%
Salary increase	5.0%	6.0%	6.8%
Remaining labor life	17.7 years	18.6 years	17.6 years
Inflation	4.2%	6.7%	6.0%

The discount rate is determined based on the structure of the interest rate curve of government bonds for 30 years. The net interest cost on the retirement benefit obligation is recorded in profit and loss within the cost of services, in conjunction with the other components of liabilities for retirement benefits.

If the discount rate had a variation of 100 basis points upward or downward, the effect on the liability for retirement benefits would be impacted by Ps. 12,377.

Assumptions related to expected mortality are based on statistics and experience of the Mexican population. The average life expectancy of an individual retiring at age 65 is 17 years for men and 19 years for women (Demographic Mortality Experience for Active people, EMSSA 2009).

19. Equity

a. As of December 31, 2017, common stock consists of the following:

	Number of shares		Nominal value
Fixed Capital
Series B		476,850,000	Ps.	7,674,179
Series BB		84,150,000		1,354,267
Total		561,000,000	Ps.	9,028,446

As of December 31, 2018, common stock consists of the following:

	Number of shares		Nominal value
Fixed Capital
Series B		476,850,000	Ps.	6,610,939
Series BB		84,150,000		1,166,637
Total		561,000,000	Ps.	7,777,576

As of December 31, 2019, common stock consists of the following:

	Number of shares		Nominal value
Fixed Capital
Series B		476,850,000	Ps.	5,257,319
Series BB		84,150,000		927,763
Total		561,000,000	Ps.	6,185,082

As of December 31, 2019, all shares are fully subscribed and paid. The Company’s shares are represented by common ordinary shares and without nominal value. Series “BB” shares, which may represent up to 15% of common stock, may only be transferred upon prior conversion into Series “B” shares, based on certain time restrictions.

F-59

Each share of Series “B” and “BB” gives the holder the right to one vote at any Ordinary Shareholders’ Meeting. According to the Company’s bylaws, shareholders of Series “B” shares either individually or jointly with their related parties, cannot hold more than 10% of the total outstanding common stock of the Company, and therefore are prohibited from exceeding such limits by participating through trusts, agreements, social pacts or bylaws, pyramid schemes or any other mechanism that provides a larger share than legally allowed. Additionally, the Company’s bylaws provide that if a person individually or jointly with its related parties, acquires a percentage of shares exceeding the limits of participation previously mentioned, the person or group of persons will be required to sell the excess over what is allowed through a public offering, during which time, the shares owned over the 10% threshold by such individuals will not have voting rights and cannot be represented in any Stockholder Meeting. Furthermore, the shareholders of Series “BB” shares, either individually or jointly with their related parties, may also be owners of shares of Series “B” shares, regardless of the shares they hold in the aggregate of Series “B” and Series “BB”.  However, for those shareholders of the Series “BB” shares, their votes will be limited to no more than 10% of the voting common stock, and any additional participation is required to vote in the same way of the majority of the votes in any Stockholder Meeting.

Shareholders of Series “BB” shares are entitled to elect four members to the board of directors and their alternates, whereas shareholders of Series “B” shares with rights to vote, even limited or restricted, that individually or together owning 10% or more of the Company’s capital stock is entitled to elect one member to the board of directors at aShareholders’ Meeting, and in such instances, such a shareholder or group of shareholders may not exercise the right to vote for the board members corresponding to the majority. If any shareholder or group of shareholders representing at least 10% of the common shares of which the common stock is comprised, exercises the right to appoint a board member, such a shareholder will not have the right to vote in the designation of the board members that correspond to appointment by the majority of Series “B” shareholders. The total number of members of the Board of Directors of the Company is 11, therefore holders of Series “B” shares have the right to appoint only seven members.

The members of the Board of Directors appointed by the Shareholders of the Series “BB” will have the ability to make the following valid designations: (i) upon consultation with the Company’s Nomination and Compensation Committee, appointment and dismissal of the Chief Executive Officer and the top-level executive officers; (ii) appointment of three of the six members of the Operating Committee and three alternates, and the number of members and their alternates to the Audit Committee, including the acquisition, nominations and compensation corresponding to 20% (twenty percent) of the total members, with the understanding that there will be at least one member and alternate, for each of them, iii) in the creation and  determination of the Operating Committee whom are not part of the Company, members of the Board of Directors or the Company's officers.

For the Audit Committee, is complying with the legal restrictions of independence.

b. In an Ordinary Shareholders’ Meeting held on April 25, 2017, the Shareholders approved a dividend payment of Ps. 5.72 per outstanding shares on the date of each payment, excluding shares repurchased in accordance with Article 56 of the Securities Market Law. The first payment for Ps. 2.86 per outstanding share was made on August 14, 2017 of Ps. 1,503,146 and the second payment for Ps. 2.86 per outstanding share was on November 16, 2017 of Ps. 1,503,146. In the same Shareholders’ meeting the reserve for repurchase of shares approved at the Shareholders´ Meeting held on April 26, 2016 of Ps. 950,000 was canceled, and simultaneously the Shareholders approved a maximum amount of Ps. 995,000 for the reserve for repurchase of shares to be executed in the next twelve-month period, in case that this will be determinate convenient or necessary by the management of the Company.

c In a General Extraordinary Shareholders’ Meeting held on April 25, 2017, the Shareholders approved a capital reduction of Ps. 3.33 per outstanding shares for a total of Ps. 1,750,167. The payment was made on May 8, 2017.

d. In an Ordinary Shareholders’ Meeting held on April 25, 2018, the Shareholders approved a dividend payment of Ps. 7.62 per outstanding shares at the date of each payment, excluding shares repurchased in accordance with Article 56 of the Securities Market Law. The first payment for Ps. 3.81 per outstanding share was made on August 21, 2018 of Ps. 2,002,443 and the second payment for Ps. 3.81 per outstanding share was on November 20, 2018 of Ps. 2,002,443. In the same Shareholders’ meeting the reserve for repurchase of shares approved at the Shareholders´ Meeting held on April 25, 2017 of Ps. 995,000 was canceled, and simultaneously the Shareholders approved a maximum amount of Ps. 1,250,000 for the reserve for repurchase of shares to be executed in the next twelve-month period, in case that this will be determinate convenient or necessary by the management of the Company.

e. In a General Extraordinary Shareholders’ Meeting held on April 25, 2018, the Shareholders approved a capital reduction of Ps. 2.38 per outstanding shares for a the total of Ps. 1,250,870. The payment was made on May 11, 2018.

f. In an Ordinary Shareholders’ Meeting held on April 23, 2019, the shareholders approved a dividend payment of Ps. 8.42 per outstanding shares at the date of each payment, excluding shares repurchased in accordance with Article 56 of the Securities Market Law. The first payment for Ps. 4.21 per outstanding share was made on August 29, 2019 of Ps. 2,212,673 and the second payment for Ps. 4.21 per outstanding share was on November 20, 2019 of Ps. 2,212,673. In the same Shareholders´ meeting the reserve for repurchase of shares approved at the  Shareholders´ Meeting held on April 25, 2018 of Ps. 1,250,000 was canceled, and simultaneously the Shareholders approved a maximum amount of Ps. 1,550,000 for the reserve for repurchase of shares to be executed in the next twelve-month period, in case that this will be determinate convenient or necessary by the management of the Company.

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g. In a General Extraordinary Shareholders’ Meeting held on April 23, 2019, the shareholders approved a capital reduction of Ps. 3.03 per outstanding shares for a the total of Ps. 1,592,494. The payment was made on May 17, 2019.

h. General Corporate Law requires that at least 5% of the unconsolidated net income of the year, be transferred to the legal reserve until the reserve equals 20% of capital stock at par value (nominal pesos). The legal reserve may be capitalized but may not be distributed, except in the form of stock dividends, until the entity is dissolved. The legal reserve must be replenished if it is reduced for any reason. As of December 31, 2017, 2018 and 2019, the legal reserve, in nominal pesos, was Ps. 1,119,029, Ps. 1,345,709 and Ps. 1,592,551, corresponding to 12.4%, 17.3% and 25.7%, of the common stock, respectively.

i. As of December 31, 2019, the Company has a maximum amount of funds approved to repurchase shares of the Company for       Ps. 3,283,374. From the approved amount, 35,424,453 shares have been repurchased for a total of Ps. 1,733,374, corresponding to repurchases made from September 2010 to February 2014. The remaining balance of Ps. 1,550,000 is available to repurchase shares. During 2019 no repurchase of shares was carried out.

j. Shareholders’ equity distribution, except for the restatement amounts of the common stock contributed and the Net tax income account, will be subject to an ISR tax, calculated at the tax rate applicable to the distribution year. This corporate level dividend income tax on the distribution of earnings may be applied as a credit against ISR corresponds to the fiscal year in which the dividend was paid and the subsequent two fiscal years following the date in which the dividend was paid. Starting in 2014, dividends distributed to shareholders that originate from tax retained earnings generated from 2014 and later, will generate an additional withholding tax of 10% that is directly attributable to non-Mexican and individual shareholders receiving the dividend.

k. The balances of Shareholders’ equity tax accounts as of December 31, 2017, 2018 and 2019 were as follows:

	2017		2018		2019
Contributed capital account	Ps.	26,519,004	Ps.	26,503,103	Ps.	25,621,413
Net tax income account		4,111,601		4,548,882		4,840,176
Stockholders equity tax account	Ps.	30,630,605	Ps.	31,051,985	Ps.	30,461,589

l. In years 2017, 2018 and 2019 the balance of other comprehensive income consists of the reserve for foreign currency translation of DCA, MBJA and PACKAL from functional currency (euro and US dollar respectively) to the reporting currency (Mexican peso), the effects of the remeasurements of the employee benefit, the net income tax and the reserve for cash flow hedges financial instruments.

20. Non-controlling interest (NCI)

On April 20, 2015 the Company acquired 100% of the shares of DCA, which owns 74.5% of the shares of MBJA and the remaining 25.5% is hold by Vantage, as a non-controlling shareholder.

On March 23, 2017, the Board of Directors of MBJA approved to declare dividends from retained earnings in the amount of USD$26.0 million, which was distributed to DCA USD$19.37 million (Ps. 377,603 an exchange rate of Ps. 19.4942) and Vantage USD$6.63 million (Ps. 129,247 an exchange rate Ps. 19.4942), which were paid on January 22, 2018. The payment of this dividend corresponds to the dividends payable as of December 31, 2017 in the consolidated statement of financial position.

On June 12, 2018, the Board of Directors of MBJA approved to declare dividends from retained earnings in the amount of USD$30.0 million, which was distributed to DCA USD$22.35 million (Ps. 424,907 an exchange rate of Ps. 19.0115) and Vantage USD$7.65 million (Ps. 145,438 an exchange rate Ps. 19.0115) and were paid on September 27, 2018.

On December 4, 2019, the Board of Directors of MBJA approved to declare dividends from retained earnings in the amount of USD$30.0 million, which was distributed to DCA USD$22.35 million (Ps. 428,639 an exchange rate of Ps. 19.1785) and Vantage USD$7.65 million (Ps. 146,715 an exchange rate Ps. 19.1785) and were paid on December 16, 2019.

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The following table summarizes the information relating to DCA that has material NCI, before any intra-group elimination as of December 31:

	2017			2018			2019
NCI percentage	25.5%			25.5%			25.5%
Non-current assets	Ps.	5,610,289		Ps.	5,924,963		Ps.	5,683,939
Current assets		1,505,069			784,583			746,038
Non-current liabilities		(1,840,532	)		(2,041,456	)		(1,847,337	)
Current liabilities		(1,162,848	)		(498,817	)		(499,225	)
Net assets		4,111,978			4,169,273			4,083,415
Net assets attributable to NCI	Ps.	1,048,554		Ps.	1,063,165		Ps.	1,041,271

	2017			2018			2019
Revenues	Ps.	1,852,687		Ps.	2,509,511		Ps.	2,413,596
Profit		321,416			397,110			370,943
OCI		(225,169	)		(103,569	)		(260,464	)
Total comprehensive income		96,247			293,541			110,479
Profit allocated to NCI		81,961			101,263			94,590
OCI allocated to NCI	Ps.	(31,635	)	Ps.	(2,889	)	Ps.	(19,813	)

	2017			2018			2019
Net cash provided by operating activities		625,619			772,358			673,696
Net cash provided by investment activities		(122,417	)		(642,014	)		(69,268	)
Net cash used in financing activities		(202,264	)		(137,040	)		(124,059	)
Net increase (decrease) in cash and cash equivalents	Ps.	300,938		Ps.	(6,696	)	Ps.	480,368

21. Revenues

According to the General Law on Airports and its regulations in Mexico, certain of the Company’s revenue are classified as airport, complementary and commercial services. Airport services generally include the use of airport runways, taxiways and parking areas for arriving and departing planes, use of passenger walkways, security services, hangars, and, in general, use of the space inside the terminal and other infrastructure by aircraft, passengers and cargo services. These services include rental of space that is vital for the operation of airlines and complementary service suppliers. Complementary services are ramps and handling services, catering, maintenance and repairs, and traffic and dispatch services. Commercial services include services that are not essential for the operation of an airport; therefore, these revenues are not regulated by MT, such as car parking services, lease of space to retailers, restaurants and banks, among others. The revenues of the subsidiaries MBJA and PACKAL have the same classification, therefore consolidated in the area that correspond to the numbers of airports in Mexico.

A price regulation system establishes in Mexico a MT rate for airport services and complementary services for each airport for each year in a five-year period. The maximum rate is the maximum amount of revenues per “workload unit” that may be earned at an airport each year from regulated sources. Under this regulation, a workload unit is equivalent to one passenger (excluding transit passengers) or 100 kilograms (220 pounds) of cargo. As of December 2014, SCT authorized the Company’s maximum rates applicable for the period 2015-2019.

The maximum rates of the Montego Bay Airport, were approved in November 2014 and are applicable from April 1, 2015 to December 31, 2019.  

The maximum rates of the Kingston Airport applied from October to December, 2019, were approved by AAJ, and are applicable until March 31, 2020.

During the periods ended December 31, 2017, 2018 and 2019, compliance with the TM by the Company’s Mexican airports was 100.0% for the three years.

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The table below presents a summary for the years ended December 31, 2017, 2018 and 2019, of the Company’s revenues (these do not include revenues related to improvements to concession assets under IFRIC 12). Using the Airports Law classification, the information is sent to the SCT to comply with the Company’s reporting obligations with respect to regulated and unregulated revenues, which are classified as either aeronautical or non-aeronautical revenues.  For this presentation, access fees charged to third parties for complementary services are classified as airport services.

	2017		2018		2019
Regulated revenues
Airport operating services to airlines:
Landing	Ps.	681,096	Ps.	783,098	Ps.	862,759
Charges for not canceling extended stay reservations		2,207		9,605		9,065
Parking on embarking/disembarking platform		72,158		83,326		87,740
Parking on extended stay or overnight platform		61,722		72,313		86,693
Passenger walkways and shuttle buses		34,795		36,688		38,745
Airport security charges		181,304		207,449		263,436
Airport real estate services to airlines:
Leasing of hangars to airlines		24,574		30,228		28,230
Leasing of shops, warehouses and stockrooms to airlines (operating)		4,040		4,229		5,962
Leasing of space and other terminal facilities to airlines within the terminal    (operating)		56,100		58,893		63,545
Leasing of land and other surfaces to airlines outside the terminal (operating)		5,602		7,734		12,254
Leasing of check-in desks and other terminal space		575		445		1,794
Leasing of desks and other terminal space for ticket sale		7,866		9,063		7,817
Airport passenger services:
Domestic passenger charges		3,054,639		3,802,763		4,151,565
International passenger charges		3,696,147		3,950,085		4,437,701
Airport real estate services and rights of access to other operators		34,688		38,330		44,768
Complementary services:
Catering services		24,893		31,733		26,110
Other third-party ramp services rendered to airlines		50,775		68,244		99,694
Traffic and/or dispatch		58,954		57,276		51,769
Fuel supply or removal		216,600		238,178		257,774
Third-party airplane maintenance and repair		11,787		9,474		10,299
Total regulated revenues included in the maximum rate		8,280,522		9,499,154		10,547,720
Regulated revenues not included in the maximum rate:
Car parking charges		277,229		320,448		368,750
Recovery of cost over aeronautical services		157,211		153,409		175,028
Recovery of cost over non-aeronautical services		43,034		47,480		60,947
Total regulated revenues not included in the maximum rate		477,474		521,337		604,725
Total regulated revenues		8,757,996		10,020,491		11,152,445

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	2017		2018		2019
Unregulated revenues(1)
Commercial concessions:
Retail operations		201,683		221,860		265,249
Food and beverages		163,925		193,971		316,310
Duty free		343,847		423,904		501,252
VIP lounges		36,945		39,884		53,610
Financial services		40,586		47,618		49,302
Communications and networks		11,927		14,479		16,045
Car rentals		205,992		270,698		346,503
Commercial leasing		16,579		12,338		11,677
Advertising		168,573		193,656		211,856
Time sharing developers		186,652		196,152		221,928
Leasing of space to airlines and other complementary service providers    (non-operating)		123,568		126,791		136,633
Lease outside the terminal		47,730		58,259		59,959
Convenience store		84,436		100,325		158,262
VIP Lounges operated directly		154,737		222,736		273,354
Royalties		4,700		6,823		7,203
Revenues from sharing of commercial activities:
Retail operations		113,175		123,134		115,630
Food and beverages		112,350		142,991		166,198
Duty free		53,709		44,407		26,085
Financial services		17,386		19,650		22,267
Car rentals		28,790		39,556		32,080
Access fee for ground transportation		75,938		82,730		92,833
Non-airport access fees		73,622		37,067		36,270
Other leases		11,706		24,445		23,285
Services rendered to ASA		276		93		132
Various commercial-related revenues		16,599		18,628		22,852
Total unregulated revenues		2,295,431		2,662,195		3,166,775
Total aeronautical and non-aeronautical services	Ps.	11,053,427	Ps.	12,682,686	Ps.	14,319,220

⁽¹⁾ Unregulated revenues are earned based on the terms of the Company’s operating lease agreements. Lease agreements are based on either a monthly rent (which generally increases each year based on the National Consumer Price Index (INPC) in Mexico and based on the CPI or the greater of a monthly minimum guaranteed rent or a percentage of the lessee’s monthly revenues. Monthly rent and minimum guaranteed rent earned on the Company’s operating lease agreements are included under the caption “Commercial concessions” above. Revenues earned in excess of the minimum guaranteed rent are included in the “Revenues from sharing of commercial activities” caption above (Note 33).

Revenues from improvements to concession assets are recognized with respect to the additions and improvements made for the Company, which are committed under the MDP, and is a requirement of fulfillment. Revenues for the years ended as of December 31, 2017, 2018 and 2019 accounted for Ps. 1,312,491, Ps. 1,440,204 and Ps. 1,906,801, respectively.

The revenues of the Company recognized as of December 31, 2017, 2018 and 2019 transferred at a point in time was Ps. 8,061,297, Ps. 9,265,776 and Ps. 10,306,453, respectively and the revenues for services transferred over time was Ps. 2,992,130, Ps.3,416,910 and Ps. 4,012,766, respectively, which originated from the leasing of commercial spaces.

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The revenues of the Company are measured based on the consideration specified in a contract with a client. The trade account receivable from clients corresponds to the total revenue of the Company of this note. The following table presents information on the nature and timing of satisfaction of performance obligations in contracts with customers, including significant payment terms, and the corresponding revenue recognition policy.

Type Contract	Nature and timing of service	Revenue recognition according IFRS 15	Revenue recognition according IAS 18
Aeronautical contracts with Airlines	The Company provides the facilities to serve the passengers and the price is determined based on Maximum Rates approved by the SCT and the JCAA in Jamaica and is assigned based on the service category (TUA, operational airport services, and real estate services to airlines and car parking).	Revenue is recognized monthly as the service is provided, based on the movement of passengers and aircraft associated with the type of service.	Revenue is recognized monthly as the service is provided based on the movement of passengers and aircraft associated with the type of service.
Complementary services	The Company provides the facilities to the client in order to render service and ground support to the airlines, based on the specific rates according to the aircraft and tariff for cargo volume.	Revenue assigned according to the type of service provided monthly when the service is performed over time.	Revenue assigned according to the type of service provided monthly when the service is performed over time.
Commercial concessions	The Company provides spaces within its terminal buildings that consist of the rental of the space in the airport terminals (different from the spaces occupied by the airlines that are essential for its operation), income from car parking, access fees to third parties that provide catering services and other services at airports, other miscellaneous income and royalties for the use of trademarks of the Company.	Revenues are recognized through operating lease agreements, and either with monthly fixed rent or a percentage of the lessee´s monthly revenues, whichever is higher. Rental income from the Company´s leases is recognized using a straight-line basis over the term of the relevant lease.	Revenues are recognized through operating lease agreements, and either with monthly fixed rent or a percentage of the lessee´s monthly revenues, whichever is higher. Rental income from the Company´s leases is recognized using a straight-line basis over the term of the relevant lease.

22. Cost of services

Cost of services for the years ended December 31,  2017,  2018 and 2019 were comprised of the following:

	2017		2018		2019
Employee cost (Note 24)	Ps.	663,360	Ps.	773,630	Ps.	877,068
Maintenance		505,352		528,929		578,510
Safety, security and insurance		317,023		386,079		428,208
Utilities		278,895		334,994		380,370
Other		345,777		430,090		480,708
	Ps.	2,110,407	Ps.	2,453,722	Ps.	2,744,864

23. Depreciation and amortization

Depreciation and amortization for the years ended December 31, 2017, 2018 and 2019 were comprised of the following:

	2017		2018		2019
Depreciation	Ps.	324,460	Ps.	400,205	Ps.	446,517
Amortization		1,119,102		1,169,432		1,329,620
	Ps.	1,443,562	Ps.	1,569,637	Ps.	1,776,137

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24. Employee Cost

Employee Cost for the years ended December 31, 2017, 2018 and 2019 was comprised of the following:

	2017		2018		2019
Wages and salaries	Ps.	453,452	Ps.	541,186	Ps.	605,708
Other remunerations		61,527		73,031		83,984
Social benefits		54,003		64,934		72,733
Severance payments		4,464		13,132		8,877
Labor union fees		16,991		17,673		18,420
Taxes on employee benefits		7,832		9,383		10,886
PTU		10,128		7,804		7,900
Retirement employee benefits		16,688		7,465		22,735
Others		38,275		39,022		45,825
	Ps.	663,360	Ps.	773,630	Ps.	877,068

25. Cost of improvements to concession assets

As disclosed in Note 3.o, in conformity with IFRIC 12, the Company must recognize the revenues and costs of additions and improvements to concession assets, which they are obligated to perform at the airports as established by the MDP. The cost for such additions and improvements to concession assets is based on actual costs incurred by the Company in the execution of the additions or improvements, considering the investment requirements in the MDP, through bidding processes, the Company contracts third parties to carry out such construction. The amount of revenues for these services are equal to the amount of costs incurred, as the Company does not obtain any profit margin for these construction services. The amounts paid are set at market value.

Cost of improvements to concession assets are comprised of the following as of December 31, 2017, 2018 and 2019:

	2017		2018		2019
Cost of improvements to concession assets	Ps.	1,312,491	Ps.	1,440,204	Ps.	1,906,801

26. Other (income) expense – net

Other (incomes) expenses are comprised of the following as of December 31, 2017, 2018 and 2019:

	2017			2018			2019
Recovery insurance	Ps.	(20,539	)	Ps.	(22,454	)	Ps.	(9,799	)
Sale of fixed assets		(5,070	)		(6,604	)		(3,927	)
Cancellation of non-exigible liabilities and provisions		(87,755	)		(36,949	)		-
Other income		(18,198	)		(21,727	)		(26,803	)
Total other income		(131,562	)		(87,734	)		(40,529	)

Repair of damage from natural disasters		6,514			771			3,536
Cost of retirement and disposal of fixed assets		17,684			12,158			4,513
Donation		20,066			—			5,000
Other expenses		3,377			1,653			28,692
Total other expenses		47,641			14,582			41,741
Other (income) expense  – Net	Ps.	(83,921	)	Ps.	(73,152	)	Ps.	1,212

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27. Finance cost – Net

The net finance (cost) income is comprised of the following for the years ended December 31, 2017, 2018 and 2019:

	2017			2018			2019
Interest income from cash equivalents	Ps.	354,439		Ps.	393,529		Ps.	464,499
Interest on recovered taxes		8,791			1,472			22,691
Gain on derivative financial instruments		34,361			115,938			97,449
Interests in favor of hedge		—			44,292			71,854
Other		23,144			21,463			9,336
Total finance income		420,735			576,694			665,829
Interest cost from bank loans		(124,438	)		(151,971	)		(177,504	)
Interest cost from hedges		—			—			(1,284	)
Loss in market value		—			(86,295	)		(247,219	)
Other financing costs		(18,394	)		(29,891	)		(23,967	)
Interest cost for debt securities		(476,375	)		(744,254	)		(975,772	)
Total finance cost		(619,207	)		(1,012,411	)		(1,425,746	)
Exchange gain		1,025,183			1,422,685			1,187,240
Exchange loss		(926,100	)		(1,223,001	)		(1,098,455	)
Exchange gain - Net		99,083			199,684			88,785
Finance cost - Net	Ps.	(99,389	)	Ps.	(236,033	)	Ps.	(671,132	)

28. Commitments

a. On December 16, 2014, the SCT authorized in Mexico the Company’s MDP for the five-year period from 2015-2019. The table below shows the investments to be made during this period, as approved by the SCT:

Year	Amount committed
2015	Ps.	1,412,232
2016		1,842,569
2017		1,157,684
2018		759,337
2019		306,792
	Ps.	5,478,614

The amounts committed above are expressed in pesos of purchasing power as of December 31, 2012.

On March 2016, 2017, 2018 and 2019 the Mexican Directorate General of Civil Aviation (DGAC) approved the compliance with MDP for 2015, 2016, 2017 and 2018, respectively.

b. On November 2014, the airport authority in Jamaica, approved capital investments to be made of USD$ 37,940,000 for the period April 2015 to March 2020. Compliance with MBJA capital investments must be made for the period rather than annually. During 2017, 2018 and 2019 capital investments were USD$768,832, USD$28,382,604 and USD$7,079,559, respectively. For PACKAL no capital investments were made during 2019.

c. On December 12, 2019, for Mexico´s airports, the SCT approved to the Company the MDP for the period 2020-2024. Below are shown the investments committed thru the period:

Year	Amount committed
2020	Ps.	6,739,392
2021		5,995,303
2022		5,396,186
2023		2,650,026
2024		1,050,798
	Ps.	21,831,705

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The amounts committed above are expressed in pesos of purchasing power as of December 31, 2017.

d. In the same way AAJ approved the committed investments of the MDP for USD$111.7 million for MBJA and USD$101.4 million for PACKAL, trough the 2020-2024 period.

29. Contingencies

a. Several municipalities have filed real estate tax claims against some airports in Mexico related to the land where the airports operate. Based on the opinion of its external legal counsel, the Company believes that there are no legal grounds for such claims. Therefore, the Company has initiated legal proceedings to invalidate the claims, and, where applicable, related foreclosures or other actions. Although no assurance can be given, the Company does not expect the resolutions to have any adverse effects on its financial position or profit or loss and other comprehensive income.

On November 26, 2014, the Tijuana municipal authority issued a requirement for payment of property tax for the period from 2000 to 2014 in the amount of Ps.  234,780, which was challenged again by the Company on December 19, 2014. A jurisdictional court granted the Company the suspension against acts of municipal authority establishing the amount of Ps.234,780 for a bond as collateral, which has been challenged by judgment of invalidity as the Company believes that in previous proceedings it is already guaranteed part of the amount set by the Court, on June 19, 2018 the bond was exhibited before the Municipal Authority of Tijuana, Baja California for the amount of Ps. 122,926, at the date of the consolidated financial statements, the judgment is currently to dictate the final sentence.

On October 28, 2019, Hermosillo municipal authority notified the Company of seven requirements for the payment of property tax, which together totals Ps.10,197, six of those are committed to ASA, even though were concession lands. The Company filled a proceeding for annulment, which was admitted on December 12, 2019 by the “State Court Administrative Justice”. To date, the said judgment is still pending to be resolved.

As the Company and its legal counsel believe that these tax claims are not in accordance with the law, the Company proceeded to file an annulment against the municipal authorities, which is pending resolution. Because, previous judgments in this and other airports have been resolved favorably for the Company, the Management and its legal counsel believe that no present obligation currently exist, therefore the Company has not recognized any provision regarding these matters.

b. In 1970, the Mexican Government expropriated a portion of land occupied by the Tijuana Airport, whereas in Guadalajara airport it occurred in 1975. Before such expropriations, a group of farmers called Ejido, one in Tijuana and others different in Guadalajara, owned these lands. The members of the Ejido have raised claims against the indemnity payments received from the Mexican Government and in Tijuana airport requested the reversion of the expropriation. During 2008, the Ejido Tampico in the Tijuana airport received an unfavorable resolution, which was appealed.  Subsequently the Ejido received a favorable resolution, which may affect the perimeter of the airport, due to the lack of information about the shape of the surface reverted in favor of the Ejido. To date of these consolidated financial statements, the judgment is still pending to be resolved.

In the case of the Guadalajara airport, the Ejido El Zapote and Santa Cruz del Valle presented an appeal with jurisdictional authorities against the SCT and the Reforma Agraria, regarding the expropriation decrees issued to build the airport.

In November 2010, the Court granted the protection of the federal justice to the Ejido El Zapote, in the Guadalajara airport, instructing to replace the administrative procedure of expropriation due to a lack of notification to these Ejidos and declared the ineligibility of the Concession granted to the Guadalajara airport in 1998, in reference to managing, operating and developing the airport facilities. On July 10, 2012, the Court revoked this resolution and ordered the reinstatement of the actions in order to obtain more documentary evidence, for the trial with the Ejido El Zapote. On July 31, 2014, the court issued a favorable ruling for the Ejido El Zapote, which was challenged by the Company. On April 14, 2016, the appellate Court determined conclusively that, while it was true that the right of the Ejido to contest the appraisal with which it was compensated had been violated, it also determined that the land could not be returned to the complainant Ejido, as "incongruous" the declaration of invalidity of the concession granted to the Guadalajara airport. On January 13, 2017 the la Secretaría de Desarrollo Agrario, Territorial y Urbano (SEDATU) issued an appraisal for the value of a portion of the land in which Guadalajara airport is based, related to the appeal previously mentioned. This appraisal was made based on the expropriation decree of 1975. On June 30, 2017, the Court determined that the appeal was accomplished once the Ejido group was informed of the appraisal made by the competent authorities.

This proceeding was challenged by the Ejido group and accepted by the Court which was instructed to review the appeal in order to state the possibility of achieving the final resolution and if this is not the case to refer the matter to the Supreme Court of Justice of the Nation (SCJN) for a resolution. The resolution is still pending. This being the case, on June 20, 2018, the Second Chamber of the SCJN resolved that on the basis of a regulatory instrument who should resolve the possibility or impossibility of complying with the writ of appeal is the Court itself, the Court thus ordered the return of the file. In response to the above, the District Judge opened the substitute compliance incident on August 10, 2018, which is pending resolution.

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In 2016, members of the Ejido Zapote blocked the access to the Guadalajara airport parking lot, representing a loss of commercial revenues of approximately Ps. 19,200. In 2017 and 2018 the Company had a loss in commercial revenues in the amount of Ps. 9,000 and Ps. 8,100 respectively, due to new blockades made by members of the Ejido Zapote. On November 17, 2019, members of the Ejido Zapote once again took over the parking lot, generating an additional loss of commercial revenues of approximately Ps. 20,500, from that date until December 31, 2019, plus the damage to the parking lot.

On February 17, 2017, the Company was notified of a new legal proceeding before an agrarian court instituted by El Zapote against the federal government. This proceeding alleges similar facts to the initial case and claims the same disputed property that was the subject of the initial case. This legal proceeding is in its initial phases, and the Company has joined as an interested third party.

As of the date of issuance of the consolidated financial statements, these procedures are still pending resolution.

Regarding the Ejido Santa Cruz del Valle the District Court determined the illegality of the expropriation decree against the Federal Government, which was confirmed by the Appellate Court. In July 2019, with the agreement of the authority, a judicial agreement was signed in its modality of substitute compliance in which the payment of a complementary constitutional compensation in favor of the ejido was agreed, which was paid by the Company and recognized as an investment of MDP of the Guadalajara airport. Through the agreement and execution of agreements, the Company regularized the lands that it had in possession and others that it had in possession, but that were in the original plane of the concession title. With this, the Company will be able to expand the operations of the Guadalajara airport.

On October 1, 2013, the Company received four summons for Grupo Aeroportuario del Pacífico, S.A.B. de C.V. and Puerto Vallarta airport and various Federal Authorities in connection with four legal proceedings filed by the participants in the Ejido Valle de Banderas. The Ejido is claiming restitution or payment as compensation in respect of 154 hectares of land comprising this airport, besides the partial cancellation of the concession granted to the Puerto Vallarta airport. On January 24, 2014, the first audience was held where the Ejido ratified the lawsuit and the Company demanded the suspension of this process due to the incompetence of jurisdiction, as a result, the audience was delayed for three days, in order to give time to the Ejido to provide a rebuttal.  The Company estimates that the court involved in this proceeding, located in the State of Nayarit, does not have jurisdiction, because the airport is located in the State of Jalisco, besides, this court is not competent to nullify an administrative act, as it is related to the concession's title. The Court declared competent the Agrarian Court of Nayarit, a sentence which was favorable but currently challenged by the Federal Court. As a result of the objection, the Federal Superior Court declared the court of Guadalajara, Jalisco, as competent in three of them. Two of the three procedures are before the agrarian court of Jalisco pending to resolve, the incompetence by subject. The third procedure is awaiting the referral of the proceedings to the Guadalajara Court and a fourth is still awaiting of the Agrarian Court of Nayarit for the last instance regarding jurisdiction over territory.

If the legal proceedings are resolved in such a way that adversely impact any of our airports, the Company´s management has other legal resources to challenge such resolutions. Additionally, under the Concession agreement, the Company has guarantees providing it with access to the airport's land, and the Mexican government would be liable for any operational disruption caused by the Ejidos and would have to restore to the concessionaire the rights to use public property and compensate any economic damage to the airport. Thus, in the opinion of the Company and its legal counsel, no present obligation currently exists, therefore the Company has not recognized any provision regarding this matter.

c. Federal, state and environmental protection laws regulate the Company’s operations. According to these laws, the passing of regulations relating to air and water pollution, environmental impact studies, noise control and disposal of dangerous and non-dangerous material has been considered. The Federal Environmental Protection Agency has the power to impose administrative, civil and criminal penalties against companies violating environmental laws. It is also entitled to close any facilities that do not meet legal requirements. As the date of the consolidated financial statements, the Company does not have any knowledge about sanctions against it.

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d. On June 17, 2015, the SCJN issued an amparoto the Company upholding the validity of Articles X and XII of the Company´s bylaws regarding the limitations on ownership of its capital stock. Consequently, the challenge initiated by Grupo México and ITM against these articles has been definitively concluded, with the ruling confirming the validity and effectiveness of these articles. On December 11, 2015, both parties were notified of the final judgment, ordering them to refer to the collegiate court of origin to the effect that the Second Civil Chamber of the High Court of Mexico City, who is ordered to confirm articles X and XII of the bylaws of the Company are valid based on Article 48, section III of the Mexican Securities Market Law. In February 2016, the Company was notified of the resolution issued by the Superior Court of Justice of Mexico City, pursuant to the judgment of the SCJN, which declared the validity of the Company's by-laws, which states that Grupo México, S.A.B. de C.V. and Infraestructura y Transportes México, S.A. de C.V. violate the by-laws by maintaining jointly a percentage higher than 10% allowed in Article X of the Company's by-laws, therefore, is ordering to Grupo México, S.A.B. de C.V. and Infraestructura y Transportes México, S.A. de C.V. the sale of the Series "B" shares which exceed 10% of the capital stock and instructs that the sale must be made through a procedure called "Initial Public Offering", under the terms of the law and in accordance with Article XII of the Company´s by-laws.

In February 2016, the Company, Grupo México, S.A.B. de C.V. and Infraestructura y Transportes México, S.A. de C.V. filed claims of direct amparo against the ruling of the Superior Court of Justice, the essence of both claims for amparo concerns the following; Grupo México, S.A.B. de C.V. argues that a proceeding was not granted for the sale of the excess shares, the Company argues that Grupo México, S.A.B. de C.V. should be liable for the payment of costs in favor of the Company, however both claims of appeal have not been resolved,  and are pending resolution in the Eighth Collegiate Court in Civil Matters of the First Circuit. Thus, in the opinion of the Company and its legal counsel, no present obligation currently exists, therefore the Company has not recognized any provision regarding this matter. As at December 31, 2019, Grupo México, S.A.B. de C.V., and his subsidiary Infraestructura y Transportes México, S.A. de C.V., have 10.6% of the Company shares.

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30. Operating segment and geographic information

All airports provide similar services to their customers as described in Note 21.

The elimination of the investment of the Company in its subsidiaries is included under “Eliminations” along with any intersegment revenues and other significant intercompany operations.

The following are the results, assets and liabilities by segments for the years ended December 31, 2017, 2018 and 2019:

December 31, 2017	Guadalajara			Tijuana			Puerto Vallarta			San José del Cabo			Montego Bay			Hermosillo			Guanajuato			Other Airports			Total reportable segments			Other Companies			Eliminations			Total
Aeronautical services	Ps.	2,426,289		Ps.	1,158,896		Ps.	989,137		Ps.	1,111,293		Ps.	1,290,079		Ps.	272,941		Ps.	386,726		Ps.	645,162		Ps.	8,280,522		Ps.	—		Ps.	—		Ps.	8,280,522
Non-aeronautical services		645,997			304,023			371,939			618,468			496,477			62,481			116,686			152,133			2,768,205			4,700			—			2,772,905
Improvements to    concessions assets		326,198			203,664			101,235			222,106			66,131			174,769			122,133			96,256			1,312,491			—			—			1,312,491
Total revenues		3,398,484			1,666,583			1,462,310			1,951,866			1,852,687			510,191			625,545			893,551			12,361,218			4,700			—			12,365,918
Total intersegment    revenues		—			—			—			—			—			—			—			—			—			4,265,456		(4,265,456)				—
Income from operations		2,072,491			883,966			863,209			1,171,837			565,463			142,836			312,363			201,276			6,213,440			4,323,747		(4,255,456)				6,281,731
Interest income		105,328			45,775			53,166			65,601			—			26,798			15,648			32,674			344,991			750,350			(674,606	)		420,735
Interest expense		(168,112	)		(89,265	)		(52,327	)		(85,706	)		(136,497	)		(35,317	)		(27,125	)		(59,450	)		(653,800	)		(640,015	)		674,606			(619,207	)
Gain on financial    investment held    for coverage		—			—			—			—			—			—			—			—			—			34,361			—			34,361
Depreciation and    amortization for the year		(295,445	)		(161,892	)		(142,763	)		(201,241	)		(344,861	)		(59,241	)		(52,836	)		(175,472	)		(1,433,750	)		(9,813	)		—			(1,443,562	)
Share of loss of associate		—			—			—			—			—			—			—			—			—			(10,620	)		—			(10,620	)
Income before income    taxes		2,008,984			840,689			856,050			1,135,132			445,269			134,220			303,605			188,364			5,912,312			4,514,866			(4,255,456	)		6,171,722
Income taxes expense		(442,764	)		(152,631	)		(184,506	)		(288,786	)		(107,062	)		(12,382	)		(69,271	)		(61,368	)		(1,318,770	)		(121,871	)		—			(1,440,641	)
Total assets		9,289,847			5,541,186			3,875,465			4,133,283			3,068,476			1,715,227			1,475,581			3,749,862			32,848,928			38,598,059			(31,929,455	)		39,517,532
Total liabilities		3,133,738			1,498,785			1,127,055			1,872,045			1,854,290			663,360			571,006			1,022,866			11,743,146			13,871,716			(8,174,099	)		17,440,763
Investment in associates		—			—			—			—			—			—			—			—			—			11,016			—			11,016
Net cash flows provided    by operations activities		1,852,797			969,246			844,238			1,086,007			788,059			195,867			270,238			381,488			6,387,940			(105,808	)		(113,430	)		6,168,702
Net cash flow used in    investing activities		(414,701	)		(410,216	)		(184,142	)		(323,649	)		(122,417	)		(202,470	)		(143,243	)		(147,718	)		(1,948,557	)		4,839,982			(4,830,000	)		(1,938,575	)
Net cash flow used in    financing activities		(1,144,341	)		(560,617	)		(436,447	)		(825,018	)		(287,859	)		(77,101	)		(123,028	)		(232,161	)		(3,686,573	)		(2,830,743	)		4,830,000			(1,687,316	)
Additions to non-current    as assets		5,796,853			3,615,601			2,432,387			2,762,873			5,604,397			1,134,216			967,981			2,431,955			24,746,263			318,997			—			25,065,260

F-71

December 31, 2018	Guadalajara			Tijuana			Puerto Vallarta			San José del Cabo			Montego Bay			Hermosillo			Guanajuato			Other Airports			Total reportable segments			Other Companies			Eliminations			Total
Aeronautical services	Ps.	2,824,677		Ps.	1,344,122		Ps.	1,088,417		Ps.	1,244,106		Ps.	1,419,674		Ps.	306,118		Ps.	484,798		Ps.	787,242		Ps.	9,499,154		Ps.	—		Ps.	—		Ps.	9,499,154
Non-aeronautical services		796,739			326,214			399,427			698,891			543,878			82,922			148,119			180,517			3,176,708			6,823			—			3,183,532
Improvements to    concession assets		110,415			100,986			40,330			346,956			545,959			47,541			16,244			231,771			1,440,204			—			—			1,440,204
Total revenues		3,731,830			1,771,323			1,528,174			2,289,954			2,509,511			436,581			649,162			1,199,530			14,116,066			6,823			—			14,122,890
Total intersegment    revenues		—			—			—			—			—			—			—			—			—			4,805,223			(4,805,223	)		—
Income from operations		2,454,759			1,042,368			942,551			1,272,180			646,677			153,576			408,037			306,197			7,226,345			4,783,428			(4,765,120	)		7,244,652
Interest income		112,569			44,954			43,471			54,836			6,431			13,722			19,502			51,327			346,813			1,065,159			(835,278	)		576,694
Interest expense		(230,458	)		(136,453	)		(65,407	)		(136,914	)		(135,740	)		(50,927	)		(47,099	)		(93,929	)		(896,927	)		(950,762	)		835,278			(1,012,411	)
Gain on financial    investment held    for coverage		—			—			—			—			—			—			—			—			—			29,643			—			29,643
Depreciation and    amortization for the year		(310,882	)		(180,904	)		(153,230	)		(217,858	)		(354,963	)		(72,635	)		(61,073	)		(186,997	)		(1,538,542	)		(31,095	)		—			(1,569,637	)
Share of loss of associate		—			—			—			—			—			—			—			—			—			(947	)		—			(947	)
Income before income    taxes		2,394,213			979,156			952,241			1,218,028			525,351			124,243			386,323			263,776			6,843,329			4,929,463			(4,765,120	)		7,007,672
Income taxes expense		(584,439	)		(210,874	)		(225,833	)		(336,560	)		(128,246	)		(19,098	)		(99,963	)		(114,118	)		(1,719,131	)		(149,910	)		—			(1,869,041	)
Total assets		9,773,884			5,729,156			3,918,644			4,166,561			3,039,158			1,747,518			1,632,722			3,033,967			33,041,609			38,884,387			(32,375,494	)		39,550,502
Total liabilities		3,519,318			1,858,474			1,158,586			2,228,807			2,123,946			735,487			701,735			1,405,884			13,732,236			13,911,464			(9,865,348	)		17,778,352
Investments in associates		—			—			—			—			—			—			—			—			—			35			—			35
Net cash flows provided    by operations activities		2,233,357			1,376,334			797,800			1,063,923			860,399			173,726			357,455			448,702			7,311,697			810,779			(886,857	)		7,235,619
Net cash flow used in    investing activities		(284,319	)		(378,328	)		(90,743	)		(418,407	)		(652,469	)		(61,374	)		(113,388	)		(255,707	)		(2,254,734	)		4,959,209			(5,254,886	)		(2,550,411	)
Net cash flow used in    financing activities		(1,552,530	)		(681,179	)		(739,684	)		(942,796	)		(931,248	)		(107,021	)		(155,344	)		(6,374	)		(5,116,178	)		(6,305,402	)		5,254,886			(6,166,694	)
Additions to non-current    as assets		5,665,570			3,729,013			2,356,638			2,976,072			5,924,992			1,128,854			990,782			2,600,342			25,372,263			729,295			—			26,101,558

F-72

December 31, 2019	Guadalajara			Tijuana			Puerto Vallarta			San José del Cabo			Montego Bay			Hermosillo			Guanajuato			Other Airports			Total reportable segments			Other Companies			Eliminations			Total
Aeronautical services	Ps.	2,978,617		Ps.	1,568,297		Ps.	1,183,610		Ps.	1,364,746		Ps.	1,512,164		Ps.	337,380		Ps.	584,650		Ps.	1,018,256		Ps.	10,547,720		Ps.	—		Ps.	—		Ps.	10,547,720
Non-aeronautical services		938,445			454,098			455,699			787,424			585,325			97,696			180,327			265,282			3,764,296			7,203			—			3,771,500
Improvements to    concession assets		858,807			300,221			57,697			299,155			136,363			3,332			32,853			218,371			1,906,801			—			—			1,906,801
Total revenues		4,775,869			2,322,617			1,697,007			2,451,326			2,233,853			438,408			797,829			1,501,910			16,218,818			7,203			—			16,226,021
Total intersegment    revenues		—			—			—			—			—			—			—			—			—			5,262,241			(5,262,241	)		—
Income from operations		2,599,316			1,274,902			1,051,669			1,397,328			629,027			191,079			477,123			350,253			7,970,697			5,282,882			(5,236,341	)		8,017,238
Interest income		113,495			53,684			47,959			45,703			13,191			12,090			21,019			56,800			363,942			1,292,797			(990,910	)		665,829
Interest expense		(274,257	)		(162,628	)		(75,298	)		(173,132	)		(145,597	)		(57,245	)		(54,132	)		(111,549	)		(1,053,838	)		(1,362,817	)		990,910			(1,425,746	)
Loss on financial    investment held    for coverage		—			—			—			—			—			—			—			—			—			(149,770	)		—			(149,770	)
Depreciation and    amortization for the year		(346,586	)		(206,982	)		(156,383	)		(234,670	)		(85,851	)		(100,403	)		(390,394	)		(210,357	)		(1,731,627	)		(44,511	)		—			(1,776,137	)
Share of gain of associate		—			—			—			—			—			—			—			—			—			79			—			79
Income before income    taxes		2,423,349			1,159,190			1,010,897			1,261,254			495,171			140,027			440,450			294,655			7,224,994			5,357,532			(5,236,341	)		7,346,185
Income taxes expense		(649,761	)		(185,555	)		(273,431	)		(359,996	)		(124,228	)		(26,013	)		(132,118	)		(72,356	)		(1,823,460	)		(67,983	)		—			(1,891,443	)
Total assets		10,038,163			6,155,593			3,941,917			4,445,521			2,372,006			1,707,357			1,653,964			4,759,366			35,073,888			39,969,627			(33,465,711	)		41,577,804
Total liabilities		4,091,482			2,261,268			1,334,263			2,706,406			2,102,386			767,297			774,619			1,809,866			15,847,585			16,927,461			(11,866,923	)		20,908,361
Investments in associates		—			—			—			—			—			—			—			—			—			114			—			114
Net cash flows provided    by operations activities		2,295,782			1,322,659			984,410			1,299,232			841,232			248,261			490,864			469,505			7,951,945			301,883			(89,772	)		8,164,057
Net cash flow used in    investing activities		(986,532	)		(341,155	)		(69,382	)		(343,198	)		(211,385	)		(42,913	)		(69,230	)		(156,943	)		(2,220,737	)		3,624,786			(3,990,143	)		(2,586,095	)
Net cash flow used in    financing activities		(1,750,155	)		(703,256	)		(824,218	)		(802,640	)		(633,251	)		(197,367	)		(352,970	)		(63,433	)		(5,327,291	)		(2,894,381	)		3,990,143			(4,231,529	)
Additions to non-current    as assets		6,252,492			3,845,105			2,263,519			3,052,248			5,548,992			1,051,047			942,924			2,676,181			25,632,508			924,182			—			26,556,690

Non-current assets are comprised of Machinery, equipment, Improvements to leased assets, Improvements to concession assets, Airport concessions, Rights of use of airport facilities, Other acquired rights, Right-of-use assets and Other assets.

The unrealized exchange loss, net amounts (a non-cash item) disclosed in the consolidated statements of cash flow relates mainly to Other Companies segments, and comes from bank loans denominated in foreign currency.

F-73

The amounts shown in the eliminations column relates to the intercompany transactions and balances being eliminated to arrive at consolidated figures, such as, personnel services, parking operations, income and financial expenses, equity method, investments in subsidiaries, amongst the most important.

- Geographic information – All business units of the Company are operating in Mexico and Jamaica. The financial information presented above covers the different regions in which these airports operate. Segment revenue has been based on the geographic location of the customers and non-current segment assets were based on the location of the assets. Montego Bay and Kingston airports corresponds to the Region of Jamaica with geographic revenue of Ps. 1,852,687, Ps. 2,509,511 and Ps. 2,413,596 during the years ended December 31, 2017, 2018 and 2019 respectively and non-current assets of Ps. 5,604,397, Ps. 5,924,992 and Ps. 5,725,684 as of December 31, 2017, 2018 and 2019 respectively. Geographic revenue from customers located in Mexico amounted to Ps. 10,513,231, Ps.11,613,379 and Ps. 13,812,424 for the years ended December 31, 2017, 2018 and 2019 and non-current assets physically located in Mexico totaled Ps. 19,454,971, Ps. 20,176,566 and Ps. 20,831,006 as of December 31, 2017, 2018 and 2019 respectively. There are no revenues generated from and no non-current assets located in Spain.              

- Major Customers – The Company has no dependence on a particularly customer, as 54.6%, 54.9% and 52.9% of the total revenues for 2017, 2018 and 2019, respectively, corresponds to the passenger charges that are paid by passengers upon use of the Company’s airport facilities, that is collected by the airlines to be subsequently reimbursed to the airports, and are covered by the airlines through guarantees issued in favor of the airports. Without the revenues from passenger charges that airlines collect on behalf of the Company, no one customer represents more than  10.0% of the consolidated revenues.

- Major suppliers – The Company has no dependence on a specific supplier, due to, no one supplier represents more than 10% of its capital investments in productive assets and/or of the total operating costs.

F-74

31. Foreign currency transactions

a. Transactions denominated in foreign currency for the years ended December 31, 2017, 2018 and 2019 were as follows:

	2017		2018		2019
	(In thousands of U.S. dollars)
Revenues from aeronautical and non-aeronautical services		135,776		150,488		172,780
Revenues for recovery expenses		1,362		1,820		2,281
Technical assistance fees		5,738		5,859		5,971
Other expenses		54,198		61,078		75,868

b. The exchange rates in effect on the dates of the consolidated financial statements and it’s issuance date were as follows:

	December 31,						May 22,
	2017		2018		2019		2020
Mexican pesos per one U.S. dollar (Note 3.p)	Ps.	19.7354	Ps.	19.6829	Ps.	18.8452	Ps.	23.2962

32. Transactions with related parties

According to the definitions of control established in IFRS, the Company does not have a company controlling its operations, however, according to these definitions, the following companies are considered related parties:

a. Aeropuertos Mexicanos del Pacífico, S.A.P.I. de C.V.

AMP represents an entity with significant influence over the operation of the Company, since it has representation on the Board of Directors, participates in the policy-making processes, maintains material transactions, appoints officers and provides essential technical information, but without exercising control over the Company. No other Stockholder fulfills this definition.

Transactions with AMP, were entered into at prices comparable to those for transactions with independent parties and were as follows:

	2017			2018		2019
AMP, entity with significant influence
Expenses:
Technical assistance fees	Ps.	357,451		Ps.	411,477	Ps.	461,549
Services received	Ps.		—	Ps.	—	Ps.	5,558

In 1999, GAP and AMP entered into a technical assistance and transfer-of-technology agreement whereby AMP and its stockholders agreed to render administrative and advisory services and transfer industry technology and know-how to GAP in Mexico in exchange for consideration. The agreement’s original 15-year term may be automatically renewed for successive five-year terms, with the approval of the stockholders, unless one party gives a termination notice to the other at least 60 days prior to the effective termination date. Only the Stockholders’ Meeting has the authority to decide the non-renewal or deny the renewal of the agreement. If GAP decides to cancel or renew the agreement, GAP needs the approval of at least 51% of the holders of Series B shares other than AMP or any party related to AMP, according to the definition of the participation agreement signed on August 25, 1999 among the SCT, GAP in Mexico, its strategic partner and the Stockholders of the strategic partner. On August 25, 2014, the initial term was renewed for five additional years.

On August 25, 2019, the initial term of the Technical Assistance agreement between the Company and AMP expired and in the same date it was automatically renewed for an additional five years, in accordance to Clause 5.2 of the agreement.

According to the agreement, as of January 1, 2000, the Company committed to pay AMP annual consideration of USD$7,000,000 for the years 2000 and 2001 and, beginning in 2002, the greater of USD$4,000,000 (these amounts are subject to adjustment based on the CPI) or 5% of GAP’s consolidated operating income only for the Mexican airports, defined as earnings before interest income or expense, calculated prior to deducting the technical assistance fee, income taxes, depreciation and amortization.

AMP is also entitled to the refund of expenses incurred in the rendering of services provided for in the agreement.

F-78

b. Otay-TijuanaVenture, L.L.C. (OTV)

On December 9, 2015 the access to the new border crossing between Otay, USA and Tijuana, Mexico began operating at the airport in Tijuana. The facilities at CBX terminal on the side of the United States of America, are operated by OTV, a related company, which is temporarily paying compensation for the loss of non-aeronautical revenue at the airport. According to the clauses of the contract, this compensation will cease to be collected as of 2018, however the operation contract will remain in force. Transactions were made as follows:

	2017		2018		2019
Non-airport access rights	Ps.	43,973	Ps.	3,737	Ps.	-

c. Accounts receivable (payable) with other related parties that are in the consolidated statement of financial position as of December 31, 2017, 2018 and 2019, are integrated as follows:

	2017		2018		2019
Accounts receivable:
Especialistas en Alta Cocina, S.A. de C.V.    (Independent director)	Ps.	—	Ps.	93	Ps.	3,523
Mayo 13, S.A. de C.V.  (Independent director)	Ps.	417	Ps.	—	Ps.	729
OTV (Shareholder)	Ps.	5,950	Ps.	—	Ps.	—

	2017			2018		2019
Accounts payable:
Ingeniería y Economía del Transporte, S.A.    (Shareholder)	Ps.	(3,777)		Ps.	(7,698)	Ps.	(3,079	)
OTV (Shareholder)	Ps.		—	Ps.	(465)	Ps.	-

d. Transactions with other related parties that are included in the consolidated statement of profit or loss and other comprehensive income as of December 31, 2017, 2018 and 2019, are as follows:

	2017			2018		2019
Commercial revenues:
Especialistas en Alta Cocina, S.A. de C.V.    (Independent Director)	Ps.	28,093		Ps.	32,236	Ps.	34,039
Mayo 13, S.A. de C.V. (Independent Director)	Ps.	10,042		Ps.	9,443	Ps.	5,549
Otayconnect, S. de R.L. de C.V. (Shareholder)	Ps.		-	Ps.	300	Ps.	1,253
Promotora Cabo Real, S.A. de C.V. (Shareholder)	Ps.		22,225	Ps.	21,059	Ps.	28,910
Las Nuevas Delicias Gastronómicas, S. de R L. de C.V.  (Shareholder)	Ps.		-	Ps.	-	Ps.	4,886
Diseños Pantera, S.A. de C.V. (Shareholder)	Ps.		-	Ps.	-	Ps.	298

	2017		2018		2019
Technical advisory:
Ingeniería y Economía del Transporte, S.A. (Shareholder)	Ps.	14,637	Ps.	8,896	Ps.	8,626
Advertising:
OTV (Shareholder)	Ps.	-	Ps.	477	Ps.	-
Other service:
Diseños Pantera, S.A. de C.V. (Shareholder)	Ps.	-	Ps.	-	Ps.	279

e. The total amounts paid to key management personnel or directors, for the years ended December 31, 2017, 2018 and 2019 were as follows:

	2017		2018		2019
Management	Ps.	28,587	Ps.	28,961	Ps.	37,226
Independent directors (7)	Ps.	6,205	Ps.	8,140	Ps.	8,523

F-78

33. Leases

- Leases as a lessee- Policy before January 1, 2018 – Rents from non-cancelable operating leases was payable as follows:

	2017
Less than one year	Ps.	15,067
One to two years			10,716
Two to three years			11,252
Three to four years			11,899
Four to five years			12,583
More than five years			1,432
	Ps.	62,949

The Company leases space for its corporate offices under renewed operating lease agreements for a term ofthree and five years, counted as of May 2017 and February 2018, and the first one ended in April 2020 and the second one will be end in January 2023, respectively. The monthly rent to pay was USD $42,523. Base rent is subject to increases in accordance with the CPI and the CPI.

The expense in pesos for income amounted to Ps. 8,837 and Ps. 9,044 for the years ended December 31, 2017 and 2018, respectively.

In addition to the rent described above, the Company has entered into other contracts for the rental of other assets, the amounts of which are not material.

– Leases as lessor

a) The Company receives payments from the leasing of spaces inside the commercial area of the airports, which have been classified as operating leases. The future minimum lease payments associated with such non-cancelable in Mexico leases is as follows:

	2017			2018			2019
Less than one year	Ps.	720,071		Ps.	1,162,457		Ps.	1,331,301
One to two years			434,079			835,157		1,074,436
Two to three years			208,106			665,499		875,768
Three to four years			116,597			524,911		592,384
Four to five years			43,150			316,356		299,145
More than five years			12,888			203,288		96,704
	Ps.	1,534,891		Ps.	3,707,668		Ps.	4,269,738

b) Future minimum rental payments under non-cancellable leases in MBJA and PACKAL are as shown in the following table (in thousands of USD Dollars):

	2017		2018		2019
Less than one year	USD$	13,018	USD$	12,175	USD$	8,692
One to two years		11,227		6,122		4,935
Two to three years		5,221		3,577		4,731
Three to four years		2,860		3,395		3,506
Four to five years		2,719		2,723		3,032
More than five years		16,305		22,177		19,398
	USD$	51,350	USD$	50,169	USD$	44,294

During the years ended December 31, 2017, 2018 and 2019, the Company recognized income from leasing activities of Ps. 2,039,697, Ps. 2,376,820 and Ps. 2,859,958, as part of the non-regulated revenues in the consolidated statements of profit or loss and other comprehensive income, respectively.

Future minimum rentals do not include the contingent rentals that may be paid under certain commercial leases on the basis of a percentage of the lessee’s monthly revenues in excess of the monthly minimum guaranteed rent. Contingent rentals for the years ended December 31, 2017, 2018 and 2019 are disclosed under the caption “Revenues from sharing of commercial activities” in Note 21.

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34. New accounting standards not yet in effect

The Entity has not applied the following new and revised IFRSs that have been issued but are not yet effective:

IFRS 17	Insurance Contracts
IFRS 10 and IAS 28 (amendments)	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments IFRS 3	Definition of a Business
Amendments to IAS 1 and IAS 8	Definition of Material
Conceptual Framework	Amendments to References to Conceptual

IFRS 17 Insurance Contracts

The IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4 Insurance Contracts.

This standard outlines a General Model, which is modified for insurance contracts with direct participation features, described as the Variable Fee Approach. The General Model is simplified if certain criteria are met by measuring the liability for remaining coverage using the Premium Allocation Approach.

The General Model will use current assumptions to estimate the amount, timing and uncertainty of future cash flows and it will explicitly measure the cost of that uncertainty, it takes into account market interest rates and the impact of policyholders’ options and guarantees.

The implementation of this standard is likely to bring significant changes to an Company’s processes and systems, and will require much greater co-ordination between many functions of the business, including finance, actuarial and IT.

This standard is effective for annual reporting periods beginning on or after January 1, 2021, with early application permitted. It is applied retrospectively unless impracticable, in which case the modified retrospective approach or the fair value approach is applied. For the purpose of the transition requirements, the date of initial application is the start if the annual reporting period in which the Company first applies this standard, and the transition date is the beginning of the period immediately preceding the date of initial application.

The Company’s management anticipate that the application of these amendments will not have an impact on the Company's consolidated financial statements in future periods should such transactions arise.

IFRS 10 Consolidated Financial Statements and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognized in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognized in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.

The Directors of the Company anticipate that the application of these amendments may have an impact on the Company consolidated financial statements in future periods should such transactions arise.

Amendments IFRS 3, Definition of a Business

The modifications clarify that, while businesses usually have outputs, outputs are not required for a series of integrated activities and assets to qualify as a business. To be considered as a business, a series of acquired activities and assets will be including, at a minimum, an input and a substantial process that together contribute significantly to the ability to generate outputs.

The modifications introduce an optional test to identify the fair value concentration, which allows a simplified assessment of whether a series of acquired activities and assets is not a business if substantially all of the fair value of the acquired gross assets is concentrated in a single identifiable asset. or a group of similar assets.

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The amendments apply prospectively to all business combinations and asset acquisitions whose acquisition date is on or after the first reporting period started on or after January 1, 2020, with early adoption allowed.

The Company’s management anticipate that the application of these amendments will not have an impact on the Company's consolidated financial statements in future periods should such transactions arise.

Amendments to IAS 1 and IAS 8 Definition of Material

The modifications have to intend to simplify the definition of materiality contained in IAS 1, making it easier to understand and are not intended to obscuring the underlying concept of materiality in IFRS Standards. The concept of obscuring material information with intangible information has been included in the new definition.

The limit for influential materiality for users has been changed from “could influence” to “could reasonably be expected to influence”.

The definition of materiality in IAS 8 has been replaced by a reference to the definition of materiality in IAS 1. In addition, the IASB modified other Standards and the Conceptual Framework that contained a definition of materiality or reference to the term materiality to ensure consistency.

The modification will be applied prospectively for reporting periods beginning on or after January 1, 2020, with early application allowed.

The Company’s management do not anticipate that the application of the standards in the future will have an impact on the Company’s consolidated financial statements.

Conceptual Framework Amendments to References to Conceptual

Together with the revised Conceptual Framework, which entered into force in its publication on March 29, 2018, the IASB also issued the Modifications to the References to the Conceptual Framework of IFRS Standards. The document contains amendments to IFRS 2, 3, 6, 14, IAS 1, 8, 34, 37, 38, IFRIC 12, 19, 20, 22 and SIC 32.

However, not all modifications update the pronouncements regarding references to the Conceptual Framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version they refer to or to indicate that the definitions in the Standard have not been updated with new ones. definitions developed in the revised Conceptual Framework.

The modifications, which are actually updates, are effective for annual periods beginning on or after January 1, 2020, with early adoption allowed.

The Company’s management do not anticipate that the application of the standards in the future will have an impact on the Company’s consolidated financial statements.

35. Subsequent events

a. On February 13, 2020, the Company issued 30 million long-term debt securities of Ps. 100 per debt security for a total Ps. 3,000,000 which are unsecured and payment of principal at maturity corresponding to the tranche of the GAP 20. Interest will be payable every 28 days at a variable rate of TIIE-28 plus 17 basis points, and the principal payment will be made upon maturity, on February 6, 2025. Proceeds from the issuance will be allocated towards the payment of the bond certificates that were issued on February 20, 2015 under the ticker symbol “GAP 15” and to finance Company’s Master Development Plan (MDP), for 2020.

b. On February 14, 2020, the Company paid the long-term security GAP 15 of 22 million debt securities for a total Ps. 2,200,000.

c. In December 2019, a novel strain of coronavirus, known as COVID-19, was reported to have surfaced in Wuhan, Hubei Province, China. In January 2020, COVID-19 spread to other countries, including the United States, and efforts to contain the spread of COVID-19 intensified. On March 11, 2020, the WHO declared the COVID-19 outbreak a pandemic, which caused a gradual decline in international flights from Canada, the United States and Europe, a fact that was reflected in the significant drop in the flow of international passengers in Mexico and Jamaica.

The recent COVID-19 outbreak is significantly reducing the demand and availability of air travel worldwide, causing a slowdown in passenger air traffic due to fears of contagion, and therefore having a significant adverse effect on Company operations. Likewise, due to the pandemic, governments have taken preventive measures. For the operations of our airports in Mexico, the Government did not issue flight restrictions, however, in the second week of March the health emergency declared phase 1 of the pandemic and for the third week

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of April phase 3, which has caused the cancellation of a large volume of international flights, as well as a significant decrease in domestic flights. Regarding  our operations in our airports in Jamaica, the Government suspended all incoming international flights for a period of 14 days, starting March 25, 2020, excluding transportation of cargo and merchandise, and only allowed the departure of commercial flights.

The Company, as a support measure in this pandemic, will offer discounts for some airport and commercial services. Likewise, some payment deferrals will be granted to our customer airlines to support their liquidity, so agreements have been reached so that they can continue with the operation, in 2020 they expect credit losses does not present an increase. As of the date of issuance of the consolidated financial statements. The Company cannot fully quantify the impact that the COVID-19 outbreak will have on global air travel and the extent to which it may affect the demand for air travel in the regions in which we operate.

Continuing travel restrictions or operational problems resulting from the rapid spread of COVID-19 could have a material adverse effect on our business and results of operations, so the Company will continue to inform interested third parties of future relevant updates to our business and operations, as well as on the measures that we would be required to adopt to preserve liquidity and business continuity.

As of December 31, 2019, the Company was in compliance with its financial covenants (Note 17.a) under the loan agreements with the financial institutions. Nonetheless, the anticipated adverse effects on the Company’s business and operating performance in 2020 as a result of the COVID-19 pandemic, as discussed above, may result in the Company not meeting its financial covenants under the loan agreements in a future compliance date during 2020. In that case, the Company would negotiate a waiver for that breach. In the event of an absence of a waiver of compliance thereof, the Company has the resources to anticipate the payment of the loans.

After the declaration of the pandemic, the following can be observed:

- The effect of the pandemic on the Company is reflected in the significant decrease in passenger traffic in the month of April, registering a decrease in passenger traffic of 91.5%, compared to the same period of the previous year. Domestic passengers presented a decrease of 88.0%, while international passengers decreased 96.0%.

- The load factor during April decreased by 53.0 percentage points, going from 84.3% in March 2019 to 15.1% in April 2020.

- During the first four months in 2020, the Company's 14 airports registered a decrease in passenger traffic of 24.5%, compared to the same period of the previous year. Domestic passengers presented a decrease of 24.0%, however, international passengers decreased 25.1%.

- In April, the Company utilized a credit line from Scotiabank for Ps. 1,000.0, at a 15-month rate of TIIE-28 plus 100 basis points and capital payment upon maturity and a structuring fee of 40 basis points. The proceeds will be used for corporate purposes.

- In May, the Company utilized a credit line from BBVA for Ps. 1,000.0, at a 24-month fix rate of 6.99% and capital payment upon maturity and a structuring fee of 40 basis points. The proceeds will be used for capital investments and for general corporate purposes.

The accompanying consolidated financial statements were authorized for issuance in the Company´s annual report on Form 20-F, by the Chief Executive Officer and the Chief Financial Officer of Grupo Aeroportuario del Pacífico S.A.B. de C.V. on May 28, 2020, hereby updated for subsequent events, to be filed with the United States Securities and Exchange Commission.

36. Authorization to issue the financial statements

On February 19, 2020  the issuance of these consolidated financial statements was authorized by Lic. Raúl Revuelta Musalem, Chief Executive Officer, and by Lic. Saúl Villarreal García, Chief Financial Officer. Consequently, these consolidated financial statements do not reflect events after this date and are subject to approval at the Ordinary General Stockholders’ Meeting, where they may be modified based on provision set forth by the Mexican General Corporate Law.

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