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39. Related party transactions

Parties are generally considered to be related if they are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship attention is directed to the economic substance of the relationship, not merely the legal form.

As at 31 December 2013 and 31 December 2012, the outstanding balances with related parties and income and expense items with related parties for the years ended 31 December 2013 and 31 December 2012 were as follows:

Associates

As at 31 December 2013 and 31 December 2012, the outstanding balances with associates and income and expense items with associates for the years ended 31 December 2013 and 31 December 2012 were as follows:

The amounts outstanding to and from related parties will be settled mainly in cash.

Purchases from associates consist primarily of aviation security services.

Government-related entities

As at 31 December 2013 and 31 December 2012, the Government of the RF represented by the Federal Agency for Management of State Property owned 51.17% of the Company. The Group operates in an economic environment where the entities are directly or indirectly controlled by the Government of the RF through its government authorities, agencies, affiliations and other organisations, collectively referred to as government-related entities.

The Group decided to apply the exemption from disclosure of individually insignificant transactions and balances with the Government and parties that are related to the Company because the Russian state has control, joint control or significant influence over such parties.

The Group has transactions with government-related entities, including but not limited to:

• banking services,
• transactions with derivative financial instruments,
• investments in OJSC MASH (Note 18),
• purchase of air navigation and airport services, and
• government subsidies including those provided for compensating the losses from passenger flights under two government programmes, i.e. flights to and from European Russia for inhabitants of Kaliningrad region and Far East.

Outstanding balances of derivative financial instruments and cash at settlement and currency accounts in the government-related banks:

The amounts of the Group’s finance and operating lease liabilities are disclosed in Notes 28 and 40. The share of liabilities to the government-related entities is approximately 20% for finance lease and 8% for operating lease (31 December 2012: 25% and 5%, respectively).

For the year ended 31 December 2013 the aggregate amount of Group’s transactions with government-related entities is less than 13% of operating costs, and less than 2% of revenue (2012: less than 11% and 1%, respectively). These expenses primarily include costs of air navigation and aircraft maintenance services in the government-related airports and also supplies of motor fuels by government-related entities.

As at 31 December 2013 the Group issued guarantees for the amount of USD 2.4 million to a government-related entity to secure obligations under tender procedures (31 December 2012: no such guarantees were issued).

Transactions with the state also include taxes, levies and customs duties settlements and charges which are detailed in Notes 7, 8, 9, 11, 14, 19, 25 and 31.

Compensation of key management personnel

The remuneration of directors and other members of key management personnel (the members of the Board of Directors and the Management Committee as well as key managers of flight and ground personnel who have significant power and responsibilities on key control and planning decisions of the Group), including salary and bonuses as well as short-term and mid-term compensation, amounted to USD 23.2 million (2012: USD 23.1 million).

Such amounts are stated before personal income tax but exclude mandatory insurance contributions to non-budgetary funds. According to Russian legislation, the Group makes contributions to the Russian State pension fund as part of unified social tax for all its employees, including key management personnel.

Bonus programmes based on the company’s capitalisation

In 2013, the Group approved bonus programmes for the Group’s key management personnel and members of the Company’s Board of Directors. These programmes run for three years and are exercised in three tranches of cash payments. The amounts of payments depend both on the absolute increase in the Company’s capitalisation and the Company’s capitalisation growth rates against its peers based on the results of the reporting year. The fair value of the liabilities under the bonus programmes was determined based on consensus forecast for the Company’s capitalisation growth until 2015.

In 2013, expenses related to the bonus programmes were USD 10.5 million. These expenses are recorded within staff costs in the Group’s consolidated statement of profit or loss. As at 31 December 2013, outstanding liability under these plans was USD 10.5 million.

Share option programme

During 2010 the Group initiated a share option programme for its key management personnel (the “Share option programme“). The Share option programme ran for three years and was exercised in three tranches accrued over the three-year period from 1 January 2011 through to 31 December 2013. The vesting requirement of the Share option programme was the continuous employment of participants in the Company during the vesting period of the Share option programme.

The fair value of services received in return for the share option granted was measured by reference to the fair value of the share option granted. The estimate of the fair value of the services received was determined using the Black-Scholes model. The following variables have been used in the model:

During 2013 the Group recorded release of 1,796,300 unused share options for the amount of USD 1.1 million within staff costs in the Group’s consolidated statement of profit and loss (in 2012 expenses related to the share option programme amounted to USD 0.2 million). As at 31 December 2013, there were no outstanding liabilities under the share option programme (the outstanding amount as at 31 December 2012: USD 6.8 million).

CROSS SHAREHOLDING

As at 31 December 2013 Aeroflot-Finance and Partner Aeroflot, 100%-owned subsidiaries of the Group, owned 53,527,652 ordinary shares and 2,091 ordinary shares of the Company, respectively (31 December 2012: 62,726,453 ordinary shares and 87,991 ordinary shares of the Company, respectively) (Note 33).

Notes in Consolidated Statements:

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows