F-1 1 y12303fv1.htm FORM F-1 F-1
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As filed with the Securities and Exchange Commission on November 28, 2005
Registration No. 333-            
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
COPA HOLDINGS, S.A.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
         
Republic of Panama   4512   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
Boulevard Costa del Este, Avenida Principal y Avenida de la Rotonda
Urbanización Costa del Este
Complejo Business Park, Torre Norte
Parque Lefevre
Panama City, Panama
(+507 303-3348)
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
(1-302-738-6680)
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
With copies to:
     
David L. Williams
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
  Francesca Lavin
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
      Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box.    o
      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
      If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
      If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o
CALCULATION OF REGISTRATION FEE
                         
                         
                         
            Proposed Maximum     Proposed Maximum     Amount of
Title of Each Class of     Amount to be     Offering     Aggregate     Registration
Securities to be Registered     Registered(1)     Price per Share(2)     Offering Price     Fee
                         
Class A common shares, without par value
    16,100,000 shares     $17     $273,700,000     $29,285.90
                         
                         
(1)  Includes Class A common shares that the underwriters may purchase solely to cover over-allotments, if any.
 
(2)  Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.
 
      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 


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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)
Issued November 28, 2005
14,000,000 Shares
(COPA HOLDINGS, S.A. LOGO)
Copa Holdings, S.A.
CLASS A COMMON STOCK
 
The selling shareholders identified in this prospectus are offering all of the 14,000,000 shares of Class A common stock to be sold in this offering. This is Copa Holdings, S.A.’s initial public offering, and no public market currently exists for its shares. Copa Holdings, S.A. anticipates that the initial public offering price of the Class A shares will be between $15 and $17 per share.
The selling shareholders have granted the underwriters the right to purchase up to an additional 2,100,000 shares of Class A common stock to cover any over-allotments.
The Class A shares have been approved for listing on the New York Stock Exchange under the symbol “CPA,” subject to official notice of issuance.
Copa Holdings, S.A. will not receive any proceeds from the sale by the selling shareholders of Class A common stock in this offering.
Investing in the company’s Class A shares involves risks. See “Risk Factors” beginning on page 13.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
                 
    Per Share   Total
         
Price to public
  $       $    
Underwriting discounts and commissions
  $       $    
Proceeds to selling shareholders
  $       $    
The underwriters expect to deliver the shares of Class A common stock to purchasers on                     , 2005.
 
Morgan Stanley Goldman, Sachs & Co.
 
Citigroup
  JPMorgan
  Merrill Lynch & Co.
                         , 2005


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(COPA ROUTES MAP)


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 EX-3.1: ARTICLES OF INCORPORATION
 EX-5.1: OPINION OF GALINDO, ARIAS & LOPEZ
 EX-8.1: OPINION OF GALINDO, ARIAS & LOPEZ
 EX-8.2: OPINION OF SIMPSON THACHER & BARTLETT LLP
 EX-10.21: AIRCRAFT GENERAL TERMS AGREEMENT
 EX-10.34: FORM OF AMENDED AND RESTATED SERVICES AGREEMENT
 EX-10.35: AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
 EX-10.36: FORM OF GUARANTEED LOAN AGREEMENT
 EX-10.37: FORM OF REGISTRATION RIGHTS AGREEMENT
 EX-10.38: 2005 STOCK INCENTIVE PLAN
 EX-10.39: FORM OF RESTRICTED STOCK AWARD AGREEMENT
 EX-10.41: FORM OF AMENDED AND RESTATED TRADEMARK LICENSE AGREEMENT
 EX-21.1: SUBSIDIARIES
 EX-23.1: CONSENT OF ERNST & YOUNG, PANAMA
 
      You should rely only on the information contained in this prospectus. Neither we nor the selling shareholders have, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the selling shareholders are, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. This document may only be used where it is legal to sell these securities. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of when this prospectus is delivered or when any sale of the Class A shares occurs. Our business, financial condition, results of operations and prospects may have changed since that date.
 
      In this prospectus, we use the term “Copa Holdings” to refer to Copa Holdings, S.A. and “Copa” or “Copa Airlines” to refer to Compañía Panameña de Aviación, S.A., a subsidiary of Copa Holdings, S.A. The terms “we,” “us” and “our” refer to Copa Holdings, S.A. together with its subsidiaries, except where the context requires otherwise. References to “Class A shares” refer to Class A shares of Copa Holdings, S.A.
      This prospectus contains terms relating to operating performance that are commonly used within the airline industry and are defined as follows:
  •   “Aircraft utilization” represents the average number of block hours operated per day per aircraft for the total aircraft fleet.
 
  •   “Available seat miles” or “ASMs” represents the aircraft seating capacity multiplied by the number of miles the seats are flown.
 
  •   “Average stage length” represents the average number of miles flown per flight.
 
  •   “Block hours” refers to the elapsed time between an aircraft leaving an airport gate and arriving at an airport gate.
 
  •   “Break-even load factor” represents the load factor that would have resulted in total revenues being equal to total expenses.


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  •   “Load factor” represents the percentage of aircraft seating capacity that is actually utilized (calculated by dividing revenue passenger miles by available seat miles).
 
  •   “Operating expense per available seat mile” represents operating expenses divided by available seat miles.
 
  •   “Operating revenue per available seat mile” represents operating revenues divided by available seat miles.
 
  •   “Passenger revenue per available seat mile” represents passenger revenue divided by available seat miles.
 
  •   “Revenue passenger miles” represents the number of miles flown by revenue passengers.
 
  •   “Revenue passengers” represents the total number of paying passengers (including all passengers redeeming OnePass frequent flyer miles and other travel awards) flown on all flight segments (with each connecting segment being considered a separate flight segment).
 
  •   “Yield” represents the average amount one passenger pays to fly one mile.
MARKET DATA
      This prospectus contains certain statistical data regarding our airline routes and our competitive position and market share in, and the market size of, the Latin American airline industry. This information has been derived from a variety of sources, including the International Air Transport Association, the U.S. Federal Aviation Administration, the International Monetary Fund and other third-party sources, governmental agencies or industry or general publications. Information for which no source is cited has been prepared by us on the basis of our knowledge of Latin American airline markets and other information available to us. The methodology and terminology used by different sources are not always consistent, and data from different sources are not readily comparable. In addition, sources other than us use methodologies that are not identical to ours and may produce results that differ from our own estimates. Although we have not independently verified the information concerning the competitive position, market share, market size, market growth or other similar data provided by third-party sources or by industry or general publications, we believe these sources and publications are generally accurate and reliable.
PRESENTATION OF FINANCIAL AND STATISTICAL DATA
      Included elsewhere in this prospectus are our audited consolidated balance sheets at December 31, 2003 and 2004 and the audited consolidated statements of income, changes in shareholders’ equity and cash flows for the years ended December 31, 2002, 2003 and 2004. Also included herein are our unaudited consolidated interim financial statements as of and for the nine-month periods ended September 30, 2004 and 2005. The consolidated financial information as of December 31, 2000, 2001 and 2002 and for the years ended December 31, 2000 and 2001 has been derived from our audited consolidated financial statements that were prepared under International Financial Reporting Standards and adjusted to be presented on a basis consistent with accounting principles generally accepted in the United States, or U.S. GAAP, and which have not been included in this prospectus. Our audited and unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and are stated in U.S. dollars. We began consolidating the results of our recently acquired AeroRepública operating subsidiary as of its acquisition date on April 22, 2005. Unless otherwise indicated, all references in the prospectus to “$” or “dollars” refer to U.S. dollars, and all references to “Pesos” or “Ps.” refer to Colombian pesos, the local currency of Colombia.
      Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the underwriters’ option to purchase up to 2.1 million additional shares of Class A common stock to cover over-allotments. Unless otherwise indicated, all references to amounts or percentages of total outstanding capital stock following the offering include 937,500 restricted Class A shares that will be awarded to certain management employees in connection with the offering.
      Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

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ENFORCEABILITY OF CIVIL LIABILITIES
      We are a corporation (sociedad anónima) organized under the laws of the Republic of Panama. Most of our directors and officers and certain of the experts named in this prospectus reside outside of the United States, and all or a substantial portion of the assets of such persons and ours are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons, including with respect to matters arising under the Securities Act of 1933, as amended (the “Securities Act”), or to effect the due process necessary to enforce judgments of courts of the United States against us or any of our directors and officers. We have been advised by our Panamanian legal counsel, Galindo, Arias & Lopez, that there is doubt as to the enforceability, in original actions in Panamanian courts, of liabilities predicated solely on the United States federal securities laws. Any judgment rendered by a U.S. court may be enforced in Panama through a suit on the judgment (exequatur), would be recognized and accepted by the courts of Panama and would be enforceable by the courts of Panama without a new trial or examination of the merits of the original action, provided due process had been granted to all parties and that the obligation the judgment is seeking to enforce is not illegal or against public policy in Panama.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
      This prospectus includes forward-looking statements, principally under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “The Industry” and “Business.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this prospectus, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:
  •   general economic, political and business conditions in Panama and Latin America and particularly in the geographic markets we serve;
 
  •   our management’s expectations and estimates concerning our future financial performance and financing plans and programs;
 
  •   our level of debt and other fixed obligations;
 
  •   demand for passenger and cargo air service in the markets in which we operate;
 
  •   competitive pressures on pricing;
 
  •   our capital expenditure plans;
 
  •   changes in the regulatory environment in which we operate;
 
  •   changes in labor costs, maintenance costs, fuel costs and insurance premiums;
 
  •   changes in market prices, customer demand and preferences and competitive conditions;
 
  •   cyclical and seasonal fluctuations in our operating results;
 
  •   defects or mechanical problems with our aircraft;
 
  •   our ability to successfully implement our growth strategy;
 
  •   our ability to obtain financing on commercially reasonable terms; and
 
  •   the risk factors discussed under “Risk Factors” beginning on page 13.
      The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this prospectus because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this prospectus might not occur and are not guarantees of future performance. Considering these limitations, you should not place undue reliance on forward-looking statements contained in this prospectus.

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SUMMARY
      This summary highlights selected information about us and the Class A shares being offered by the selling shareholders. It may not contain all of the information that may be important to you. Before investing in the Class A shares, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our audited and unaudited financial statements and the related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Overview
      We are a leading Latin American provider of international airline passenger and cargo service. Operating from our strategically located position in the Republic of Panama, we currently offer approximately 80 daily scheduled flights among 30 destinations in 20 countries in North, Central and South America and the Caribbean. Additionally, we provide passengers with access to flights to more than 110 other destinations through codeshare arrangements with Continental Airlines pursuant to which each airline places its name and flight designation code on the other’s flights. We provide airline passenger and cargo service through our Panama City hub which enables us to consolidate passenger traffic from multiple points to serve each destination effectively. We also operate a Colombian carrier, AeroRepública S.A., that we acquired during the second quarter of 2005.
      We operate a modern fleet of 22 Boeing 737-Next Generation aircraft with an average age of approximately 3.3 years as of September 30, 2005 (not taking into account the fleet of AeroRepública, our recently-purchased operating subsidiary). We also accepted delivery of our first 94-seat Embraer 190 aircraft on November 16, 2005. To meet our growing capacity requirements, we have firm commitments to accept delivery of 18 additional aircraft through 2009 and have negotiated purchase rights and options that, if exercised, would allow us to accept delivery of up to 28 additional aircraft through 2011. Our firm orders are for seven additional Boeing 737-Next Generation aircraft and eleven additional Embraer 190s, and our purchase rights and options are for up to ten Boeing 737-Next Generation aircraft and up to 18 Embraer 190s.
      Since January 2001, Copa Holdings has grown significantly and has established a track record of consistent profitability, recording four consecutive years of increasing earnings. Our total operating revenues have increased from $290.4 million in 2001 to $399.8 million in 2004, while our net income has increased from $14.8 million to $68.6 million over the same period. Our operating margins also improved from 8.6% in 2001 to 20.6% in 2004. Over the same period, Copa Airlines increased its capacity from 2,920 million available seat miles to 3,639 million available seat miles while improving its load factor from 64.0% during 2001 to 70.0% during 2004 and its yield from 13.79 cents during 2001 to 14.31 cents during 2004.
      We started our strategic alliance with Continental Airlines in 1998 in conjunction with its purchase of 49% of our capital stock. Together, we conduct joint marketing and code-sharing arrangements, and we participate in the award-winning OnePass frequent flyer loyalty program globally and on a co-branded basis in Latin America. We believe that our co-branding and joint marketing activities with Continental have enhanced our brand and reputation in Latin America, and that our relationship has afforded us many cost-related benefits, such as improving our purchasing power in negotiations with service providers, aircraft vendors and insurers. Immediately prior to the consummation of this offering, our alliance and related services agreements with Continental will be extended until 2015.
      We recently purchased AeroRepública S.A. for an aggregate purchase price of approximately $23.4 million, including acquisition costs. AeroRepública is a Colombian air carrier that operates a fleet of ten leased MD-80s and two owned DC-9s. According to the Colombian Civil Aviation Administration, Unidad Especial Administrativa de Aeronáutica Civil, in 2004 AeroRepública was the second-largest domestic carrier in Colombia in terms of number of passengers carried, providing service to 11 cities in Colombia through a point-to-point route network. We believe that this acquisition represents an attractive opportunity to increase our access to one of the largest airline passenger markets in Latin America and to improve AeroRepública’s operational and financial performance.

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Our Strengths
      We believe our primary business strengths that have allowed us to compete successfully in the airline industry include the following:
  •   Our “Hub of the Americas” airport is strategically located. We believe that our base of operations at the geographically central location of Tocumen International Airport in Panama City, Panama provides convenient connections to our principal markets in North, Central and South America and the Caribbean, enabling us to consolidate traffic to serve several destinations that do not generate enough demand to justify point-to-point service. Flights from Panama operate with few service disruptions due to weather, contributing to high completion factors and on-time performance. Tocumen International Airport’s sea-level altitude allows our aircraft to operate without performance restrictions that they would be subject to at higher-altitude airports. We believe that the geographic reach provided by our central location allows us to generate revenue across a large and diverse base of destinations. We also believe that our hub in Panama allows us to benefit from Panama City’s status as a center for financial services, shipping and commerce and from Panama’s stable, dollar-based economy, free-trade zone and growing tourism industry.
 
  •   We focus on keeping our operating costs low. In recent years, our low operating costs and efficiency have contributed significantly to our profitability. Our cost per available seat mile was 8.72 cents in 2004 and 9.08 cents in the first nine months of 2005. The cost per available seat mile of our Copa operating segment when excluding costs for fuel and fleet impairment charges was 7.50 cents in 2001, 7.59 cents in 2002, 7.17 cents in 2003, 7.01 cents in 2004 and 6.61 cents during the nine months ended September 30, 2005. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations” for a reconciliation of our cost per available seat mile when excluding costs for fuel and fleet impairment charges to our cost per available seat mile. We believe that our cost per available seat mile reflects our modern fleet, efficient operations and the competitive cost of labor in Panama.
 
  •   We operate a modern fleet. Copa Airlines recently completed a fleet renovation program through which it replaced all of its older Boeing 737-200s with Boeing 737-Next Generation aircraft equipped with winglets and other modern cost-saving and safety features. We also recently accepted delivery of our first Embraer 190 aircraft. Over the next four years, we intend to further enhance our modern fleet through the addition of at least seven additional Boeing 737-Next Generation aircraft and eleven new Embraer 190s. We expect our Boeing 737-700s and 737-800s and our new Embraer 190s to offer substantial operational cost savings over the replaced aircraft in terms of fuel efficiency and maintenance costs. In addition, Copa Airlines believes that its modern fleet contributes to its excellent on-time performance and high completion factor which contribute to passenger satisfaction.
 
  •   We believe we have a strong brand and a reputation for quality service. We believe that the Copa brand is associated with value to passengers, providing world-class service and competitive pricing. For the nine months ended September 30, 2005, Copa Airline’s statistic for on-time performance was 93.3%, completion factor was 99.7% and baggage handling was 0.8 mishandled bags per 1000 passengers. Our goal is to apply our expertise in these areas to improve AeroRepública’s service statistics to comparable levels. Our focus on customer service has helped to build passenger loyalty. We believe that our brand has also been enhanced through our relationship with Continental, including our joint marketing of the OnePass loyalty program in Latin America, the similarity of our aircraft livery and aircraft interiors and our participation in Continental’s President’s Club lounge program.
 
  •   Our management fosters a culture of teamwork and continuous improvement. Our management team has been successful at creating a culture based on teamwork and focused on continuous improvement. Each of our employees has individual objectives based on corporate goals that serve as a basis for measuring performance. When corporate operational and financial targets are met, employees are eligible to receive bonuses according to our profit sharing program. See “Business—Employees.” We also recognize outstanding performance of individual employees through company-wide recognition, one-time awards, special events and, in the case of our senior management after this offering, grants of restricted stock and stock options. According to internal surveys, over 90% of our employees report being satisfied with their job. Our goal-oriented culture and incentive programs have contributed to a motivated work force that is focused on satisfying customers, achieving efficiencies and growing profitability.

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Our Strategy
      Our goal is to continue to grow profitably and enhance our position as a leader in Latin American aviation by providing a combination of superior customer service, convenient schedules and competitive fares, while maintaining competitive costs. The key elements of our business strategy include the following:
  •   Expand our network by increasing frequencies and adding new destinations. We believe that demand for air travel in Latin America is likely to expand in the next decade, and we intend to use our increasing fleet capacity to meet this growing demand. We intend to focus on expanding our operations by increasing flight frequencies on our most profitable routes and initiating service to new destinations. Our Panama City hub allows us to consolidate traffic and provide service to certain underserved markets, particularly in Central America and the Caribbean, and we intend to focus on providing new service to regional destinations that we believe best enhance the overall connectivity and profitability of our network. With the addition of Embraer 190 aircraft and growth in overall capacity, we will have more flexibility in scheduling our flights for our customers’ convenience.
 
  •   Continue to focus on keeping our costs low. We seek to reduce our cost per available seat mile without sacrificing services valued by our customers as we execute our growth plans. Our goal is to maintain a young fleet of modern aircraft and to make effective use of our resources through efficient aircraft utilization and employee productivity. We intend to reduce our distribution costs by increasing direct sales, including internet and call center sales, as well as improving efficiency through technology and automated processes.
 
  •   Introduce service with new Embraer 190 aircraft. We believe that the addition of the Embraer 190 aircraft in late 2005 will allow us to provide service to new destinations in underserved markets whose demand would be more efficiently served with the 94-seat Embraer 190 aircraft. In addition, we believe that the Embraer 190s will also enable us to more efficiently match our capacity to demand, allowing us to improve service frequencies to currently served markets and to redeploy the higher capacity Boeing 737-Next Generation aircraft to serve routes with greater demand.
 
  •   Emphasize superior service and value to our customers. We intend to continue to focus on satisfying our customers and earning their loyalty by providing a combination of superior service and competitive fares. We believe that continuing our operational success in keeping flights on time, reducing mishandled luggage and offering convenient schedules to attractive destinations will be essential to achieving this goal. We intend to continue to incentivize our employees to improve or maintain operating and service metrics relating to our customers’ satisfaction by continuing our profit sharing plan and employee recognition programs and to reward customer loyalty with the popular OnePass frequent flyer program, upgrades and access to President’s Club lounges.
 
  •   Selectively evaluate future acquisitions. From time to time in the future, we expect to evaluate acquisition opportunities in the Latin American aviation sector as they arise. We intend to evaluate any such opportunities selectively, focusing in particular on the extent to which they might complement our existing operations and provide potential for growth and increased shareholder value.
Selling Shareholders
      Fifty-one percent of Copa Holdings is currently owned by Corporación de Inversiones Aéreas, S.A., or “CIASA,” a holding company controlled by a group of Panamanian investors. The remaining 49% is owned by Continental. In connection with this offering, we have amended our Articles of Incorporation (Pacto Social) to provide for two classes of stock with different voting rights. Our new equity structure provides for Class A shares that initially have no voting rights except in certain circumstances and Class B shares that will be entitled to one vote per share on all matters. After the completion of the offering, Continental is expected to hold approximately 46.6% of our Class A shares, representing approximately 32.0% of our total capital stock. CIASA will hold all of our Class B shares and 1,050,000 Class A shares, together representing approximately 33.9% of our total capital stock and all of the voting rights associated with our capital stock. As long as CIASA beneficially owns a majority of the voting power of our capital stock, it will be able to elect a majority of our directors and to determine the outcome of the voting on substantially all actions that require shareholder approval. See “Description of Capital Stock.”

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Recent Development
      Prices for jet fuel have risen significantly throughout 2005 and remained at historically high levels during the third quarter of 2005. Our fuel cost increased from an average of $1.74 per gallon for the month ended June 30, 2005 to $2.15 per gallon for the month ended September 30, 2005. This recent upward trend was exacerbated by widespread disruption to oil production, refineries and pipeline capacity along portions of the U.S. Gulf Coast caused by the damage of Hurricanes Katrina and Rita during the third quarter of 2005. Although we have managed to offset some of the increases in fuel prices with higher load factors, fuel surcharges and fare increases, we cannot assure you that we will be able to continue to do so in the future. Fuel is our single largest operating expense and, as a result, our results of operations are likely to continue to be materially affected by the cost of fuel as compared with prior periods.
Our Organizational Structure
      The following is an organizational chart showing Copa Holdings and its principal subsidiaries:
(ORGANIZATION CHART)
 
Includes ownership by us held through wholly-owned holding companies organized in the British Virgin Islands.
     Copa is our principal airline operating subsidiary that operates out of our hub in Panama and provides passenger service in North, South and Central America and the Caribbean. Oval Financial Leasing, Ltd. controls the special purpose vehicles that have a beneficial interest in the majority of our aircraft. OPAC, S.A. is a property holding company that owns our former corporate headquarters facility. AeroRepública S.A. is our recently acquired operating subsidiary that primarily operates domestic flights within Colombia.
      Copa Holdings was formed on May 6, 1998 as a corporation (sociedad anónima) duly incorporated under the laws of Panama with an indefinite duration. Copa Holdings was organized to be a holding company for Copa and related companies in connection with the acquisition by Continental of its 49% interest in us.
 
      Our principal executive offices are located at Boulevard Costa del Este, Avenida Principal y Avenida de la Rotonda, Urbanización Costa del Este, Complejo Business Park, Torre Norte, Parque Lefevre, Panama City, Panama, and our telephone number is +507 303-3348. The website of Copa is www.copaair.com. AeroRepública maintains a website at www.aerorepublica.com.co. Information contained on, or accessible through, these websites is not incorporated by reference herein and shall not be considered part of this prospectus. Our agent for service in the United States is Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19715, and its telephone number is (302) 738-6680.

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The Offering
Issuer Copa Holdings, S.A.
 
Selling shareholders Corporación de Inversiones Aéreas, S.A. and Continental Airlines, Inc.
 
Shares offered by the selling shareholders 14,000,000 Class A shares, without par value, of which 7,000,000 Class A shares are being offered by Continental and 7,000,000 Class A shares are being offered by CIASA.
 
Over-allotment option The selling shareholders have granted the underwriters the right for a period of 30 days to purchase up to an additional 2,100,000 Class A shares solely to cover over-allotments, if any.
 
Offering price Between $15 and $17 per Class A share.
 
Shares outstanding after the offering Immediately following the offering (assuming the underwriters’ over-allotment option is not exercised), the number of shares of our capital stock will be as shown below:
         
    Class A:    
      Public, including management   14,937,500 shares
      Continental   13,978,125 shares
      CIASA   1,050,000 shares
         Total Class A shares   29,965,625 shares
    Class B:    
      CIASA   13,784,375 shares
         
           Total outstanding shares   43,750,000 shares
Voting rights The holders of the Class A shares have no voting rights except with respect to certain corporate transformations, mergers, consolidations or spin-offs, changes of our corporate purpose, voluntary delistings of the Class A shares from the NYSE, approval of nominations of the independent directors or amendments to the foregoing provisions that adversely affect the rights and privileges of any Class A shares. Under certain circumstances which we believe are not likely in the foreseeable future, each Class A share will entitle its record holder to one vote on all matters on which our shareholders are entitled to vote.
 
Each Class B share will be entitled to one vote on all matters for which shareholders are entitled to vote.
 
See “Description of Capital Stock.”
 
Controlling shareholder Following this offering, CIASA will continue to beneficially own 100% of our Class B shares which will represent all of the voting power of our capital stock. As long as CIASA beneficially owns a majority of the voting power of our capital stock, it will be able to elect a majority of our directors and to determine the outcome of the voting on substantially all actions that require shareholder approval. See “Description of Capital Stock.”
 
Ownership restrictions Our independent directors have the power under certain circumstances to control or restrict the level of non-Panamanian ownership of our Class B shares and the exercise of voting rights

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attaching to Class A shares held by non-Panamanian nationals in order to allow us to comply with Panamanian airline ownership and control requirements. See “Description of Capital Stock.”
 
Tag-along rights Our board of directors may refuse to register any transfer of shares in which CIASA proposes to sell Class B shares at a price per share that is greater than the average public trading price per share of the Class A shares for the preceding 30 days to an unrelated third party that would, after giving effect to such sale, have the right to elect a majority of the board of directors and direct our management and policies, unless the proposed purchaser agrees to make, as promptly as possible, a public offer for the purchase of all outstanding Class A shares and Class B shares at a price per share equal to the price per share paid for the CIASA shares being sold. However, a proposed purchaser could acquire control of Copa Holdings in a transaction that would not give holders of Class A shares the right to participate, including a sale by a party that had previously acquired control from CIASA, the sale of interests by another party in conjunction with a sale by CIASA, the sale by CIASA of control to more than one party, or the sale of controlling interests in CIASA itself. See “Description of Capital Stock — Tag-Along Rights.”
 
Use of proceeds We will not receive any proceeds from the sale of our Class A shares by the selling shareholders.
 
Dividends Holders of the Class A and Class B shares will be entitled to receive dividends to the extent they are declared by our board of directors in its absolute discretion. Our Articles of Incorporation provide that all dividends declared by our board of directors will be paid equally with respect to all of the Class A and Class B shares. After this offering, our board of directors intends to adopt a dividend policy that contemplates the annual payment of equal dividends to our Class A and Class B shareholders in an aggregate amount approximately equal to 10% of our consolidated net income for each year. This dividend policy can be amended or discontinued by our board of directors at any time for any reason. See “Dividends and Dividend Policy” and “Description of Capital Stock.”
 
Lock-up agreement We, the selling shareholders, our directors and executive officers have agreed, subject to certain exceptions, not to issue or transfer, until 180 days after the date of this prospectus, any shares of our capital stock, any options or warrants to purchase shares of our capital stock or any securities convertible into or exchangeable for shares of our capital stock.
 
Market for Class A shares Prior to this offering, there has been no public market for the Class A shares. There can be no assurance that an active public market in the United States for the Class A shares will develop or that it will continue if one does develop.
 
Listing The Class A shares have been approved for listing on the New York Stock Exchange (NYSE), subject to official notice of issuance.
 
NYSE symbol for the Class A shares CPA.

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Risk factors See “Risk Factors” beginning on page 13 and the other information included in this prospectus for a discussion of certain important risks you should carefully consider before deciding to invest in the Class A shares.
           
Expected offering timetable (subject to change):
       
 
Commencement of marketing of the offering
    Week of November 28, 2005  
 
Announcement of offer price and allocation of Class A shares
    Week of December 12, 2005  
 
Commencement of trading of Class A shares on the NYSE
    Week of December 12, 2005  
 
Settlement and delivery of Class A shares
    Week of December 19, 2005  

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Summary Financial and Operating Data
      The following table presents summary consolidated financial and operating data as of the dates and for the periods indicated. Our consolidated financial statements are prepared in accordance with U.S. GAAP and are stated in U.S. dollars. You should read this information in conjunction with our consolidated financial statements included in this prospectus and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” appearing elsewhere in this prospectus.
      The summary consolidated financial information as of December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003 and 2004 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated financial information as of December 31, 2000, 2001 and 2002 and for the years ended December 31, 2000 and 2001 has been derived from our audited consolidated financial statements that were prepared under International Accounting Standards and adjusted to be presented on a basis consistent with U.S. GAAP and which have not been included in this prospectus.
      The summary consolidated financial data as of and for the nine-months ended September 30, 2004 and 2005 has been derived from our unaudited interim consolidated financial statements for these periods appearing elsewhere in this prospectus. We recently acquired 99.7% of the stock of AeroRepública, a Colombian air carrier, and began consolidating AeroRepública’s results on April 22, 2005. For the nine months ended September 30, 2005 and for future periods, we will be reporting AeroRepública’s operations as a separate segment in our financial statements and the related notes. As a result of the acquisition, our financial information at and for the nine-months ended September 30, 2005 is not comparable to the information at and for the nine-months ended September 30, 2004. The results of operations for the nine months ended September 30, 2005 are not necessarily indicative of the operating results to be expected for the entire year ending December 31, 2005 or for any other period.
                                                             
        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
INCOME STATEMENT DATA
Operating revenue:
                                                       
 
Passenger revenue
  $ 226,012     $ 257,918     $ 269,629     $ 311,683     $ 364,611     $ 268,652     $ 398,550  
 
Cargo, mail and other
    29,402       32,454       31,008       30,106       35,226       24,514       30,379  
                                           
   
Total operating revenues
    255,414       290,372       300,637       341,789       399,837       293,166       428,929  
Operating expenses:
                                                       
 
Aircraft fuel
    48,126       46,514       40,024       48,512       62,549       43,753       97,733  
 
Salaries and benefits
    30,385       38,709       39,264       45,254       51,701       35,985       48,134  
 
Passenger servicing
    33,128       32,834       33,892       36,879       39,222       29,116       36,172  
 
Commissions
    31,537       31,652       28,720       27,681       29,073       21,458       31,456  
 
Reservations and sales
    15,238       18,629       16,707       18,011       22,118       15,727       21,415  
 
Maintenance, materials and repairs
    26,815       25,369       20,733       20,354       19,742       13,899       21,933  
 
Depreciation
    9,136       13,325       13,377       14,040       19,279       13,368       14,844  
 
Flight operations
    12,453       13,887       14,567       15,976       17,904       13,135       17,904  
 
Aircraft rentals
    20,398       20,106       21,182       16,686       14,445       10,435       19,351  
 
Landing fees and other rentals
    8,571       8,451       8,495       10,551       12,155       8,941       12,282  
 
Other
    18,010       15,892       19,166       25,977       29,306       19,847       25,364  
 
Fleet impairment charge(1)
                13,669       3,572                    
                                           
   
Total operating expenses
    253,797       265,368       269,796       283,493       317,494       225,664       346,588  
                                           
Operating income
    1,617       25,004       30,841       58,296       82,343       67,502       82,341  
                                           

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        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
Non-operating income (expense):
                                                       
 
Interest expense
    (9,751 )     (10,988 )     (7,629 )     (11,613 )     (16,488 )     (12,076 )     (15,755 )
 
Interest capitalized
    157       1,592       1,114       2,009       963       948       657  
 
Interest income
    225       701       831       887       1,423       878       2,300  
 
Other, net(2)
    (233 )     331       (1,490 )     2,554       6,063       4,104       4,061  
                                           
   
Total non-operating expenses, net
    (9,602 )     (8,364 )     (7,174 )     (6,163 )     (8,039 )     (6,146 )     (8,737 )
Income (loss) before income taxes
    (7,985 )     16,640       23,667       52,133       74,304       61,356       73,604  
Provision for income taxes
    (1,530 )     (1,822 )     (2,999 )     (3,644 )     (5,732 )     (4,663 )     (8,258 )
                                           
Net income (loss)
    (9,515 )     14,818       20,668       48,489       68,572       56,693       65,346  
                                           
BALANCE SHEET DATA
                                                       
Total cash, cash equivalents and short-term investments(3)
  $ 16,893     $ 28,385     $ 39,088     $ 65,962     $ 114,891     $ 105,531     $ 129,201  
Accounts receivable, net
    36,791       30,205       24,006       31,019       27,706       30,529       54,965  
Total current assets
    61,682       69,040       73,552       108,053       156,035       151,820       208,428  
Purchase deposits for flight equipment
    21,035       46,540       55,867       45,869       7,190       24,701       42,189  
Total property and equipment
    205,071       227,717       345,411       480,488       541,211       521,754       572,868  
Total assets
    270,506       300,121       421,935       591,915       702,050       678,136       846,126  
Long-term debt
    142,437       111,125       211,698       311,991       380,827       345,754       369,237  
Total shareholders’ equity
    19,638       46,426       67,094       115,583       174,155       172,276       229,223  
CASH FLOW DATA
                                                       
Net cash provided by operating activities
  $ 25,386     $ 32,997     $ 50,931     $ 73,561     $ 98,633     $ 70,301     $ 78,308  
Net cash used in investing activities
    (111,926 )     (39,473 )     (145,591 )     (151,884 )     (90,268 )     (50,201 )     (69,425 )
Net cash provided by financing activities
    93,100       14,466       100,400       105,298       29,755       23,389       (2,105 )
OTHER FINANCIAL DATA
                                                       
EBITDA(4)
    10,520       38,660       42,728       74,890       107,685       84,974       101,246  
Aircraft rentals
    20,398       20,106       21,182       16,686       14,445       10,435       19,351  
Operating margin(5)
    0.6 %     8.6 %     10.3 %     17.1 %     20.6 %     23.0 %     19.2 %
Weighted average shares used in computing net income per share(6)
    42,812,500       42,812,500       42,812,500       42,812,500       42,812,500       42,812,500       42,812,500  
Net income (loss) per share(6)
  $ (0.22 )   $ 0.35     $ 0.48     $ 1.13     $ 1.60     $ 1.32     $ 1.53  

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        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
OPERATING DATA
                                                       
Revenue passengers carried(7)
    1,647       1,794       1,819       2,028       2,333       1,726       3,030 (22)
Revenue passenger miles(8)
    1,645       1,870       1,875       2,193       2,548       1,887       2,743 (22)
Available seat miles(9)
    2,589       2,920       2,847       3,226       3,639       2,687       3,819  
Load factor(10)
    63.6 %     64.0 %     65.9 %     68.0 %     70.0 %     70.2 %     71.8 %(22)
Break-even load factor(11)
    67.6 %     58.7 %     54.5 %     52.8 %     52.6 %     50.7 %     56.6 %(22)
Total block hours(12)
    57,443       59,760       58,112       64,909       70,228       52,161       73,645  
Average daily aircraft utilization (13)
    8.8       9.1       8.8       9.0       9.3       9.4       9.6  
Average passenger fare
    137.2       143.8       148.2       153.7       156.3       155.6       131.6 (22)
Yield(14)
    13.74       13.79       14.38       14.22       14.31       14.24       14.53 (22)
Passenger revenue per ASM(15)
    8.73       8.83       9.47       9.66       10.02       10.00       10.44  
Operating revenue per ASM(16)
    9.86       9.94       10.56       10.60       10.99       10.91       11.23  
Operating expenses per ASM (CASM) (17)
    9.80       9.09       9.48       8.79       8.72       8.40       9.08  
Departures
    24,715       23,742       23,361       25,702       27,434       20,469       33,636  
Average daily departures
    67.5       65.0       64.0       70.4       75.0       74.7       151.8  
Average number of aircraft
    17.9       18.0       18.1       19.8       20.6       20.8       31.1  
Airports served at period end
    29       28       27       28       29       29       35  
Employees at period end
    2,174       2,281       2,453       2,640       2,754       2,705       4,194  
SEGMENT FINANCIAL DATA
                                                       
Copa:
                                                       
 
Operating revenue
  $ 255,414     $ 290,372     $ 300,637     $ 341,789     $ 399,837     $ 293,166     $ 367,253  
 
Operating expenses
    253,797       265,368       269,796       283,493       317,494       225,664       290,832  
 
Depreciation
    9,136       13,325       13,377       14,040       19,279       13,368       14,342  
 
Aircraft rentals
    20,398       20,106       21,182       16,686       14,445       10,435       16,391  
 
Interest expense
    9,751       10,988       7,629       11,613       16,488       12,076       14,188  
 
Interest capitalized
    157       1,592       1,114       2,009       963       948       657  
 
Interest income
    225       701       831       887       1,423       878       2,194  
 
Net income (loss) before tax
    (7,985 )     16,640       23,667       52,133       74,304       61,356       70,629  
 
Total assets
    270,506       300,121       421,935       591,915       702,050       678,136       785,383  
AeroRepública (since April 22, 2005):                                                
     Operating revenue     61,676  
     Operating expenses     55,756  
     Depreciation     502  
     Aircraft rentals     2,960  
     Interest expense     1,567  
     Interest capitalized      
     Interest income     106  
     Net income (loss) before tax     2,975  
     Total assets     84,103  

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        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
SEGMENT OPERATING DATA
                                                       
 
Copa:
                                                       
   
Available seat miles(9)
    2,589       2,920       2,847       3,226       3,639       2,687       3,244  
   
Load factor(10)
    63.6 %     64.0 %     65.9 %     68.0 %     70.0 %     70.2 %     73.1 %
   
Break-even load factor
    67.6 %     58.7 %     54.5 %     52.8 %     52.6 %     50.7 %     55.1 %
   
Yield(14)
    13.74       13.79       14.38       14.22       14.31       14.24       14.32  
   
Operating revenue per ASM(16)
    9.86       9.94       10.56       10.60       10.99       10.91       11.32  
   
CASM(17)
    9.80       9.09       9.48       8.79       8.72       8.40       8.97  
   
Average stage length(19)
    915       1,023       1,010       1,028       1,047       1,042       1,121  
   
On time performance(18)
    68.4       87.7       90.5       91.4       91.8       92.9       93.3  
AeroRepública (since April 22, 2005):                                                
            Available seat miles(9)     575  
            Load factor(10)     64.8 %
            Break even load factor     63.1 %
            Yield(14)     15.88 (22)
            Operating revenue per ASM(16)     10.73  
            CASM(17)     9.70  
            Average stage length(19)     365  
            On time performance(20)     70.4 %
 
  (1)  Represents impairment losses on our Boeing 737-200 aircraft and related assets. See the notes to our consolidated financial statements.
 
  (2)  Consists primarily of changes in the fair value of fuel derivative contracts, foreign exchange gains/losses and gains on sale of Boeing 737-200 aircraft. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our consolidated financial statements.
 
  (3)  Includes restricted cash and cash equivalents of $4.6 million as of December 31, 2002, $4.5 million as of December 31, 2003, $3.9 million as of December 31, 2004, $4.4 million as of September 30, 2004 and $4.9 million as of September 30, 2005.
 
  (4)  EBITDA represents net income (loss) plus the sum of interest expense, income taxes, depreciation and amortization minus the sum of interest capitalized and interest income. EBITDA is presented as supplemental information because we believe it is a useful indicator of our operating performance and is useful in comparing our operating performance with other airlines. However, EBITDA should not be considered in isolation, as a substitute for net income prepared in accordance with U.S. GAAP or as a measure of a company’s profitability. In addition, our calculation of EBITDA may not be comparable to other companies’ similarly titled measures. The following table presents a reconciliation of our net income to EBITDA for the specified periods:
                                                           
                        Nine Months
        Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005
                             
    (in thousands of dollars)
Net income (loss)
  $ (9,515 )   $ 14,818     $ 20,668     $ 48,489     $ 68,572     $ 56,693     $ 65,346  
Interest expense
    9,751       10,988       7,629       11,613       16,488       12,076       15,755  
Income taxes
    1,530       1,822       2,999       3,644       5,732       4,663       8,258  
Depreciation
    9,136       13,325       13,377       14,040       19,279       13,368       14,844  
                                           
 
Subtotal
    10,902       40,953       44,673       77,786       110,071       86,800       104,203  
                                           
Interest capitalized
    (157 )     (1,592 )     (1,114 )     (2,009 )     (963 )     (948 )     (657 )
Interest income
    (225 )     (701 )     (831 )     (887 )     (1,423 )     (878 )     (2,300 )
                                           
 
EBITDA
    10,520       38,660       42,728       74,890       107,685       84,974       101,246  
                                           
  Aircraft rentals represents a significant operating expense of our business. Because we leased several of our aircraft during the periods presented, we believe that when assessing our EBITDA you should also consider the impact of our aircraft rent expense,

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  which was $20.4 million in 2000, $20.1 million in 2001, $21.2 million in 2002, $16.7 million in 2003, $14.4 million in 2004, $10.4 million during the first nine months of 2004 and $19.3 million during the first nine months of 2005.
  (5)  Operating margin represents operating income divided by operating revenues.
 
  (6)  All share and per share amounts have been retroactively restated to reflect the current capital structure described under “Description of Capital Stock” and in the notes to our consolidated financial statements.
 
  (7)  Total number of paying passengers (including all passengers redeeming OnePass frequent flyer miles and other travel awards) flown on all flight segments, expressed in thousands.
 
  (8)  Number of miles flown by scheduled revenue passengers, expressed in millions.
 
  (9)  Aircraft seating capacity multiplied by the number of miles the seats are flown, expressed in millions.
(10)  Percentage of aircraft seating capacity that is actually utilized. Load factors are calculated by dividing revenue passenger miles by available seat miles.
 
(11)  Load factor that would have resulted in total revenues being equal to total expenses.
 
(12)  The number of hours from the time an airplane moves off the departure gate for a revenue flight until it is parked at the gate of the arrival airport.
 
(13)  Average number of block hours operated per day per aircraft for the total aircraft fleet.
 
(14)  Average amount (in cents) one passenger pays to fly one mile.
 
(15)  Passenger revenues (in cents) divided by the number of available seat miles.
 
(16)  Total operating revenues for passenger aircraft related costs (in cents) divided by the number of available seat miles.
 
(17)  Total operating expenses for passenger aircraft related costs (in cents) divided by the number of available seat miles.
 
(18)  Percentage of flights that arrive at the destination gate within fifteen minutes of scheduled arrival.
 
(19)  The average number of miles flown per flight.
 
(20)  Percentage of flights that depart within fifteen minutes of the scheduled departure time.
 
(21)  For AeroRepública operating data, this period covers from April 22, 2005 until September 30, 2005 which corresponds to the period that AeroRepública was consolidated in our financial statements.
 
(22)  AeroRepública has not historically distinguished between revenue passengers and non-revenue passengers. While we are implementing systems at AeroRepública to record that information, revenue passenger information and other statistics derived from revenue passenger data for the nine months ended September 30, 2005 has been derived from estimates that we believe to be materially accurate. Non-revenue passengers represented approximately 2.3% of AeroRepública’s total passengers for the period from April 22, 2005 to September 30, 2005.

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RISK FACTORS
      An investment in our Class A shares involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The trading price of our Class A shares could decline due to any of these risks, and you may lose all or part of your investment. The risks described below are those known to us and that we currently believe may materially affect us.
Risks Relating to Our Company
Our failure to successfully implement our growth strategy may adversely affect our results of operations and harm the market value of our Class A shares.
      We have grown rapidly over the past five years. We intend to continue to grow our fleet, expand our service to new markets and increase the frequency of flights to the markets we currently serve. Achieving these goals is essential in order for our business to benefit from cost efficiencies resulting from economies of scale. We expect to have substantial cash needs as we expand, including cash required to fund aircraft purchases or aircraft deposits as we add to our fleet. We cannot assure you that we will have sufficient cash to fund such projects, and if we are unable to successfully expand our route system, our future revenue and earnings growth would be limited.
      When we commence a new route, our load factors tend to be lower than those on our established routes and our advertising and other promotional costs tend to be higher, which may result in initial losses that could have a negative impact on our results of operations as well as require a substantial amount of cash to fund. We also periodically run special promotional fare campaigns, particularly in connection with the opening of new routes. Promotional fares may have the effect of increasing load factors while reducing our yield on such routes during the period that they are in effect. The number of markets we serve and our flight frequencies depend on our ability to identify the appropriate geographic markets upon which to focus and to gain suitable airport access and route approval in these markets. There can be no assurance that the new markets we enter will provide passenger traffic that is sufficient to make our operations in those new markets profitable. Any condition that would prevent or delay our access to key airports or routes, including limitations on the ability to process more passengers, the imposition of flight capacity restrictions, the inability to secure additional route rights under bilateral agreements or the inability to maintain our existing slots and obtain additional slots, could constrain the expansion of our operations.
      The expansion of our business will also require additional skilled personnel, equipment and facilities. The inability to hire and retain skilled pilots and other personnel or secure the required equipment and facilities efficiently and cost-effectively may adversely affect our ability to execute our growth strategy. Expansion of our markets and flight frequencies may also strain our existing management resources and operational, financial and management information systems to the point where they may no longer be adequate to support our operations, requiring us to make significant expenditures in these areas. In light of these factors, we cannot assure you that we will be able to successfully establish new markets or expand our existing markets, and our failure to do so could harm our business and results of operations, as well as the value of our Class A shares.
If we fail to successfully integrate the new Embraer 190 aircraft we have agreed to purchase into our operations, our business could be harmed.
      In October 2004, we announced an order to purchase ten new Embraer 190 aircraft, with options for an additional 20 new aircraft. In April 2005 we increased the number of firm commitments to purchase Embraer 190s to twelve by exercising two of those options. On November 16, 2005, we accepted delivery on the first of our twelve firm commitments to purchase the Embraer 190. Acquisition of an all-new type of aircraft, such as the Embraer 190, involves a variety of risks, including:
  •   difficulties or delays in obtaining the necessary certifications from the aviation regulatory authorities of the countries to which we fly;
 
  •   manufacturer’s delays in meeting the agreed upon aircraft delivery schedule;

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  •   difficulties in obtaining financing on acceptable terms to complete our purchase of all of the aircraft we have committed to purchase; and
 
  •   the inability of the new aircraft and its components to comply with agreed upon specifications and performance standards.
      In addition, we also face risks in integrating a second type of aircraft into our existing infrastructure and operations, including, among other things, the additional costs, resources and time needed to hire and train new pilots, technicians and other skilled support personnel. If we fail to successfully take delivery of, place into service and integrate into our operations the new Embraer 190 aircraft, our business, financial condition and results of operations could be harmed.
We are dependent on our alliance with Continental and cannot assure you that it will continue.
      We maintain a broad commercial and marketing alliance with Continental that has allowed us to enhance our network and, in some cases, offer our customers services that we could not otherwise offer. Similarly, if Continental were to experience severe financial difficulties or go bankrupt, our alliance and service agreements might be terminated or we may not realize the anticipated benefits from our relationship with Continental. Continental has incurred significant losses since September 11, 2001, primarily as a result of record high fuel prices and decreased yields. Continental has indicated that it expects to incur a significant loss in 2005 year and that the magnitude of its recent losses is not sustainable. We cannot assure you that Continental’s results will improve or that it will avoid bankruptcy and as a result we may be materially and adversely affected by a continuing deterioration of Continental’s financial condition.
      Since we began the alliance in 1998, we have benefited from Continental’s support in negotiations for aircraft purchases, insurance and fuel purchases, sharing of “best practices” and engineering support in our maintenance operations, and significant other intangible support. This support has assisted us in our growth strategy, while also improving our operational performance and the quality of our service. Our alliance relationship with Continental is the subject of a grant of antitrust immunity from the U.S. Department of Transportation, or DOT. If our relationship with Continental were to deteriorate, or our alliance relationship were no longer to benefit from a grant of antitrust immunity, or our alliance or services agreements were terminated, our business, financial condition and results of operations would likely be materially and adversely affected. The loss of our code-sharing relationship with Continental would likely result in a significant decrease in our revenues. We also rely on Continental’s OnePass frequent flyer program that we participate in globally and on a co-branded basis in Latin America, and our business may be adversely affected if the OnePass program does not remain a competitive marketing program. In addition, our competitors may benefit from alliances with other airlines that are more extensive than our alliance with Continental. We cannot predict the extent to which we will be disadvantaged by competing alliances. See “Related Party Transactions.”
Continental’s economic interest in our continued success can be expected to decline over time.
      After giving effect to this offering, Continental will reduce its ownership level in us from 49% to approximately 32% of our capital stock. Continental may monetize its investment in us and, pursuant to its registration rights agreement with CIASA, is entitled to require us to register with the Securities and Exchange Commission so that Continental may sell to the public up to 5,665,625 additional shares of our outstanding capital stock held by it. Continental will have certain rights pursuant to a shareholders’ agreement among Continental, CIASA and us, including the right to select two of our 11 directors for so long as Continental retains at least 19% of our capital stock. In addition, so long as our alliance agreement with Continental continues, even if Continental’s ownership declines to below 19% of our capital stock, Continental will still be entitled to select one of our 11 directors. Nevertheless, Continental’s interests will likely diverge from those of our other shareholders as Continental reduces its investment in us over time. Other than certain exclusivity provisions and a termination event for certain competitive activities contained in our alliance agreement, we do not have any non-competition agreement with Continental, and as Continental continues to reduce its economic stake in us, it may take actions that are adverse to the interests of the majority of our shareholders. See “Related Party Transactions.”

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We operate using a hub-and-spoke model and are vulnerable to competitors offering direct flights between destinations we serve.
      The structure of substantially all of our current flight operations (other than those of AeroRepública) generally follows what is known in the airline industry as a “hub-and-spoke” model. This model aggregates passengers by operating flights from a number of “spoke” origins to a central hub through which they are transported to their final destinations. In recent years, many traditional hub-and-spoke operators have faced significant and increasing competitive pressure from low-cost, point-to-point carriers on routes with sufficient demand to sustain point-to-point service. A point-to-point structure enables airlines to focus on the most profitable, high-demand routes and to offer greater convenience and, in many instances, lower fares. With the passage of time, and in particular as demand for air travel in Latin America increases, it is increasingly likely that one or more of our competitors will initiate non-stop service between important destinations that we currently serve through our Panamanian hub. By bypassing our hub in Panama, any non-stop service would be more convenient and possibly less expensive, than our connecting service and could significantly decrease demand for our service to those destinations. We believe that future competition from point-to-point carriers will be directed towards the largest markets that we serve. As a result, the effect of such competition on us could be significant and could have a material adverse effect on our business, financial condition and results of operations.
The Panamanian Aviation Act and certain of the bilateral agreements under which we operate contain Panamanian ownership requirements that are not clearly defined, and our failure to comply with these requirements could cause us to lose our authority to operate in Panama or to the international destinations we serve.
      Under Law No. 21 of January 29, 2003, which regulates the aviation industry in the Republic of Panama and which we refer to as the Aviation Act, “substantial ownership” and “effective control” of our airline must remain in the hands of Panamanian nationals. Under certain of the bilateral agreements between Panama and other countries pursuant to which we have the right to fly to those other countries and over their territory, we must continue to have substantial Panamanian ownership and effective control by Panamanian nationals to retain these rights. Neither “substantial ownership” nor “effective control” are defined in the Aviation Act or in the bilateral agreements, and it is unclear how a Panamanian court or, in the case of the bilateral agreements, foreign regulatory authorities might interpret these requirements. In addition, the manner in which these requirements are interpreted may change over time. We cannot predict whether these requirements would be satisfied through ownership and control by Panamanian record holders, or if these requirements would be satisfied only by direct and indirect ownership and control by Panamanian beneficial owners.
      At the present time, CIASA, a Panamanian entity, is the record owner of 51% of our share capital, and Continental, a U.S. entity, is the owner of 49% of our share capital. Immediately after giving effect to this offering (assuming the underwriters’ over-allotment options are exercised), CIASA will be the record owner of all of our Class B voting shares, representing approximately 31.5% of our total share capital and all of the voting power of our capital stock.
      On November 25, 2005, the Executive Branch of the Government of Panama promulgated a decree stating that the “substantial ownership” and “effective control” requirements of the Aviation Act are met if a Panamanian citizen or a Panamanian company is the record holder of shares representing 51% or more of the voting power of the company. Although the decree has the force of law for so long as it remains in effect, it does not supersede the Aviation Act, and it can be modified or superseded at any time by a future Executive Branch decree. Additionally, the decree has no binding effect on regulatory authorities of other countries whose bilateral agreements impose Panamanian ownership and control limitations on us. We cannot assure you that the decree will not be challenged, modified or superseded in the future, or that record ownership of a majority of our Class B shares by Panamanian entities will be sufficient to satisfy the “substantial ownership” requirement of the Aviation Act and the decree. If the Panamanian Civil Aviation Authority (the Autoridad de Aeronáutica Civil, which we refer to as the AAC, or a Panamanian court were to determine that “substantial” Panamanian ownership should be determined on the basis of our direct and indirect ownership, we could lose our license to operate our airline in Panama. Likewise, if a foreign regulatory authority were to determine that our direct or indirect Panamanian ownership fails to satisfy the minimum Panamanian ownership requirements for a Panamanian carrier under the applicable bilateral agreement, we may lose the

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benefit of that agreement and be prohibited from flying to the relevant country or over its territory. Any such determination would have a material adverse effect on our business, financial condition and results of operations, as well as on the value of the Class A shares.
Our business is subject to extensive regulation which may restrict our growth or our operations or increase our costs.
      Our business, financial condition and results of operations could be adversely affected if we or certain aviation authorities in the countries to which we fly fail to maintain the required foreign and domestic governmental authorizations necessary for our operations. In order to maintain the necessary authorizations issued by the AAC and other corresponding foreign authorities, we must continue to comply with applicable statutes, rules and regulations pertaining to the airline industry, including any rules and regulations that may be adopted in the future. We cannot predict or control any actions that the AAC or foreign aviation regulators may take in the future, which could include restricting our operations or imposing new and costly regulations. Also, our fares are technically subject to review by the AAC and the regulators of certain other countries to which we fly, any of which may in the future impose restrictions on our fares.
      We are also subject to international bilateral air transport agreements that provide for the exchange of air traffic rights between Panama and various other countries, and we must obtain permission from the applicable foreign governments to provide service to foreign destinations. There can be no assurance that existing bilateral agreements between the countries in which our airline operating companies are based and foreign governments will continue, or that we will be able to obtain more route rights under those agreements to accommodate our future expansion plans. A modification, suspension or revocation of one or more bilateral agreements could have a material adverse effect on our business, financial condition and results of operations. The suspension of our permits to operate to certain airports or destinations or the imposition of other sanctions could also have a material adverse effect. Due to the nature of bilateral agreements, we can fly to many destinations only from Panama. We cannot assure you that a change in a foreign government’s administration of current laws and regulations or the adoption of new laws and regulations will not have a material adverse effect on our business, financial condition and results of operations.
      We plan to continue to increase the scale of our operations and revenues by expanding our presence on new and existing routes. Our ability to successfully implement this strategy will depend upon many factors, several of which are outside our control or subject to change. These factors include the permanence of a suitable political, economic and regulatory environment in the Latin American countries in which we operate or intend to operate and our ability to identify strategic local partners.
      The most active government regulator among the countries to which we fly is the U.S. Federal Aviation Administration, or FAA. The FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. FAA requirements cover, among other things, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental issues, and increased inspections and maintenance procedures to be conducted on older aircraft. We expect to continue incurring expenses to comply with the FAA’s regulations, and any increase in the cost of compliance could have an adverse effect on our financial condition and results of operations. Additional new regulations continue to be regularly implemented by the U.S. Transportation Security Administration, or TSA, as well.
The growth of our operations to the United States and the benefits of our code-sharing arrangements with Continental are dependent on Panama’s continued favorable safety assessment.
      The FAA periodically audits the aviation regulatory authorities of other countries. As a result of its investigation, each country is given an International Aviation Safety Assessment, or IASA, rating. In May 2001, Panama’s IASA rating was downgraded from Category 1 to Category 2 due to alleged deficiencies in Panamanian air safety standards and AAC’s capability to provide regulatory oversight. As a result of this downgrade, we were prevented from offering flights to any new destinations in the United States and from certifying new aircraft for flights to the United States, and Continental was no longer able to codeshare on our flights. In April 2004, after extensive investment by the Panamanian government in the AAC and consultations among Copa, the AAC and U.S. safety officials, Panama’s IASA rating was restored to

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Category 1. We cannot assure you that the government of Panama, and the AAC in particular, will continue to meet international safety standards, and we have no direct control over their compliance with IASA guidelines. If Panama’s IASA rating were to be downgraded in the future, it could prohibit us from increasing service to the United States and Continental would have to suspend the placing of its code on our flights, causing us to lose direct revenue from codesharing as well as reducing flight options to our customers.
We are highly dependent on our hub at Panama City’s Tocumen International Airport.
      Our business is heavily dependent on our operations at our hub at Panama City’s Tocumen International Airport. Substantially all of our Copa flights either depart from or arrive at our hub. The hub-and-spoke structure of our operations is particularly dependent on the on-time arrival of tightly coordinated groupings of flights to ensure that passengers can make timely connections to continuing flights. Like other airlines, we are subject to delays caused by factors beyond our control, including air traffic congestion at airports, adverse weather conditions and increased security measures. Delays inconvenience passengers, reduce aircraft utilization and increase costs, all of which in turn negatively affect our profitability. A significant interruption or disruption in service at Tocumen International Airport could have a serious impact on our business, financial condition and operating results. Also, Tocumen International Airport provides international service to the Republic of Panama’s population of approximately 3.0 million, whereas the hub markets of our current competitors tend to be much larger, providing those competitors with a larger base of customers at their hub.
      Tocumen International Airport is operated by a corporation that is controlled by the government of the Republic of Panama. We depend on our good working relationship with the quasi-governmental corporation that operates the airport to ensure that we have adequate access to aircraft parking positions, landing rights and gate assignments for our aircraft to accommodate our current operations and future plans for expansion. The corporation that operates Tocumen International Airport does not enter into any formal, written leases or other agreements with airlines that govern rights to use the airport’s jetways or aircraft parking spaces. Therefore, in connection with the ongoing or future expansion of the airport, the airport authority could assign new capacity to competing airlines or could reassign resources that are currently used by us to other aircraft operators. Either such event could result in significant new competition for our routes or could otherwise have a material adverse effect on our current operations or ability for future growth.
We are exposed to increases in landing charges and other airport access fees and cannot be assured access to adequate facilities and landing rights necessary to achieve our expansion plans.
      We must pay fees to airport operators for the use of their facilities. Any substantial increase in airport charges could have a material adverse impact on our results of operations. Passenger taxes and airport charges have also increased in recent years, sometimes substantially. Certain important airports that we use, such as Bogotá’s El Dorado airport, may be privatized in the near future which is likely to result in significant cost increases to the airlines that use these airports. We cannot assure you that the airports used by us will not impose, or further increase, passenger taxes and airport charges in the future, and any such increases could have an adverse effect on our financial condition and results of operations.
      Certain airports that we serve (or that we plan to serve in the future) are subject to capacity constraints and impose slot restrictions during certain periods of the day. We cannot assure you that we will be able to obtain a sufficient number of slots, gates and other facilities at airports to expand our services as we are proposing to do. It is also possible that airports not currently subject to capacity constraints may become so in the future. In addition, an airline must use its slots on a regular and timely basis or risk having those slots re-allocated to others. Where slots or other airport resources are not available or their availability is restricted in some way, we may have to amend our schedules, change routes or reduce aircraft utilization. Any of these alternatives could have an adverse financial impact on us.
      Some of the airports to which we fly impose various restrictions, including limits on aircraft noise levels, limits on the number of average daily departures and curfews on runway use. In addition, we cannot assure you that airports at which there are no such restrictions may not implement restrictions in the future or that, where such restrictions exist, they may not become more onerous. Such restrictions may limit our ability to continue to provide or to increase services at such airports.

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We and our auditors identified a “material weakness” in our internal controls over financial reporting in connection with the preparation of our financial statements under U.S. GAAP, and if we fail to remediate this material weakness and achieve and maintain an effective system of internal controls, we may not be able to accurately report our financial results on a timely basis. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our Class A shares.
      We are currently a non-public company incorporated in Panama and have traditionally prepared our financial statements under International Financial Reporting Standards (also known as International Accounting Standards). In connection with the initial preparation of our financial statements under U.S. GAAP, we and our auditors identified a material weakness (as defined under standards established by the Public Company Accounting Oversight Board) in our internal controls over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented or detected. Specifically, we found that we did not have appropriate expertise in U.S. GAAP accounting and reporting among our financial and accounting staff to prepare our periodic financial statements without needing to make material corrective adjustments and footnote revisions when those statements are audited or reviewed. In light of this material weakness, in preparing the financial statements included in this prospectus, we performed additional analyses and other post-closing procedures in the course of preparing our financial statements and related footnotes in accordance with U.S. GAAP.
      Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form 20-F for the fiscal year ending December 31, 2006, we will be required to furnish a report by our management on our internal control over financial reporting. This report will contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the fiscal year, including a statement as to whether or not our internal controls over financial reporting are effective. We have contracted an additional accounting manager with experience in preparing financial statements under U.S. GAAP, we have engaged an internationally recognized accounting firm to assist us in developing our procedures to comply with the requirements of Section 404 and our management and audit committee are developing other plans to prepare for our compliance with the requirements of Section 404 and to correct the weakness identified above. We will incur incremental costs as a result of these efforts, including increased auditing and legal fees, the magnitude of which we are not able to estimate at this time. We may not be able to effectively and timely implement controls and procedures that adequately respond to Section 404 or other increased regulatory compliance and reporting requirements that will be applicable to us as a public company. We cannot assure you that we will not discover further weaknesses or deficiencies as we continue to develop these procedures. In addition, we cannot assure you that the steps we plan to take or the procedures we plan to implement will be sufficient to ensure that we will be able to prevent or detect any misstatements to our financial statements in the future.
      Any failure to implement and maintain the improvements in the controls over our financial reporting, or difficulties encountered in the implementation of these improvements in our controls, could result in a material misstatement to the annual or interim financial statements that would not be prevented or detected or cause us to fail to meet our reporting obligations under applicable securities laws. Any failure to improve our internal controls to address the identified weakness could result in our incurring substantial liability for not having met our legal obligations and could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our Class A shares. Similar adverse effects could result if our auditors express an adverse opinion or disclaim or qualify an opinion on management’s assessment or on the effectiveness of our internal control over financial reporting.
We have significant fixed financing costs and expect to incur additional fixed costs as we expand our fleet.
      The airline business is characterized by high leverage, and accordingly we have a high level of indebtedness. We also have significant expenditures in connection with our operating leases and facility rental costs, and substantially all of our property and equipment is pledged to secure indebtedness. For the year ended December 31, 2004, our interest expense and aircraft and facility rental expense under operating leases aggregated $35.6 million. At September 30, 2005, approximately 70% of our total indebtedness bore interest at

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fixed rates, and a small portion of our lease obligations was determined with reference to LIBOR. Accordingly, our financing and rent expense will not decrease significantly if market interest rates decline.
      As of September 30, 2005, we had firm commitments to purchase seven Boeing 737s and twelve Embraer 190s, with an aggregate list price of approximately $816 million. We have arranged for financing for a significant portion of the commitment relating to such aircraft and will require substantial capital from external sources to meet our remaining financial commitment. The acquisition and financing of these aircraft will likely result in a substantial increase in our leverage and fixed financing costs. A high degree of leverage and fixed payment obligations could:
  •   limit our ability in the future to obtain additional financing for working capital or other important needs;
 
  •   impair our liquidity by diverting substantial cash from our operating needs to service fixed financing obligations; or
 
  •   limit our ability to plan for or react to changes in our business, in the airline industry or in general economic conditions.
Any one of these could have a material adverse effect on our business, financial condition and results of operations.
The cost of refinancing our debt and obtaining additional financing for new aircraft could increase significantly if the Export-Import Bank of the United States does not continue to guarantee our debt.
      We currently finance our aircraft through bank loans and, to a lesser extent, operating leases and local bond offerings. In the past, we have obtained most of the financing for our Boeing aircraft purchases from commercial financial institutions utilizing guarantees provided by the Export-Import Bank of the United States. The Export-Import Bank provides guarantees to companies that purchase goods from U.S. companies for export, enabling them to obtain financing at substantially lower interest rates as compared to those that they could obtain without a guarantee. The Export-Import Bank will not be able to provide similar guarantees in connection with financing for our aircraft purchases from Embraer since those aircraft are not exports from the United States. At September 30, 2005, we had $344.9 million of outstanding indebtedness that is owed to financial institutions under financing arrangements guaranteed by the Export-Import Bank. We cannot predict whether the Export-Import Bank’s credit support will continue to be available to us to fund future purchases of Boeing aircraft. The Export-Import Bank may in the future limit its exposure to Panama-based companies, to our airline or to airlines generally, or may encourage us to diversify our credit sources by limiting future guarantees. Similarly, we cannot assure you that we will be able to continue to raise financing from past sources, or from other sources, on terms comparable to our existing financing. We may not be able to continue to obtain lease or debt financing on terms attractive to us, or at all, and if we are unable to obtain financing, we may be forced to modify our aircraft acquisition plans or to incur higher than anticipated financing costs which could have an adverse impact on the execution of our growth strategy and business.
Our existing debt financing agreements and our aircraft operating leases contain restrictive covenants that impose significant operating and financial restrictions on us.
      Our aircraft financing loans and operating leases and the instruments governing our other indebtedness contain a number of significant covenants and restrictions that limit our ability and our subsidiaries’ ability to:
  •   create material liens on our assets;
 
  •   take certain actions that may impair creditors’ rights to our aircraft;
 
  •   sell assets or engage in certain mergers or consolidations; and
 
  •   engage in other specified significant transactions.
      In addition, several of our aircraft financing agreements require us to maintain compliance with specified financial ratios and other financial and operating tests. For example, our access to certain borrowings under our aircraft financing arrangements is conditioned upon our maintenance of minimum debt service coverage

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and capitalization ratios. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources.” Complying with these covenants may cause us to take actions that make it more difficult to execute successfully our business strategy and we may face competition from companies not subject to such restrictions. Moreover, our failure to comply with these covenants could result in an event of default or refusal by our creditors to extend certain of our loans.
If we were to determine that our aircraft, rotable parts or inventory were impaired, it would have a significant adverse effect on our operating results.
      We perform impairment reviews when there are particular risks of impairment or other indicators described in Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in order to determine whether we need to reduce the carrying value of our aircraft and related assets with a related charge to our earnings. In addition to the fact that the value of our fleet declines as it ages, the excess capacity that currently exists in the airline industry, airline bankruptcies and other factors beyond our control may further contribute to the decline of the fair market value of our aircraft and related rotable parts and inventory. If such an impairment does occur, we would be required under U.S. GAAP to write down these assets to their estimated fair market value through a charge to earnings. A significant charge to earnings would adversely affect our financial condition and operating results. In addition, the interest rates on and the availability of certain of our aircraft financing loans are tied to the value of the aircraft securing the loans. If those values were to decrease substantially, our interest rates may rise or the lenders under those loans may cease extending credit to us, either of which could have an adverse impact on our financial condition and results of operations.
We rely on information technology systems, and we may become more dependent on such systems in the future.
      We rely upon information technology systems to operate our business and increase our efficiency. We are highly reliant on certain critical systems, such as the Sceptre system for maintenance, the “SHARES” computer reservation and check-in system and our new revenue management system. Other systems are designed to decrease distribution costs through Internet reservations and to maximize cargo distributions. These systems may not deliver their anticipated benefits. Also, in transitioning to new systems we may lose data or experience interruptions in service, which could harm our business.
Our quarterly results can fluctuate substantially.
      The airline industry is by nature cyclical and seasonal, and our operating results may vary from quarter to quarter. We tend to experience the highest levels of traffic and revenue in July and August, with a smaller peak in traffic in December and January. In general, demand for air travel is higher in the third and fourth quarters, particularly in international markets, because of the increase in vacation travel during these periods relative to the remainder of the year. We generally experience our lowest levels of passenger traffic in April and May. Given our high proportion of fixed costs, seasonality can affect our profitability from quarter to quarter. Demand for air travel is also affected by factors such as economic conditions, war or the threat of war, fare levels and weather conditions.
      Due to the factors described above and others described in this prospectus, quarter-to-quarter comparisons of our operating results may not be good indicators of our future performance. In addition, it is possible that in any quarter our operating results could be below the expectations of investors and any published reports or analyses regarding our company. In that event, the price of our Class A shares could decline, perhaps substantially.
Our reputation and financial results could be harmed in the event of an accident or incident involving our aircraft.
      An accident or incident involving one of our aircraft could involve significant claims by injured passengers and others, as well as significant costs related to the repair or replacement of a damaged aircraft and its temporary or permanent loss from service. A short time prior to our acquisition of AeroRepública, one of its aircraft slid off of a runway in an accident without serious injuries to passengers; however, the aircraft was severely damaged and declared a total loss by its insurers. We are required by our creditors and the lessors of

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our aircraft under our operating lease agreements to carry liability insurance, but the amount of such liability insurance coverage may not be adequate and we may be forced to bear substantial losses in the event of any future accident. Our insurance premiums may also increase due to an accident or incident affecting one of our aircraft. Substantial claims resulting from an accident in excess of our related insurance coverage or increased premiums would harm our business and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause the public to perceive us as less safe or reliable than other airlines which could harm our business and results of operations. Our business would also be significantly harmed if the public avoids flying our aircraft due to an adverse perception of the Boeing 737-Next Generation aircraft or the Embraer 190 due to safety concerns or other problems, whether real or perceived, or in the event of an accident involving either of those types of aircraft.
Fluctuations in foreign exchange rates could negatively affect our net income.
      In 2004, approximately 80% of our expenses and 50% of our revenues were denominated in U.S. dollars. The remainder of our expenses and revenues were denominated in the currencies of the various countries to which we fly, with the largest non-dollar amount denominated in Pesos. As a result of the acquisition of AeroRepública in April 2005, we will have an increased exposure to the Peso in future periods. If any of these currencies decline in value against the U.S. dollar, our revenues, expressed in U.S. dollars, and our operating margin would be adversely affected. We may not be able to adjust our fares denominated in other currencies to offset any increases in U.S. dollar-denominated expenses, increases in interest expense or exchange losses on fixed obligations or indebtedness denominated in foreign currency. We currently do not hedge the risk of fluctuation in foreign exchange rates. We are exposed to exchange rate losses and gains due to the fluctuation in the value of local currencies vis-à-vis the U.S. dollar during the period of time (typically between 1 to 2 weeks) between the time we are paid in local currencies and the time we are able to repatriate the revenues in U.S. dollars.
Our maintenance costs will increase as Copa Airline’s fleet ages and as we perform maintenance on AeroRepública’s older fleet.
      Because the average age of Copa Airline’s aircraft is approximately 3.3 years as of September 30, 2005, the fleet requires less maintenance now than it will in the future. We have incurred a relatively low level of maintenance expenses in recent years because most of the parts on Copa Airline’s aircraft are still covered under multi-year warranties. Our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our operating expenses as our fleet ages and these warranties expire.
      AeroRepública’s fleet is considerably older than Copa Airline’s fleet, having an average age of 22.4 years as of September 30, 2005. The aircraft operated by AeroRepública will likely be less reliable than Copa Airline’s newer aircraft and can be expected to require significantly greater expenditures on maintenance which may lead to an overall increase in our consolidated operating expenses.
If we enter into a prolonged dispute with any of our employees, many of whom are represented by unions, or if we are required to increase substantially the salaries or benefits of our employees, it may have an adverse impact on our operations and cash flows.
      Approximately 48.3% of our employees belong to a labor union. There are currently five unions covering our employees based in Panama: the pilots’ union; the flight attendants’ union; the mechanics’ union; the traffic attendants’ union; and a generalized union, which represents baggage handlers, aircraft cleaners, counter agents, and other non-executive administrative staff. After extensive negotiations, we entered into a new collective bargaining agreement with the general union on October 26, 2005. We will begin negotiations for new collective bargaining agreements with the mechanics’ union and the flight attendants’ union near the end of 2005. Our next negotiation with the pilots’ union is scheduled to begin in mid-2008. Typically, our collective bargaining agreements in Panama are between three and four year terms. We also have union contracts with employees in Brazil and Mexico. AeroRepública is a party to collective bargaining agreements that cover 96 of AeroRepública’s 112 pilots and co-pilots and all of AeroRepública’s 178 flight attendants. A strike, work interruption or stoppage or any prolonged dispute with our employees who are represented by any of these unions, or any sizable number of our employees, could have an adverse impact on our operations.

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These risks are typically exacerbated during periods of renegotiation with the unions. For example, in 2000 we experienced a brief localized pilots’ union work slow-down during contract negotiations that was eventually resolved to our satisfaction. Any renegotiated collective bargaining agreement could feature significant wage increases and a consequent increase in our operating expenses. Employees outside of Panama that are not currently members of unions may also form new unions that may seek further wage increases or benefits.
      Our business is labor intensive. We expect salaries, wages and benefits to increase on a gross basis, and these costs could increase as a percentage of our overall costs. If we are unable to hire, train and retain qualified pilots and other employees at a reasonable cost, our business could be harmed and we may be unable to complete our expansion plans.
Our investment in AeroRepública may not generate the benefits we sought when we purchased the company.
      In the second quarter of 2005, we purchased AeroRepública, a Colombian airline currently providing point-to-point service among eleven cities in Colombia. Until our acquisition of AeroRepública, we had been almost entirely focused on providing international air travel through our hub in Panama. Our investment in AeroRepública is subject to many risks and uncertainties that will ultimately determine whether the acquisition will increase or reduce our overall profitability. See “Business— AeroRepública.”
      We have identified several errors in the accounting and internal control procedures of AeroRepública. Prior to the acquisition, our diligence investigations identified several errors in the accounting and internal control procedures of AeroRepública indicating that their previous financial statements may not be reliable. As we become more directly involved in the management of AeroRepública, we may discover additional liabilities or problems of which we are currently unaware.
      Our maintenance costs will increase as we perform maintenance on AeroRepública’s older fleet. AeroRepública currently operates a fleet of twelve aircraft having an average age in excess of 20 years, compared to an average age of 3.3 years as of September 30, 2005 for the rest of our fleet. As a result, substantial unanticipated investments may be required to bring AeroRepública’s fleet and operations up to our standards of reliability and safety.
      We may not be able to achieve cost savings and other improvements in efficiency. We may not be able to achieve the cost savings and other improvements in efficiency that we seek at AeroRepública, and our failure to do so could harm our consolidated financial condition and results of operations. We believe that in recent years AeroRepública had operating margins that were close to zero and, as a result, we expect that the consolidation of AeroRepública’s results of operations may significantly decrease our future net operating margins.
      AeroRepública’s operations are sensitive to competitive conditions in the Colombian domestic air travel market as well as macroeconomic and political conditions in Colombia. All of AeroRepública’s scheduled operations are conducted within Colombia, so its results of operations are highly sensitive to competitive conditions in the Colombian domestic air travel market. AeroRepública’s rapid growth in recent years came during a period in which the domestic market leader, Aerovías del Continente Americano S.A. (Avianca), experienced severe financial difficulties that resulted in its bankruptcy and several other significant competitors exited the market. Recently, however, Avianca emerged from bankruptcy with new management and a substantially improved financial condition, and several new competitors have entered the Colombian domestic market. It is therefore likely that AeroRepública will face significantly stronger competition in the near future than it has in recent years, and its prior results may not be indicative of its future performance. AeroRepública’s future results will be highly sensitive to macroeconomic and political conditions prevailing in Colombia which have been highly volatile and unstable and may continue to be so for the foreseeable future. As a result of these and other factors, AeroRepública’s future results are subject to significant uncertainties, many of which are beyond our control. Therefore, we may encounter significant unanticipated problems at AeroRepública which could have a material adverse effect on our consolidated financial condition and results of operations.

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The integration of AeroRepública into our business may require a significant amount of our management’s time and distract our management from our core operations.
      Although we believe that our recent acquisition of AeroRepública represents an attractive opportunity, substantial resources will be needed to implement our plan to improve its profitability. Implementation of our plan is subject to many uncertainties and may eventually require us to dedicate a potentially significant portion of our limited management resources to this effort. Inconsistencies in standards, internal controls, procedures, policies, business cultures and compensation structures between us and AeroRepública, and the need to implement, coordinate and harmonize various business-specific operating procedures and systems, as well as the financial, accounting, information and other systems of us and AeroRepública, may result in substantial costs and may divert a substantial amount of our management’s resources from our core international operations. Diversion of Copa’s resources could materially and negatively affect our financial condition and results of operations.
Our revenues depend on our relationship with travel agents and tour operators.
      In 2004, approximately 62% of our revenues were derived from tickets sold by travel agents or tour operators. We cannot assure you that we will be able to maintain favorable relationships with these ticket sellers. Our revenues could be adversely impacted if travel agents or tour operators elect to favor other airlines or to disfavor us. Our relationship with travel agents and tour operators may be affected by:
  •   the size of commissions offered by other airlines;
 
  •   changes in our arrangements with other distributors of airline tickets; and
 
  •   the introduction and growth of new methods of selling tickets.
We rely on third parties to provide our customers and us with facilities and services that are integral to our business.
      We have entered into agreements with third-party contractors to provide certain facilities and services required for our operations, such as heavy aircraft and engine maintenance; call center services; and catering, ground handling, cargo and baggage handling, or “below the wing” aircraft services. For example, at airports other than Tocumen International Airport, all of the “below the wing” aircraft services for Copa flights are performed by contractors. AeroRepública contracts ground handling equipment in nine of the eleven cities it serves and has contracted labor for “below the wing” tasks in six of the eleven cities. Overhaul maintenance and “C-checks” for Copa are handled by contractors in the United States and Costa Rica, and some line maintenance for Copa is handled at certain airports by contract workers rather than our employees. Substantially all of our agreements with third-party contractors are subject to termination on short notice. The loss or expiration of these agreements or our inability to renew these agreements or to negotiate new agreements with other providers at comparable rates could harm our business and results of operations. Further, our reliance on third parties to provide essential services on our behalf gives us less control over the costs, efficiency, timeliness and quality of those services. A contractor’s negligence could compromise our aircraft or endanger passengers and crew. This could also have a material adverse effect on our business. We expect to be dependent on such agreements for the foreseeable future and if we enter any new market, we will need to have similar agreements in place.
We depend on a limited number of suppliers for our aircraft and engines.
      One of the elements of our business strategy is to save costs by operating a simplified aircraft fleet. Copa currently operates the Boeing 737-700/800 Next Generation aircraft powered by CFM 56-7B engines from CFM International. As of November 16, 2005, Copa began operating the Embraer 190, powered by General Electric CF 34-10 engines. We currently intend that Copa will continue to rely exclusively on these aircraft for the foreseeable future. If any of Boeing, Embraer, CFM International or GE Engines were unable to perform their contractual obligations, or if we are unable to acquire or lease new aircraft or engines from aircraft or engine manufacturers or lessors on acceptable terms, Copa would have to find another supplier for a similar type of aircraft or engine.

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      If Copa has to lease or purchase aircraft from another supplier, we could lose the benefits we derive from our current fleet composition. We cannot assure you that any replacement aircraft would have the same operating advantages as the Boeing 737-700/800 Next Generation or Embraer 190 aircraft that would be replaced or that Copa could lease or purchase engines that would be as reliable and efficient as the CFM 56-7B and GE CF34-10. We may also incur substantial transition costs, including costs associated with retraining our employees, replacing our manuals and adapting our facilities. Our operations could also be harmed by the failure or inability of Boeing, Embraer, CFM International or GE Engines to provide sufficient parts or related support services on a timely basis.
      Our business would be significantly harmed if a design defect or mechanical problem with either the Boeing 737-Next Generation aircraft or the Embraer 190 were discovered that would ground any of Copa’s aircraft while the defect or problem was corrected, assuming it could be corrected at all. The use of our aircraft could be suspended or restricted by regulatory authorities in the event of any actual or perceived mechanical or design problems. Our business would also be significantly harmed if the public began to avoid flying with us due to an adverse perception of the Boeing 737-Next Generation aircraft or the Embraer 190 stemming from safety concerns or other problems, whether real or perceived, or in the event of an accident involving either of those types of aircraft. Carriers that operate a more diversified fleet are better positioned than we are to manage such events.
We are dependent on key personnel.
      Our success depends to a significant extent upon the efforts and abilities of our senior management team and key financial, commercial, operating and maintenance personnel. In particular, we depend on the services of our senior management team, including Pedro Heilbron, our Chief Executive Officer, Victor Vial, our Chief Financial Officer, Lawrence Ganse, our Chief Operating Officer, Jorge Isaac García, our Vice-President, Commercial, and Daniel Gunn, our Vice-President, Planning. We have no employment agreements or non-competition agreements in place with members of our senior management team other than Mr. Heilbron, our Chief Executive Officer. Competition for highly qualified personnel is intense, and the loss of any executive officer, senior manager or other key employee without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect upon our business, operating results and financial condition.
Risks Relating to the Airline Industry
The airline industry is highly competitive.
      We face intense competition throughout our route network. Overall airline industry profit margins are low and industry earnings are volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs and other services. We compete with a number of other airlines that currently serve the routes on which we operate, including Grupo TACA, American Airlines Inc., LAN Airlines S.A. and Avianca. Some of our competitors, such as American Airlines, have larger customer bases and greater brand recognition in the markets we serve outside Panama, and some of our competitors have significantly greater financial and marketing resources than we have. Airlines based in other countries may also receive subsidies, tax incentives or other state aid from their respective governments, which are not provided by the Panamanian government. The commencement of, or increase in, service on the routes we serve by existing or new carriers could negatively impact our operating results. Likewise, competitors’ service on routes that we are targeting for expansion may make those expansion plans less attractive.
      We must constantly react to changes in prices and services offered by our competitors to remain competitive. The airline industry is highly susceptible to price discounting, particularly because airlines incur very low marginal costs for providing service to passengers occupying otherwise unsold seats. Carriers use discount fares to stimulate traffic during periods of lower demand to generate cash flow and to increase market share. Any lower fares offered by one airline are often matched by competing airlines, which often results in lower industry yields with little or no increase in traffic levels. Price competition among airlines in the future could lead to lower fares or passenger traffic on some or all of our routes, which could negatively impact our profitability. Grupo TACA lowered many of its fares a year ago in an effort to generate higher demand, and we

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have been forced to respond by adjusting our fares to remain competitive on the affected routes. We cannot assure you that Grupo TACA or any of our other competitors will not undercut our fares in the future or increase capacity on routes in an effort to increase their respective market shares as they have done in the past. Although we intend to compete vigorously and to assert our rights against any predatory conduct, such activity by other airlines could reduce the level of fares or passenger traffic on our routes to the point where profitable levels of operations could not be maintained. Due to our smaller size and financial resources compared to several of our competitors, we may be less able to withstand aggressive marketing tactics or fare wars engaged in by our competitors should such events occur.
We may face increasing competition from low-cost carriers offering discounted fares.
      Traditional hub-and-spoke carriers in the United States and Europe have in recent years faced substantial and increasing competitive pressure from low-cost carriers offering discounted fares. The low-cost carriers’ operations are typically characterized by point-to-point route networks focusing on the highest demand city pairs, high aircraft utilization, single class service and fewer in-flight amenities. As evidenced by the operations of Gol Intelligent Airlines Inc., or Gol, in Brazil and several new low-cost carriers planning to start service in Mexico, among others, the low-cost carrier business model appears to be gaining acceptance in the Latin American aviation industry. As a result, we may face new and substantial competition from low-cost carriers in the future which could result in significant and lasting downward pressure on the fares we charge for flights on our routes.
Significant changes or extended periods of high fuel costs or fuel supply disruptions could materially affect our operating results.
      Fuel costs constitute a significant portion of our total operating expenses, representing approximately 14.8% of our operating expenses in 2002, 17.1% in 2003, 19.7% in 2004 and 28.2% in the nine months ended September 30, 2005. As a result, substantial increases in fuel costs materially affect our operating results. Jet fuel costs have been subject to wide fluctuations as a result of increases in demand, sudden disruptions in and other concerns about global supply, as well as market speculation. Both the cost and availability of fuel are subject to many economic and political factors and events occurring throughout the world that we can neither control nor accurately predict, including international political and economic circumstances such as the political instability in major oil-exporting countries in Latin America, Africa and Asia. As a result, fuel prices continue to exhibit substantial volatility. Although we entered into hedging agreements with respect to approximately 15% of Copa’s projected fuel needs for 2005, these agreements provide limited protection against future increases in the price of fuel, and we cannot assure you that our current or any such future arrangements will be adequate to protect us from further increases in the price of fuel, or that fuel prices will decline from their current levels at any time in the near future. Indeed, numerous market experts and analysts have predicted that fuel prices can be expected to increase further, perhaps significantly, from their already high levels. If a future fuel supply shortage were to arise as a result of production curtailments by the Organization of the Petroleum Exporting Countries, or OPEC, a disruption of oil imports, supply disruptions resulting from severe weather or natural disasters, a further delay in the restart of the Gulf Coast refineries, the continued unrest in Iraq, other conflicts in the Middle East or otherwise, higher fuel prices or further reductions of scheduled airline services could result. Significant increases in fuel costs would materially and negatively affect our operating results. We cannot assure you that we would be able to offset any increases in the price of fuel by increasing our fares.
      The recent high prices were exacerbated by widespread disruption to oil production, refinery operations and pipeline capacity along certain portions of the U.S. Gulf Coast caused by the damage of Hurricane Katrina and Hurricane Rita during the third quarter of 2005. Our fuel costs increased from $1.74 per gallon during the month ended June 30, 2005 to $2.15 per gallon during the month ended September 30, 2005. It is likely that prices will remain high at least until refining capacity has been restored in the affected areas. We cannot predict when, or if, prices for fuel will decline to levels we have paid historically. Unless we experience a return to lower fuel prices, our results of operations will continue to be materially negatively affected as compared with prior periods.

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Because the airline industry is characterized by high fixed costs and relatively elastic revenues, airlines cannot quickly reduce their costs to respond to shortfalls in expected revenue.
      The airline industry is characterized by low gross profit margins, high fixed costs and revenues that generally exhibit substantially greater elasticity than costs. The operating costs of each flight do not vary significantly with the number of passengers flown and, therefore, a relatively small change in the number of passengers, fare pricing or traffic mix could have a significant effect on operating and financial results. These fixed costs cannot be adjusted quickly to respond to changes in revenues and a shortfall from expected revenue levels could have a material adverse effect on our net income.
Airline bankruptcies could adversely affect the industry.
      Since September 11, 2001 several air carriers have sought to reorganize under Chapter 11 of the United States Bankruptcy Code, including some of our competitors such as Avianca and Delta. Successful completion of such reorganizations could present us with competitors with significantly lower operating costs derived from labor, supply and financing contracts renegotiated under the protection of the Bankruptcy Code. For example, Avianca recently emerged from bankruptcy with a significantly improved financial condition. In addition, air carriers involved in reorganizations have historically undertaken substantial fare discounting in order to maintain cash flows and to enhance continued customer loyalty. Such fare discounting could further lower yields for all carriers, including us. Further, the market value of aircraft would likely be negatively impacted if a number of air carriers seek to reduce capacity by eliminating aircraft from their fleets.
The 2001 terrorist attacks on the United States have adversely affected, and any additional terrorist attacks or hostilities would further adversely affect, the airline industry by decreasing demand and increasing costs.
      The terrorist attacks in the United States on September 11, 2001 had a severe adverse impact on the airline industry. Airline traffic in the United States fell dramatically after the attacks and decreased less severely throughout Latin America. Our revenues depend on the number of passengers traveling on our flights. Therefore, any future terrorist attacks or threat of attacks, whether or not involving commercial aircraft, any increase in hostilities relating to reprisals against terrorist organizations or otherwise and any related economic impact could result in decreased passenger traffic and materially and negatively affect our business, financial condition and results of operations.
      The airline industry experienced increased costs following the 2001 terrorist attacks. Airlines have been required to adopt additional security measures and may be required to comply with more rigorous security guidelines in the future. Premiums for insurance against aircraft damage and liability to third parties increased substantially, and insurers could reduce their coverage or increase their premiums even further in the event of additional terrorist attacks, hijackings, airline crashes or other events adversely affecting the airline industry abroad or in Latin America. In the future, certain aviation insurance could become unaffordable, unavailable or available only for reduced amounts of coverage that are insufficient to comply with the levels of insurance coverage required by aircraft lenders and lessors or applicable government regulations. While governments in other countries have agreed to indemnify airlines for liabilities that they might incur from terrorist attacks or provide low-cost insurance for terrorism risks, the Panamanian government has not indicated an intention to provide similar benefits to us. Increases in the cost of insurance may result in both higher airline ticket prices and a decreased demand for air travel generally, which could materially and negatively affect our business, financial condition and results of operations.
The negative impact on the airline industry of the current global state of affairs, including the aftermath of the Iraq war and the threat of another outbreak of a communicable disease, may continue or possibly worsen.
      The combination of continued instability in the aftermath of the Iraq war and the public’s concerns about the possibility of an outbreak of a disease that can be spread by fellow commercial air passengers (such as avian flu or Severe Acute Respiratory Syndrome) has continued to have a negative impact on the public’s willingness to travel by air. It is impossible to determine if and when such adverse effects will abate and whether they will further decrease demand for air travel, which could materially and negatively affect our business, financial condition and results of operations.

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Risks Relating to Panama and our Region
Our performance is heavily dependent on economic conditions in the countries in which we do business.
      Passenger demand is heavily cyclical and highly dependant on global and local economic growth, economic expectations and foreign exchange rate variations. In the past, we have been negatively impacted by poor economic performance in certain emerging market countries in which we operate. Any of the following developments in the countries in which we operate could adversely affect our business, financial condition and results of operations:
  •   changes in economic or other governmental policies;
 
  •   changes in regulatory, legal or administrative practices; or
 
  •   other political or economic developments over which we have no control.
Additionally, a significant portion of our revenues is derived from discretionary and leisure travel which are especially sensitive to economic downturns. A worsening of economic conditions could result in a reduction in passenger traffic, and leisure travel in particular, which in turn would materially and negatively affect our financial condition and results of operations. Any perceived weakening of economic conditions in this region could likewise negatively affect our ability to obtain financing to meet our future capital needs in international capital markets.
We are highly dependent on conditions in Panama.
      A substantial portion of our assets are located in the Republic of Panama, a significant proportion of our customers are Panamanian, and substantially all of Copa’s flights operate through our hub at Tocumen International Airport. As a result, we depend on economic and political conditions prevailing from time to time in Panama. Panama’s economic conditions in turn highly depend on the continued profitability and economic impact of the Panama Canal. Control of the Panama Canal and many other assets were transferred from the United States to Panama in 1999 after nearly a century of U.S. control. Although the Panamanian government is democratically elected and the Panamanian political climate is currently stable, we cannot assure you that current conditions will continue. If the Panamanian economy experiences a recession or a reduction in its economic growth rate, or if Panama experiences significant political disruptions, our business, financial condition and results of operations could be materially and negatively affected.
We have paid relatively low taxes in the past, and any increase in the corporate income taxes we pay in Panama or the other countries where we do business would adversely affect our profitability.
      We cannot assure you that we will not be subject to additional taxes in the future or that current taxes will not be increased. Our provision for income taxes was $2,999,000, $3,644,000 and $5,732,000 in the years ended December 31, 2002, 2003 and 2004 which represented an effective income tax rate of 12.7%, 7.0% and 7.7% for the respective periods. We are subject to local tax regulations in each of the jurisdictions where we operate, the great majority of which are related to the taxation of income. In six of the countries to which we fly, we do not pay any income taxes because we do not generate income under the laws of those countries either because they do not have income tax or because of treaties or other arrangements those countries have with Panama. In the remaining countries, we pay income tax at a rate ranging from 25% to 35% of income. Different countries calculate income in different ways, but they are typically derived from sales in the applicable country multiplied by our net margin or by a presumed net margin set by the relevant tax legislation. The determination of our taxable income in several countries is based on a combination of revenues sourced to each particular country and the allocation of expenses of our operations to that particular country. The methodology for multinational transportation company sourcing of revenue and expense is not always specifically prescribed in the relevant tax regulations, and therefore is subject to interpretation by both us and the respective taxing authorities. Additionally, in some countries, the applicability of certain regulations governing non-income taxes and the determination of our filing status are also subject to interpretation. We cannot estimate the amount, if any, of potential tax liabilities that might result if the allocations, interpretations and filing positions used by us in our tax returns were challenged by the taxing authorities of one or more countries. The low rate at which we pay income

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tax has been critical to our profitability in recent years and if it were to increase, our financial performance and results of operations would be materially and adversely affected.
      In the past, our expenses attributable to operations in Panama have consistently exceeded our revenues attributable to operations in Panama. As a result, we have typically experienced losses for Panamanian income tax purposes and were not subject to any income tax obligations. Recently, the Panamanian legislature enacted a new income tax law that provides for an “alternative minimum tax” that equals 1.4% of a company’s revenues attributable to operations in Panama. We estimate that our annual income tax liability will be an additional $1.3 million based on traffic and revenues expected for 2005. There is also uncertainty under the new law about how we should allocate revenues to operations in Panama. If the Panamanian tax authorities do not agree with our interpretation of the new law or our methods of allocating revenues, we may be subject to additional tax liability. Airlines in Panama are currently not subject to any taxes relating specifically to the airline industry other than the 4% tax collected from passengers on tickets sold in Panama for the benefit of the Panamanian Tourism Bureau.
The new social security law in Panama will adversely affect our net income.
      On June 1, 2005, the Panamanian legislature passed a new law changing the way the public pension system is funded. In response to public protests in opposition to the new law, the government has suspended its effectiveness until December 31, 2005. If the new law were to become effective as enacted, we expect that we would be responsible for additional expenses in respect of all of our Panamanian employees related to the funding of their future social security benefits. We estimate that these expenses would have been approximately $300,000 from June 1, 2005 through the remainder of 2005 had this new law not been suspended until December 31, 2005. However, due to the substantial uncertainty surrounding the law, we cannot estimate its future effect on our results of operations.
Political unrest and instability in Colombia may adversely affect our business and the market price of our Class A shares.
      We completed our acquisition of AeroRepública in the second quarter of 2005. Almost all of AeroRepública’s scheduled operations are conducted within Colombia. As a result, AeroRepública may be significantly affected by political conditions in Colombia. Terrorism and violence have plagued Colombia in the past. Continuing guerrilla activity could cause political unrest and instability in Colombia, which could adversely affect AeroRepública’s financial condition and results of operations. In addition, the threat of terrorist attacks could impose additional costs on us, including enhanced security to protect our aircraft, facilities and personnel against possible attacks as well as increased insurance premiums.
Risks Relating to Our Class A Shares
The value of our Class A shares may be adversely affected by ownership restrictions on our capital stock and the power of our board of directors to take remedial actions to preserve our operating license and international route rights by requiring sales of certain outstanding shares or issuing new stock.
      Pursuant to the Panamanian Aviation Act, as amended and interpreted to date, and certain of the bilateral treaties affording us the right to fly to other countries, we are required to be “substantially owned” and “effectively controlled” by Panamanian nationals. Our failure to comply with such requirements could result in the loss of our Panamanian operating license and/or our right to fly to certain important countries. Our Articles of Incorporation (Pacto Social) give special powers to our independent directors to take certain significant actions to attempt to ensure that the amount of shares held in us by non-Panamanian nationals does not reach a level which could jeopardize our compliance with Panamanian and bilateral ownership and control requirements. If our independent directors determine it is reasonably likely that we will be in violation of these ownership and control requirements and our Class B shares represent less than 10% of our total outstanding capital stock (excluding newly issued shares sold with the approval of our independent directors committee), our independent directors will have the power to issue additional Class B shares or Class C shares with special voting rights solely to Panamanian nationals. See “Description of Capital Stock.”

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      If any of these remedial actions are taken, the trading price of the Class A shares may be materially and adversely affected. An issuance of Class C shares could have the effect of discouraging certain changes of control of Copa Holdings or may reduce any voting power that the Class A shares enjoy prior to the Class C share issuance. There can be no assurance that we would be able to complete an issuance of Class B shares to Panamanian nationals. We cannot assure you that restrictions on ownership by non-Panamanian nationals will not impede the development of an active public trading market for the Class A shares, adversely affect the market price of the Class A shares or materially limit our ability to raise capital in markets outside of Panama in the future.
Our controlling shareholder has the ability to direct our business and affairs, and its interests could conflict with yours.
      As of the closing of this offering, all of our Class B shares, representing approximately 31.5% of the economic interest in Copa Holdings and all of the voting power of our capital stock, will be owned by CIASA. CIASA is in turn controlled by a group of Panamanian investors. In order to comply with the Panamanian Aviation Act, as amended and interpreted to date, in connection with this offering we have amended our organizational documents to modify our share capital so that CIASA will continue to exercise voting control of Copa Holdings. CIASA will not be able to transfer its voting control unless control of our company will remain with Panamanian nationals. CIASA will maintain voting control of the company so long as CIASA continues to own a majority of our Class B shares and the Class B shares continue to represent more than 10% of our total share capital (excluding newly issued shares sold with the approval of our independent directors committee). Even after CIASA ceases to own the majority of the voting power of our capital stock, CIASA may continue to control our board of directors indirectly through its control of our Nominating and Corporate Governance Committee. As the controlling shareholder, CIASA may direct us to take actions that could be contrary to your interests and under certain circumstances CIASA will be able to prevent other shareholders, including you, from blocking these actions. Also, CIASA may prevent change of control transactions that might otherwise provide you with an opportunity to dispose of or realize a premium on your investment in our Class A shares.
The Class A shares will only be permitted to vote in very limited circumstances and may never have full voting rights.
      The holders of Class A shares have no right to vote at our shareholders’ meetings except with respect to corporate transformations of Copa Holdings, mergers, consolidations or spin-offs of Copa Holdings, changes of corporate purpose, voluntary delistings of the Class A shares from the NYSE, the approval of nominations of our independent directors and amendments to the foregoing provisions that adversely affect the rights and privileges of any Class A shares. The holders of Class B shares have the power, subject to our shareholders’ agreement with Continental, to elect the board of directors and to determine the outcome of all other matters to be decided by a vote of shareholders. Class A shares will not have full voting rights unless the Class B shares represent less than 10% of our total capital stock (excluding newly issued shares sold with the approval of our independent directors committee). See “Description of Capital Stock.” We cannot assure you that the Class A shares will ever carry full voting rights.
Substantial future sales of our Class A shares by Continental or CIASA after this offering could cause the price of the Class A shares to decrease.
      CIASA will own all of our Class B shares immediately following this offering, and those Class B shares will be converted into Class A shares if they are sold to non-Panamanian investors. Continental will own 13,978,125, or approximately 46.6%, of our Class A shares following this offering. CIASA and Continental each will hold registration rights with respect to a significant portion of their shares pursuant to a registration rights agreement to be entered into in connection with this offering. Continental is likely to seek to exercise its rights to register and sell a significant number of additional Class A shares as soon as possible after the expiry of the lock-up period referred to below. The market price of our Class A shares could drop significantly if Continental or other holders of our shares sell a significant number of shares, or if the market perceives that they intend to sell them. We, the selling shareholders, our directors and executive officers have agreed, subject to certain exceptions, not to issue or transfer, until 180 days after the date of this prospectus, any shares of our

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capital stock, any options or warrants to purchase shares of our capital stock, or any securities convertible into, or exchangeable for, shares of our capital stock. We, the selling shareholders and our directors and executive officers have also agreed not to make any demand for, or exercise any right with respect to, the registration of any Class A shares or any security convertible into or exercisable or exchangeable for Class A shares, until 180 days after the date of this prospectus. Nevertheless, after these lock-up agreements expire, they will not be restricted from selling the shares in the public market.
Holders of our common stock are not entitled to preemptive rights, and as a result you may experience substantial dilution upon future issuances of stock by us.
      Under Panamanian law and our organizational documents, holders of our Class A shares are not entitled to any preemptive rights with respect to future issuances of capital stock by us. Therefore, unlike companies organized under the laws of many other Latin American jurisdictions, we will be free to issue new shares of stock to other parties without first offering them to our existing shareholders. In the future we may sell Class A or other shares to persons other than our existing shareholders at a lower price than the shares being sold in this offering, and as a result you may experience substantial dilution of your interest in us.
You may not be able to sell our Class A shares at the price or at the time you desire because an active or liquid market for the Class A shares may not develop.
      Prior to this offering, there has not been a public market for our Class A shares. The Class A shares have been approved for listing on the NYSE, subject to official notice of issuance. We cannot predict, however, whether an active liquid public trading market for our Class A shares will develop or be sustained. Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy-and-sell orders for investors. The liquidity of a securities market is often affected by the volume of shares publicly held by unrelated parties.
Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all.
      Our board of directors has determined to adopt a dividend policy that provides for the payment of dividends to shareholders equal to approximately 10% of our annual consolidated net income. Our board of directors may, in its sole discretion and for any reason, amend or repeal this dividend policy. Our board of directors may decrease the level of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividends with respect to shares of our common stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and other factors that our board of directors may deem relevant. See “Dividend Policy.”
To the extent we pay dividends to our shareholders, we will have less capital available to meet our future liquidity needs.
      Our board of directors has determined to adopt a dividend policy that provides for the payment of dividends to shareholders equal to approximately 10% of our annual consolidated net income. The aviation industry has cyclical characteristics, and many international airlines are currently experiencing difficulties meeting their liquidity needs. Also, our business strategy contemplates substantial growth over the next several years, and we expect such growth will require a great deal of liquidity. To the extent that we pay dividends in accordance with the policy that our board of directors is adopting in connection with this offering, the money that we distribute to shareholders will not be available to us to fund future growth and meet our other liquidity needs.
Our Articles of Incorporation impose ownership and control restrictions on our company which ensure that Panamanian nationals will continue to control us and that these restrictions operate to prevent any change of control or some transfers of ownership in order to comply with the Aviation Act and other bilateral restrictions.
      Under the Panamanian Aviation Act, as amended and interpreted to date, Panamanian nationals must exercise “effective control” over the operations of the airline and must maintain “substantial ownership.” These phrases are not defined in the Aviation Act itself and it is unclear how a Panamanian court would

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interpret them. The share ownership requirements and transfer restrictions contained in our Articles of Incorporation, as well as the dual-class structure of our voting capital stock are designed to ensure compliance with these ownership and control restrictions. See “Description of Capital Stock.” These provisions of our Articles of Incorporation may prevent change of control transactions that might otherwise provide you with an opportunity to realize a premium on your investment in our Class A shares. They also ensure that Panamanians will continue to control all the decisions of our company for the foreseeable future.
The protections afforded to minority shareholders in Panama are different from and more limited than those in the United States and may be more difficult to enforce.
      Under Panamanian law, the protections afforded to minority shareholders are different from, and much more limited than, those in the United States and some other Latin American countries. For example, the legal framework with respect to shareholder disputes is less developed under Panamanian law than under U.S. law and there are different procedural requirements for bringing shareholder lawsuits, including shareholder derivative suits. As a result, it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholder than it would be for shareholders of a U.S. company. In addition, Panamanian law does not afford minority shareholders as many protections for investors through corporate governance mechanisms as in the United States and provides no mandatory tender offer or similar protective mechanisms for minority shareholders in the event of a change in control. While our Articles of Incorporation provide limited rights to holders of our Class A shares to sell their shares at the same price as CIASA in the event that a sale of Class B shares by CIASA results in the purchaser having the right to elect a majority of our board, there are other change of control transactions in which holders of our Class A shares would not have the right to participate, including the sale of interests by a party that had previously acquired Class B shares from CIASA, the sale of interests by another party in conjunction with a sale by CIASA, the sale by CIASA of control to more than one party, or the sale of controlling interests in CIASA itself.
Developments in Latin American countries and other emerging market countries may cause the market price of our Class A shares to decrease.
      The market value of securities issued by Panamanian companies may be affected to varying degrees by economic and market conditions in other countries, including other Latin American and emerging market countries. Although economic conditions in emerging market countries outside Latin America may differ significantly from economic conditions in Panama and Colombia or elsewhere in Latin America, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Panamanian issuers or issuers with significant operations in Latin America. As a result of economic problems in various emerging market countries in recent years (such as the Asian financial crisis of 1997, the Russian financial crisis of 1998 and the Argentine financial crisis in 2001), investors have viewed investments in emerging markets with heightened caution. Crises in other emerging market countries may hamper investor enthusiasm for securities of Panamanian issuers, including our shares, which could adversely affect the market price of our Class A shares.

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USE OF PROCEEDS
      We will not receive any proceeds from the sale of our Class A shares by the selling shareholders.
DIVIDENDS AND DIVIDEND POLICY
      The payment of dividends on our shares is subject to the discretion of our board of directors. Under Panamanian law, we may pay dividends only out of retained earnings and capital surplus. So long as we do not default in our payments under our loan agreements, there are no covenants or other restrictions on our ability to declare and pay dividends. Our Articles of Incorporation provide that all dividends declared by our board of directors will be paid equally with respect to all of the Class A and Class B shares. See “Description of Capital Stock—Dividends.”
      Our board of directors has determined to adopt a dividend policy that provides for the payment of approximately 10% of our annual consolidated net income to shareholders as a dividend to be declared at our annual shareholders’ meeting and paid shortly thereafter. Our board of directors may, in its sole discretion and for any reason, amend or discontinue the dividend policy it is expected to adopt upon the closing of this offering. Our board of directors may change the level of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividends with respect to shares of our common stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and other factors that our board of directors may deem relevant.
      We paid an extraordinary dividend of $10 million to our shareholders in December 2004 and another extraordinary dividend of $10 million in June 2005. Prior to the December 2004 dividend payment, we had not paid a dividend since the formation of Copa Holdings in 1998.
DILUTION
      Net tangible book value represents the amount of our total assets, less our total liabilities and intangible assets, such as goodwill, acquired routes and trade name. Net tangible book value per share is determined by dividing our net tangible book value by the number of our outstanding shares.
      As of September 30, 2005, our net tangible book value was approximately $176,160,000, or $4.03 per share after giving effect to the recapitalization and the restricted stock awards to our management that we intend to effect in connection with this offering. We may adjust the number of restricted stock awards to our management prior to the offering. Assuming that the initial public offering price paid by investors is the mid-point of the estimated offering price range indicated on the cover page of this prospectus, the immediate dilution to purchasers of the shares in the offering is $11.97 per share, or 74.8%. Dilution, for this purpose, represents the difference between the price per share paid by purchasers in this offering and our net tangible book value per share as of September 30, 2005, as adjusted to give effect to our recapitalization and the issuance of restricted stock to certain of our management employees.

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CAPITALIZATION
      The following table sets forth our cash and cash equivalents, short-term debt, long-term debt and total capitalization at September 30, 2005 on an actual basis and as adjusted to reflect the recapitalization undertaken in connection with this offering. As we will receive no proceeds from the sale of the Class A shares by the selling shareholders, there will be no change in our overall capitalization as a result of this offering. You should read this table in conjunction with “Selected Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. None of our indebtedness is guaranteed by a third party.
                   
    At September 30, 2005
     
    Actual   As Adjusted
         
    (in thousands)
Cash and cash equivalents
  $ 129,201     $ 129,201  
Indebtedness:
               
Copa
               
 
Secured indebtedness due through 2015
    388,354       388,354  
 
Unsecured indebtedness due through 2006
    21,920       21,920  
AeroRepública
               
 
Secured indebtedness due through 2012
    17,249       17,249  
 
Unsecured indebtedness due through 2010
    2,285       2,285  
Shareholders’ equity:
               
 
Old Class A shares (without par value)
    14,904        
 
Old Class B shares (without par value)
    14,319        
 
New Class A shares (without par value)
          19,813  
 
New Class B shares (without par value)
          9,410  
 
Retained earnings
    200,209       200,209  
 
Accumulated other comprehensive loss
    (209 )     (209 )
             
Total shareholders’ equity
    229,223       229,223  
             
Total capitalization
    659,031       659,031  
             

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SELECTED FINANCIAL AND OPERATING DATA
      The following table presents summary consolidated financial and operating data as of the dates and for the periods indicated. Our consolidated financial statements are prepared in accordance with U.S. GAAP and are stated in U.S. dollars. You should read this information in conjunction with our consolidated financial statements included in this prospectus and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” appearing elsewhere in this prospectus.
      The summary consolidated financial information as of December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003 and 2004 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated financial information as of December 31, 2000, 2001 and 2002 and for the years ended December 31, 2000 and 2001 has been derived from our audited consolidated financial statements that were prepared under International Accounting Standards and adjusted to be presented on a basis consistent with U.S. GAAP and which have not been included in this prospectus.
      The summary consolidated financial data as of and for the nine-months ended September 30, 2004 and 2005 has been derived from our unaudited interim consolidated financial statements for these periods appearing elsewhere in this prospectus. We recently acquired 99.7% of the stock of AeroRepública, a Colombian air carrier, and began consolidating AeroRepública’s results on April 22, 2005. For the nine months ended September 30, 2005 and for future periods, we will be reporting AeroRepública’s operations as a separate segment in our financial statements and the related notes. As a result of the acquisition, our financial information at and for the nine-months ended September 30, 2005 is not comparable to the information at and for the nine-months ended September 30, 2004. The results of operations for the nine months ended September 30, 2005 are not necessarily indicative of the operating results to be expected for the entire year ending December 31, 2005 or for any other period.
                                                             
        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
INCOME STATEMENT DATA
                                                       
Operating revenues
                                                       
 
Passenger revenue
  $ 226,012     $ 257,918     $ 269,629     $ 311,683     $ 364,611     $ 268,652     $ 398,550  
 
Cargo, mail and other
    29,402       32,454       31,008       30,106       35,226       24,514       30,379  
                                           
   
Total operating revenues
    255,414       290,372       300,637       341,789       399,837       293,166       428,929  
Operating expenses:
                                                       
 
Aircraft fuel
    48,126       46,514       40,024       48,512       62,549       43,753       97,733  
 
Salaries and benefits
    30,385       38,709       39,264       45,254       51,701       35,985       48,134  
 
Passenger servicing
    33,128       32,834       33,892       36,879       39,222       29,116       36,172  
 
Commissions
    31,537       31,652       28,720       27,681       29,073       21,458       31,456  
 
Reservations and sales
    15,238       18,629       16,707       18,011       22,118       15,727       21,415  
 
Maintenance, materials and repairs
    26,815       25,369       20,733       20,354       19,742       13,899       21,933  
 
Depreciation
    9,136       13,325       13,377       14,040       19,279       13,368       14,842  
 
Flight operations
    12,453       13,887       14,567       15,976       17,904       13,135       17,904  
 
Aircraft rentals
    20,398       20,106       21,182       16,686       14,445       10,435       19,351  
 
Landing fees and other rentals
    8,571       8,451       8,495       10,551       12,155       8,941       12,282  
 
Other
    18,010       15,892       19,166       25,977       29,306       19,847       25,366  
 
Fleet impairment charge (1)
                13,669       3,572                    
                                           
   
Total operating expenses
    253,797       265,368       269,796       283,493       317,494       225,664       346,588  
                                           
Operating income
    1,617       25,004       30,841       58,296       82,343       67,502       82,341  
                                           

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        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
Non-operating income (expense):
                                                       
 
Interest expense
    (9,751 )     (10,988 )     (7,629 )     (11,613 )     (16,488 )     (12,076 )     (15,755 )
 
Interest capitalized
    157       1,592       1,114       2,009       963       948       657  
 
Interest income
    225       701       831       887       1,423       878       2,300  
 
Other, net(2)
    (233 )     331       (1,490 )     2,554       6,063       4,104       4,061  
                                           
   
Total non-operating expenses, net
    (9,602 )     (8,364 )     (7,174 )     (6,163 )     (8,039 )     (6,146 )     (8,737 )
Income (loss) before income taxes
    (7,985 )     16,640       23,667       52,133       74,304       61,356       73,604  
Provision for income taxes
    (1,530 )     (1,822 )     (2,999 )     (3,644 )     (5,732 )     (4,663 )     (8,258 )
                                           
Net income (loss)
    (9,515 )     14,818       20,668       48,489       68,572       56,693       65,346  
                                           
BALANCE SHEET DATA
                                                       
Total cash, cash equivalents and short-term investments (3)
  $ 16,893     $ 28,385     $ 39,088     $ 65,962     $ 114,891     $ 105,531     $ 129,201  
Accounts receivable, net
    36,791       30,205       24,006       31,019       27,706       30,529       54,965  
Total current assets
    61,682       69,040       73,552       108,053       156,035       151,820       208,428  
Purchase deposits for flight equipment
    21,035       46,540       55,867       45,869       7,190       24,701       42,189  
Total property and equipment
    205,071       227,717       345,411       480,488       541,211       521,754       572,868  
Total assets
    270,506       300,121       421,935       591,915       702,050       678,136       846,126  
Long-term debt
    142,437       111,125       211,698       311,991       380,827       345,754       369,237  
Total shareholders’ equity
    19,638       46,426       67,094       115,583       174,155       172,276       229,223  
CASH FLOW DATA
                                                       
Net cash provided by operating activities
  $ 25,386     $ 32,997     $ 50,931     $ 73,561     $ 98,633     $ 70,301     $ 78,308  
Net cash used in investing activities
    (111,926 )     (39,473 )     (145,591 )     (151,884 )     (90,268 )     (50,201 )     (69,425 )
Net cash provided by financing activities
    93,100       14,466       100,400       105,298       29,755       23,389       (2,105 )
OTHER FINANCIAL DATA
                                                       
EBITDA(4)
    10,520       38,660       42,728       74,890       107,685       84,974       101,246  
Aircraft rentals
    20,398       20,106       21,182       16,686       14,445       10,435       19,351  
Operating margin(5)
    0.6 %     8.6 %     10.3 %     17.1 %     20.6 %     23.0 %     19.2 %
Weighted average shares used in computing net income per share(6)
    42,812,500       42,812,500       42,812,500       42,812,500       42,812,500       42,812,500       42,812,500  
Net income (loss) per share (6)
  $ (0.22 )   $ 0.35     $ 0.48     $ 1.13     $ 1.60     $ 1.32     $ 1.53  
OPERATING DATA
                                                       
Revenue passengers carried (7)
    1,647       1,794       1,819       2,028       2,333       1,726       3,030 (22)
Revenue passenger miles(8)
    1,645       1,870       1,875       2,193       2,548       1,887       2,743 (22)
Available seat miles(9)
    2,589       2,920       2,847       3,226       3,639       2,687       3,819  
Load factor(10)
    63.6 %     64.0 %     65.9 %     68.0 %     70.0 %     70.2 %     71.8 %(22)
Break-even load factor(11)
    67.6 %     58.7 %     54.5 %     52.8 %     52.6 %     50.7 %     56.6 % (22)
Total block hours(12)
    57,443       59,760       58,112       64,909       70,228       52,161       73,645  
Average daily aircraft utilization(13)
    8.8       9.1       8.8       9.0       9.3       9.4       9.6  

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        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
Average passenger fare
    137.2       143.8       148.2       153.7       156.3       155.6       131.6 (22)
Yield(14)
    13.74       13.79       14.38       14.22       14.31       14.24       14.53 (22)
Passenger revenue per ASM (15)
    8.73       8.83       9.47       9.66       10.02       10.00       10.44  
Operating revenue per ASM (16)
    9.86       9.94       10.56       10.60       10.99       10.91       11.23  
Operating expenses per ASM (CASM)(17)
    9.80       9.09       9.48       8.79       8.72       8.40       9.08  
Departures
    24,715       23,742       23,361       25,702       27,434       20,469       33,636  
Average daily departures
    67.5       65.0       64.0       70.4       75.0       74.7       151.8  
Average number of aircraft. 
    17.9       18.0       18.1       19.8       20.6       20.8       31.1  
Airports served at period end
    29       28       27       28       29       29       35  
Employees at period end
    2,174       2,281       2,453       2,640       2,754       2,705       4,194  
SEGMENT FINANCIAL DATA
                                                       
Copa:
                                                       
 
Operating revenue
  $ 255,414     $ 290,372     $ 300,637     $ 341,789     $ 399,837     $ 293,166     $ 367,253  
 
Operating expenses
    253,797       265,368       269,796       283,493       317,494       225,664       290,832  
 
Depreciation
    9,136       13,325       13,377       14,040       19,279       13,368       14,342  
 
Aircraft rentals
    20,398       20,106       21,182       16,686       14,445       10,435       16,391  
 
Interest expense
    9,751       10,988       7,629       11,613       16,488       12,076       14,188  
 
Interest capitalized
    157       1,592       1,114       2,009       963       948       657  
 
Interest income
    225       701       831       887       1,423       878       2,194  
 
Net income (loss) before tax
    (7,985 )     16,640       23,667       52,133       74,304       61,356       70,629  
 
Total assets
    270,506       300,121       421,935       591,915       702,050       678,136       785,383  
AeroRepública (since April 22, 2005):
                                                       
     Operating revenue     61,676  
     Operating expenses     55,756  
     Depreciation     502  
     Aircraft rentals     2,960  
     Interest expense     1,567  
     Interest capitalized     0  
     Interest income     106  
     Net income (loss) before tax     2,975  
     Total assets     84,103  
SEGMENT OPERATING DATA
                                                       
Copa:
                                                       
 
Available seat miles(9)
    2,589       2,920       2,847       3,226       3,639       2,687       3,244  
 
Load factor(10)
    63.6 %     64.0 %     65.9 %     68.0 %     70.0 %     70.2 %     73.1 %
 
Break-even load factor
    67.6 %     58.7 %     54.5 %     52.8 %     52.6 %     50.7 %     55.1 %
 
Yield(14)
    13.74       13.79       14.38       14.22       14.31       14.24       14.32  
 
Operating revenue per ASM (16)
    9.86       9.94       10.56       10.60       10.99       10.91       11.32  
 
CASM(17)
    9.80       9.09       9.48       8.79       8.72       8.40       8.97  
 
Average stage length(19)
    915       1,023       1,010       1,028       1,047       1,042       1,121  
 
On time performance(18)
    68.4       87.7       90.5       91.4       91.8       92.9       93.3  

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        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005(21)
                             
    (in thousands of dollars, except share and per share data and operating data)
AeroRepública (since April 22, 2005):
                                                       
Available seat miles(9)     575  
Load factor(10)     64.8 %
Break even load factor     67.8 %
Yield(14)     15.88 (22)
Operating revenue per ASM(16)     10.73  
CASM(17)     9.70  
Average stage length(19)     365  
On time performance(20)     70.4 %
 
  (1)  Represents impairment losses on our Boeing 737-200 aircraft and related assets. See the notes to our consolidated financial statements.
 
  (2)  Consists primarily of changes in the fair value of fuel derivative contracts, foreign exchange gains/losses and gains on sale of Boeing 737-200 aircraft. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our consolidated financial statements.
 
  (3)  Includes restricted cash and cash equivalents of $4.6 million as of December 31, 2002, $4.5 million as of December 31, 2003, $3.9 million as of December 31, 2004, $4.4 million as of September 30, 2004 and $4.9 million as of September 30, 2005.
 
  (4)  EBITDA represents net income (loss) plus the sum of interest expense, income taxes, depreciation and amortization minus the sum of interest capitalized and interest income. EBITDA is presented as supplemental information because we believe it is a useful indicator of our operating performance and is useful in comparing our operating performance with other companies in the airline industry. However, EBITDA should not be considered in isolation, as a substitute for net income prepared in accordance with U.S. GAAP or as a measure of a company’s profitability. In addition, our calculation of EBITDA may not be comparable to other companies’ similarly titled measures. The following table presents a reconciliation of our net income to EBITDA for the specified periods:
                                                           
                        Nine Months
        Ended
    Year Ended December 31,   September 30,
         
    2000   2001   2002   2003   2004   2004   2005
                             
    (in thousands of dollars)
Net income (loss)
  $ (9,515 )   $ 14,818     $ 20,668     $ 48,489     $ 68,572     $ 56,693     $ 65,346  
Interest expense
    9,751       10,988       7,629       11,613       16,488       12,076       15,755  
Income taxes
    1,530       1,822       2,999       3,644       5,732       4,663       8,258  
Depreciation
    9,136       13,325       13,377       14,040       19,279       13,368       14,844  
                                           
 
Subtotal
    10,902       40,953       44,673       77,786       110,071       86,800       104,203  
                                           
Interest capitalized
    (157 )     (1,592 )     (1,114 )     (2,009 )     (963 )     (948 )     (657 )
Interest income
    (225 )     (701 )     (831 )     (887 )     (1,423 )     (878 )     (2,300 )
                                           
 
EBITDA
    10,520       38,660       42,728       74,890       107,685       84,974       101,246  
                                           
  Aircraft rentals represents a significant operating expense of our business. Because we leased several of our aircraft during the periods presented, we believe that when assessing our EBITDA you should also consider the impact of our aircraft rent expense, which was $20.4 million in 2000, $20.1 million in 2001, $21.2 million in 2002, $16.7 million in 2003, $14.4 million in 2004, $10.4 million during the first nine months of 2004 and $19.3 million during the first nine months of 2005.
  (5)  Operating margin represents operating income divided by operating revenues.
 
  (6)  All share and per share amounts have been retroactively restated to reflect the current capital structure described under “Description of Capital Stock” and in the notes to our consolidated financial statements.
 
  (7)  Total number of paying passengers (including all passengers redeeming OnePass frequent flyer miles and other travel awards) flown on all flight segments, expressed in thousands.
 
  (8)  Number of miles flown by scheduled revenue passengers, expressed in millions.
 
  (9)  Aircraft seating capacity multiplied by the number of miles the seats are flown, expressed in millions.
(10)  Percentage of aircraft seating capacity that is actually utilized. Load factors are calculated by dividing revenue passenger miles by available seat miles.
 
(11)  Load factor that would have resulted in total revenues being equal to total expenses.

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(12)  The number of hours from the time an airplane moves off the departure gate for a revenue flight until it is parked at the gate of the arrival airport.
 
(13)  Average number of block hours operated per day per aircraft for the total aircraft fleet.
 
(14)  Average amount (in cents) one passenger pays to fly one mile.
 
(15)  Passenger revenues (in cents) divided by the number of available seat miles.
 
(16)  Total operating revenues for passenger aircraft related costs (in cents) divided by the number of available seat miles.
 
(17)  Total operating expenses for passenger aircraft related costs (in cents) divided by the number of available seat miles.
 
(18)  Percentage of flights that arrive at the destination gate within fifteen minutes of scheduled arrival.
 
(19)  The average number of miles flown per flight.
 
(20)  Percentage of flights that depart within fifteen minutes of the scheduled departure time.
 
(21)  For AeroRepública operating data, this period covers from April 22, 2005 until September 30, 2005 which corresponds to the period that AeroRepública was consolidated in our financial statements.
 
(22)  AeroRepública has not historically distinguished between revenue passengers and non-revenue passengers. While we are implementing systems at AeroRepública to record that information, revenue passenger information and other statistics derived from revenue passenger data for the nine months ended September 30, 2005 has been derived from estimates that we believe to be materially accurate. Non-revenue passengers represented approximately 2.3% of AeroRepública’s total passengers for the period from April 22, 2005 to September 30, 2005.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
      We are a leading Latin American provider of international airline passenger service operating from our strategically located hub in the Republic of Panama. We currently offer approximately 80 daily scheduled flights among 30 destinations in 20 countries in North, Central and South America and the Caribbean. Additionally, through codeshare agreements with Continental we offer flights to more than 110 other international destinations. We provide service to international destinations through our Panama City hub which enables us to consolidate passenger traffic from multiple points to achieve a more profitable system and serve each destination effectively.
      We have a modern fleet of 22 Boeing 737-Next Generation aircraft with an average age of 3.3 years as of September 30, 2005 and one new Embraer 190 (not taking into account our recent acquisition of AeroRepública). To meet our growing capacity requirements we have firm commitments to accept delivery over the next four years of seven additional Boeing 737-Next Generation aircraft and eleven 94-seat Embraer 190s. We also have purchase rights and options to purchase up to ten Boeing 737-Next Generation aircraft and up to 18 Embraer 190s.
      We have a broad commercial alliance with Continental which includes joint marketing, code-sharing arrangements, participation in Continental’s award-winning OnePass frequent flyer loyalty program globally and on a co-branded basis in Latin America and our use of Continental’s President’s Club VIP lounge program. Our alliance with Continental also provides us with benefits such as improving our purchasing power in negotiations with service providers, aircraft vendors and insurers.
      On April 22, 2005 we acquired an initial 85.6% equity ownership interest in AeroRepública which was followed by subsequent acquisitions increasing our total ownership interest in AeroRepública to 99.7% as of September 30, 2005. The total purchase price we paid through September 30, 2005 for our investment in AeroRepública, including acquisition costs, was $23.4 million. According to the Colombian Civil Aviation Administration, Unidad Especial Administrativa de Aeronautica Civil, in 2004 AeroRepública was the second-largest domestic carrier in Colombia in terms of number of passengers carried, providing service to 11 cities in Colombia with a point-to-point route network. We began to consolidate AeroRepública’s results of operations in our consolidated financial statements beginning April 22, 2005. For the nine months ended September 30, 2005 and for future periods, we will be reporting AeroRepública’s operations as a separate segment in our financial statements and the related notes. See Note 9 to our unaudited financial statements for segment data for AeroRepública for the nine months ended September 30, 2005 included elsewhere in this prospectus.
Regional Economic Environment
      Our historical financial results have been, and we expect them to continue to be, materially affected by the general level of economic activity and growth of per capita disposable income in North, South and Central America and the Caribbean (drivers of our passenger revenue) and the volume of trade between countries in the region (the principal driver of our cargo revenue).
      According to data from The Preliminary Overview of the Economies of Latin America and the Caribbean, an annual United Nations publication prepared by the Economic Development Division, the economy of Latin America (including the Caribbean) grew by approximately 5.5% in 2004 and 1.9% in 2003, while the region’s per capita gross domestic product is estimated to have risen by approximately 4% in 2004. According to data from the International Monetary Fund, in the sub-regions we serve, gross domestic product (adjusted for purchasing power parity) rose in 2004 by 6.4% in South America, 4.3% in North America, 3.5% in Central America and 2.1% in the Caribbean, with each region continuing to build on gains made during 2003 of 2.3% in South America, 2.8% in North America, 3.6% in Central America and 1.5% in the Caribbean. As is often the case, the regional economic performance was closely tied to developments in the international economy. World economic activity increased in 2004, resulting in estimated global GDP growth of just below 4.0% (versus 2.7% in 2003). In recent years, the Panamanian economy has closely tracked the Latin American

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economy as a whole, and in 2004 the Panamanian economy grew by 6.0% (versus 4.7% in 2003). Inflation rose by less than one percent in 2004, despite high fuel prices. Along with other factors, this economic growth contributed to an 11% increase in 2004 in our revenues generated in Panama. Additionally, the Colombian economy has experienced relatively stable growth; according to World Bank estimates, the Colombian gross domestic product grew by 4.0% in 2003 and 2004, with inflation (as indicated by the consumer price index) rising by 6.5% in 2003 and 5.5% in 2004.
Revenues
      We derive our revenues primarily from passenger transportation which during the nine months ended September 30, 2005 represented approximately 93% of our revenues, with the remaining 7% derived from cargo and other revenues.
      We recognize passenger revenue when transportation is provided and when unused tickets expire. Passenger revenues reflect the capacity of our aircraft on the routes we fly, load factor and yield. Our capacity is measured in terms of available seat miles (ASMs) which represents the number of seats available on our aircraft multiplied by the number of miles the seats are flown. Our usage is measured in terms of revenue passenger miles (RPMs) which is the number of revenue passengers multiplied by the miles these passengers fly. Load factor, or the percentage of our capacity that is actually used by paying customers, is calculated by dividing RPMs by ASMs. Yield is the average amount that one passenger pays to fly one mile. We use a combination of approaches, taking into account yields, flight load factors and effects on load factors of connecting traffic, depending on the characteristics of the markets served, to arrive at a strategy for achieving the best possible revenue per available seat mile, balancing the average fare charged against the corresponding effect on our load factors.
      We recognize cargo revenue when transportation is provided. Our other revenue consists primarily of excess baggage charges, ticket change fees and charter flights.
      Overall demand for our passenger and cargo services is highly dependent on the regional economic environment in which we operate, including the GDP of the countries we serve and the disposable income of the residents of those countries. We believe that approximately 50% of our passengers travel at least in part for business reasons, and the growth of intraregional trade greatly affects that portion of our business. The remaining 50% of our passengers are tourists or travelers visiting friends and family.
      The following table sets forth our capacity, load factor and yields for the periods indicated.
                                           
        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2002   2003   2004   2004   2005
                     
Copa Segment
                                       
 
Capacity (in available seat miles, in millions)
    2,846.9       3,225.9       3,639.4       2,687.2       3,243.7  
 
Load factor
    65.9 %     68.0 %     70.0 %     70.2 %     73.1 %
 
Yield (in cents)
    14.38       14.22       14.31       14.24       14.32  
AeroRepública Segment (1)
                                       
     Capacity (in available seat miles, in millions)     574.8  
     Load factor     64.8 %
     Yield (in cents)(2)     15.88  
 
(1)  Since April 22, 2005
 
(2)  AeroRepública has not historically distinguished between revenue passengers and non-revenue passengers. While we are implementing systems at AeroRepública to record that information, revenue passenger information and other statistics derived from revenue passenger data for the nine months ended September 30, 2005 has been derived from estimates that we believe to be materially accurate. Non-revenue passengers represented approximately 2.3% of AeroRepública’s total passengers for the period from April 22, 2005 to September 30, 2005.

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Seasonality
      Generally, our revenues from and profitability of our flights peak during the northern hemisphere’s summer season in July and August and again during the December and January holiday season. Given our high proportion of fixed costs, this seasonality is likely to cause our results of operations to vary from quarter to quarter.
Operating Expenses
      The main components of our operating expenses are aircraft fuel, salaries and benefits, passenger servicing, commissions, aircraft maintenance, reservations and sales and aircraft rent. A common measure of per unit costs in the airline industry is cost per available seat mile (CASM) which is generally defined as operating expenses divided by ASMs.
      Aircraft fuel. The price we pay for aircraft fuel varies significantly from country to country primarily due to local taxes. While we purchase aircraft fuel at all the airports to which we fly, we attempt to negotiate fueling contracts with companies that have a multinational presence in order to benefit from volume purchases. During 2004, as a result of the location of our hub, we purchased approximately 50% of our aircraft fuel in Panama, where we were able to obtain better prices due to volume discounts. We have over eleven suppliers of aircraft fuel across our network. In some cases we tanker fuel in order to minimize our cost by fueling in countries where fuel prices are lowest. Our aircraft fuel expenses are variable and fluctuate based on global oil prices. From 2002 to 2004, the price of West Texas Intermediate crude oil, a benchmark widely used for crude oil prices that is measured in barrels and quoted in U.S. dollars, increased by 39.3% from $31.20 per barrel to $43.45 per barrel. On September 30, 2005, the price was $65.25 per barrel. In addition, recently the prices we pay for jet fuel have been affected by the supply disruptions caused by Hurricane Katrina and Hurricane Rita in the southern United States. During the month ended September 30, 2005, we paid on average $2.15 per gallon for jet fuel. As of the first quarter of 2005, all of our Boeing aircraft are also equipped with winglets which we believe provide estimated fuel consumption savings of approximately four percent compared to aircraft without winglets.
                                                   
    Aircraft Fuel Data
     
    Year Ended December 31,    
        Nine Months Ended
    2000   2001   2002   2003   2004   September 30, 2005
                         
Copa Segment
                                               
 
Average price per gallon of jet fuel
                                               
          into plane (excluding hedge)        
          (in U.S. dollars)   $ 1.08  
 
Gallons consumed (in thousands)
    43,187       46,669       44,788       48,444       50,833       43,332  
 
Available seat miles (in millions)
    2,589       2,920       2,847       3,226       3,639       3,244  
 
Gallons per ASM (in hundredths)
    1.67       1.60       1.57       1.50       1.40       1.34  
AeroRepública Segment (1)
                                               
     Average price per gallon of jet fuel
into plane (excluding hedge)
(in U.S. dollars)
  $ 1.93  
     Gallons consumed (in thousands)     10,985  
     Available seat miles (in millions)     575  
     Gallons per ASM (in hundredths)     1.91  
 
(1)  Since April 22, 2005
     Salaries and benefits. Salaries and benefits expenses have historically increased at the rate of inflation and by the growth in the number of our employees. In some cases, we have adjusted salaries of our employees to correspond to changes in the cost of living in the countries where these employees work. We do not increase salaries based on seniority.

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      Passenger servicing expenses. Our passenger servicing expenses consist of expenses for liability insurance, baggage handling, catering, in-flight entertainment and other costs related to aircraft and airport services. These expenses are generally directly related to the number of passengers we carry or the number of flights we operate.
      Commissions. Our commission expenses consist primarily of payments for ticket sales made by travel agents and commissions paid to credit card companies. Travel agents receive base commissions, not including back-end incentive programs, ranging from 0% to 12% depending on the country. The weighted average rate for these commissions during 2004 was 5.5%. During the last few years we have reduced our commission expense per available seat mile as a result of an industry-wide trend of paying lower commissions to travel agencies and by increasing the proportion of our sales made through direct channels. We expect this trend to continue as more of our customers become accustomed to purchasing through our call center and through the internet. While increasing direct sales may increase the commissions we pay to credit card companies, we expect that the savings from the corresponding reduction in travel agency commissions will more than offset this increase. In recent years, base commissions paid to travel agents have decreased significantly. At the same time, we have encouraged travel agencies to move from standard base commissions to incentive compensation based on sales volume and fare types.
      Maintenance, material and repair expenses. Our maintenance, material and repair expenses consist of aircraft repair and charges related to light and heavy maintenance of our aircraft, including maintenance materials. Maintenance and repair expenses, including overhaul of aircraft components, are charged to operating expenses as incurred. With an average age of only 3.3 years as of September 30, 2005, our Copa fleet requires a low level of maintenance compared to the older fleets of some of our competitors. We also currently incur lower maintenance expenses on our Boeing aircraft because a significant number of our aircraft parts remain under multi-year warranties. As the age of our fleet increases and when our warranties expire, our maintenance expenses will increase. We only conduct line maintenance internally and outsource heavy maintenance to independent third party contractors. In 2003, we negotiated with GE Engine Services a maintenance cost per hour program for the repair and maintenance of our CFM-56 engines which power our Boeing 737 Next Generation fleet. Our engine maintenance costs are also aided by the sea-level elevation of our hub and the use of winglets which allow us to operate the engines on our Boeing 737-700s with lower thrust thus putting less strain on the engines.
      All maintenance for AeroRepública’s DC-9s and line maintenance for the MD-80s is performed by AeroRepública’s in-house maintenance staff. Heavy maintenance for the MD-80s is performed by FAA-certified third-party aviation maintenance companies.
      Aircraft rent. Our aircraft rental expenses are generally fixed by the terms of our operating lease agreements. Currently, six of Copa’s operating leases have fixed rates which are not subject to fluctuations in interest rates and the seventh is tied to LIBOR. All of AeroRepública’s operating leases have fixed rates which are not subject to fluctuations in interest rates. Our aircraft rent expense also includes rental payments related to our wet-leasing of freighter aircraft to supplement our cargo operations.
      Reservations and sales expenses. Our reservations and sales expenses arise primarily from payments to global distribution systems, such as Amadeus and Sabre, that list our flight offerings on reservation systems around the world. These reservation systems tend to raise their rates periodically, but we expect that if we are successful in encouraging our customers to purchase tickets through our direct sales channels, these costs will decrease as a percentage of our operating costs. A portion of our reservations and sales expense is also comprised of our licensing payments for the SHARES reservation and check-in management software we use, which is not expected to change significantly from period to period.
      Flight operations and landing fees and other rentals are generally directly related to the number of flights we operate.
      Other include publicity and promotion expenses, expenses related to our cargo operations, technology related initiatives and miscellaneous other expenses.

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Taxes
      We are subject to income tax in Panama based on the principle of territoriality. Beginning in 2004, we adopted an alternate method of calculating tax in Panama. Based on Article 121 of Executive Decree 170 of 1993, as amended in 1996, income for international transportation companies is calculated based on a territoriality method that determines gross revenues earned in Panama by applying the percentage of miles flown within the Panamanian territory against total revenues. Under this method, loss carry forwards cannot be applied to offset tax liability. Prior to 2004, our Panamanian taxable income was estimated using revenues from passengers originating in or destined for Panama which typically resulted in losses for purposes of Panamanian corporate income tax. Under the new tax law adopted this year, we are also subject to an alternative minimum tax based on our revenues generated in Panama. We estimate that the combination of the alternative minimum tax and the change in our method of calculating revenues generated in Panama will increase our Panamanian tax liability to approximately $1.3 million in 2005. Dividends from our Panamanian subsidiaries, including Copa, are separately subject to a ten percent tax if such dividends can be shown to be derived from Panamanian income that has not been otherwise taxed.
      We are also subject to local tax regulations in each of the jurisdictions where we operate, the great majority of which are related to the taxation of our income. In six of the countries to which we fly, we do not pay any income taxes because we do not generate income under the laws of those countries either because they do not have income tax or due to treaties or other arrangements those countries have with Panama. Under a reciprocal exemption confirmed by a bilateral agreement between Panama and the United States, we are exempt from the U.S. source transportation income tax derived from the international operation of aircraft. In the remaining countries, we pay income tax at a rate ranging from 25% to 35% of our income attributable to those countries. Different countries calculate our income in different ways, but they are typically derived from our sales in the applicable country multiplied by our net margin or by a presumed net margin set by the relevant tax legislation. We paid taxes totaling approximately $2.4 million in 2003 and $4.3 million in 2004.
      AeroRepública’s taxes are based on Colombian income tax legislation which calculates tax based on the higher of the “ordinary” and “presumptive” income. “Ordinary” income is defined as the company’s operating results under Colombian GAAP, and “presumptive” income is defined as 6% of net assets under Colombian GAAP.
Internal Controls
      We are currently a non-public company incorporated in Panama and have traditionally prepared our financial statements under International Financial Reporting Standards. In connection with the initial preparation of our financial statements under U.S. GAAP, we and our auditors identified a material weakness (as defined under standards established by the Public Company Accounting Oversight Board) in our internal control over financial reporting. Specifically, we found that we did not have appropriate expertise in U.S. GAAP accounting and reporting among our financial and accounting staff to prepare our periodic financial statements without needing to make material corrective adjustments and footnote revisions when those statements are audited or reviewed. This ineffective control over the application of U.S. GAAP in relation to our business could result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. In light of this material weakness, in preparing the financial statements included in this prospectus, we performed additional analyses and other post-closing procedures in the course of preparing our financial statements and related footnotes in accordance with U.S. GAAP so that management would be able to come to the conclusion that the financial statements included in this prospectus fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented.
      Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form 20-F for the fiscal year ending December 31, 2006, we will be required to furnish a report by our management on our internal control over financial reporting. This report will contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the fiscal year, including a statement as to whether or not our internal controls over financial reporting are effective. We have

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contracted an additional accounting manager with experience in preparing financial statements under U.S. GAAP, we have engaged an internationally recognized accounting firm to assist us in developing our procedures to comply with the requirements of Section 404 and our management and audit committee are developing other plans to prepare for our compliance with the requirements of Section 404 and to correct the weakness identified above. We expect that these plans may include hiring additional personnel with appropriate levels of U.S. GAAP experience and accounting expertise, requiring further education and training in U.S. GAAP for our existing personnel and engaging outside resources to assist in the design and implementation of procedures for the testing of our internal controls. We will incur incremental costs as a result of these efforts, including increased auditing and legal fees, the magnitude of which we are not able to estimate at this time.
Critical Accounting Policies and Estimates
      The preparation of our consolidated financial statements in conformity with U.S. GAAP requires our management to adopt accounting policies and make estimates and judgments to develop amounts reported in our consolidated financial statements and related notes. We strive to maintain a process to review the application of our accounting policies and to evaluate the appropriateness of the estimates required for the preparation of our consolidated financial statements. We believe that our estimates and judgments are reasonable; however, actual results and the timing of recognition of such amounts could differ from those estimates. In addition, estimates routinely require adjustments based on changing circumstances and the receipt of new or better information.
      Critical accounting policies and estimates are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. For a discussion of these and other accounting policies, see Note 1 to our annual consolidated financial statements.
      Revenue recognition. Passenger revenue is recognized when transportation is provided rather than when a ticket is sold. The amount of passenger ticket sales not yet recognized as revenue is reflected in the “Air traffic liability” line on our consolidated balance sheet. Tickets whose fares have expired and/or are more than one year old are recognized as passenger revenue.
      Cargo and mail services revenue are recognized when we provide the shipping services and thereby complete the earning process. Other revenue is primarily comprised of excess baggage charges, commissions earned on tickets sold for flights on other airlines, and charter flights and is recognized when transportation or service is provided.
      Frequent flyer program. We participate in Continental’s frequent flyer program “OnePass,” through which our passengers receive all the benefits and privileges offered by the OnePass program. Continental is responsible for the administration of the OnePass program. Under the terms of our frequent flyer agreement with Continental, OnePass members receive OnePass frequent flyer mileage credits for travel on Copa and we pay Continental a per mile rate for each mileage credit granted by Continental, at which point we have no further obligation. The amounts due to Continental under this agreement are expensed by us as the mileage credits are earned.
      Impairment of long-lived assets. We record impairment losses on long-lived assets used in operations, consisting principally of property and equipment, when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired and that the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of non-recoverable assets is reduced to fair value if it is lower than carrying value. Our estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions and are subject to change. We recognized impairment losses on our Boeing 737-200 aircraft of $3.6 million during the year ended December 31, 2003 and $13.7 million during the year ended December 31, 2002.

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      Goodwill and indefinite-lived purchased intangible assets. We review goodwill and purchased intangible assets with indefinite lives, all of which relate to our acquisition of AeroRepública, for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). The provisions of SFAS No. 142 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of the AeroRepública reporting unit to its carrying value. If the fair value of the AeroRepública reporting unit exceeds the carrying value of its net assets, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets of the AeroRepública reporting unit exceeds its fair value, then we must perform the second step of the impairment test in order to determine the implied fair value of the AeroRepública reporting unit’s goodwill. If the carrying value of the goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference. SFAS No. 142 also requires that the fair value of the purchased intangible assets with indefinite lives be estimated and compared to the carrying value. We recognize an impairment loss when the estimated fair value of the intangible asset is less than the carrying value. Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
      Derivative instruments used for aircraft fuel. In the past, we have periodically entered into crude oil call options, jet fuel zero cost collars, and jet fuel swap contracts to provide for short to mid-term hedge protection (generally three to eighteen months) against sudden and significant increases in jet fuel prices, while simultaneously ensuring that we are not competitively disadvantaged in the event of a substantial decrease in the price of jet fuel. These derivatives have historically not qualified as hedges for financial reporting purposes in accordance with Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities. Accordingly, changes in the fair value of such derivative contracts, which amounted to $1.9 million in the nine months ended September 30, 2005, ($0.9) million in 2004, $0.2 million in 2003 and $3.1 million in 2002, were recorded as a component of “Other, net” within “Non-operating income (expense)”. The fair value of hedge contracts amounted to $2.1 million at September 30, 2005, $0.2 million at December 31, 2004 and $1.1 at December 31, 2003, and was recorded in the “Other current assets” line of our consolidated balance sheet.

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Results of Operations
      The following table shows each of the line items in our income statements for the periods indicated as a percentage of our total operating revenues for that period:
                                             
        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2002   2003   2004   2004   2005(1)
                     
Operating revenues:
                                       
 
Passenger revenue
    89.7  %     91.2  %     91.2  %     91.6  %     92.9  %
 
Cargo, mail and other
    10.3  %     8.8  %     8.8  %     8.4  %     7.1  %
   
Total
    100.0  %     100.0  %     100.0  %     100.0  %     100.0  %
Operating expenses:
                                       
 
Aircraft fuel
    (13.3 )%     (14.2 )%     (15.6 )%     (14.9 )%     (22.8 )%
 
Salaries and benefits
    (13.1 )%     (13.2 )%     (12.9 )%     (12.3 )%     (11.2 )%
 
Passenger servicing
    (11.3 )%     (10.8 )%     (9.8 )%     (9.9 )%     (8.4 )%
 
Commissions
    (9.6 )%     (8.1 )%     (7.3 )%     (7.3 )%     (7.3 )%
 
Reservation and sales
    (5.6 )%     (5.3 )%     (5.5 )%     (5.4 )%     (5.0 )%
 
Maintenance, materials and repairs
    (6.9 )%     (6.0 )%     (4.9 )%     (4.7 )%     (5.1 )%
 
Depreciation
    (4.4 )%     (4.1 )%     (4.8 )%     (4.6 )%     (3.5 )%
 
Flight operations
    (4.8 )%     (4.7 )%     (4.5 )%     (4.5 )%     (4.2 )%
 
Aircraft rentals
    (7.0 )%     (4.9 )%     (3.6 )%     (3.6 )%     (4.5 )%
 
Landing fees and other rentals
    (2.8 )%     (3.1 )%     (3.0 )%     (3.0 )%     (2.9 )%
 
Other
    (6.4 )%     (7.6 )%     (7.3 )%     (6.8 )%     (5.9 )%
 
Fleet impairment charges
    (4.5 )%     (1.0 )%     0.0  %     0.0  %     0.0  %
   
Total
    (89.7 )%     (82.9 )%     (79.4 )%     (77.0 )%     (80.8 )%
Operating income
    10.3  %     17.1  %     20.6  %     23.0  %     19.2  %
Non-operating income (expenses):
                                       
 
Interest expense
    (2.5 )%     (3.4 )%     (4.1 )%     (4.1 )%     (3.7 )%
 
Interest capitalized
    0.4  %     0.6  %     0.2  %     0.3  %     0.2  %
 
Interest income
    0.3  %     0.3  %     0.4  %     0.3  %     0.5  %
 
Other, net
    (0.5 )%     0.7  %     1.5  %     1.4  %     0.9  %
   
Total
    (2.4 )%     (1.8 )%     (2.0 )%     (2.1 )%     (2.0 )%
Income/(loss) before income taxes
    7.9  %     15.3  %     18.6  %     20.9  %     17.2  %
Income taxes
    (1.0 )%     (1.1 )%     (1.4 )%     (1.6 )%     1.9  %
Net income
    6.9  %     14.2  %     17.1  %     19.3  %     15.2  %
 
(1)  Includes results from our AeroRepública segment for the period from April 22, 2005 to September 30, 2005.
Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
      Our consolidated net income for the nine months ended September 30, 2005 was $65.3 million, a 15.3% increase over net income of $56.7 million in the same period in 2004. We had consolidated operating income of $82.3 million in the nine months ended September 30, 2005, a 22.0% increase over operating income of $67.5 million in the same period in 2004. Our consolidated operating margin in the nine months ended September 30, 2005 was 19.2%, a decrease of 3.8 percentage points over an operating margin of 23.0% in the same period in 2004, primarily as a result of higher fuel prices and the consolidation of AeroRepública’s results during the period from on April 22, 2005 to September 30, 2005.

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Operating revenue
      Our consolidated revenue totaled $428.9 million in the nine months ended September 30, 2005, a 46.3% increase over operating revenue of $293.2 million in the same period in 2004 due to increases in our Copa segment’s passenger and cargo revenues and the consolidation of $61.7 million in operating revenues from our AeroRepública segment.
Copa segment operating revenue
      Copa’s operating revenue totaled $367.3 million in the nine months ended September 30, 2005, a 25.3% increase over operating revenue of $293.2 million in the same period in 2004 due to increases in both passenger and cargo revenues.
      Passenger revenue. Passenger revenue totaled $339.4 million in the nine months ended September 30, 2005, a 26.3% increase over passenger revenue of $268.7 million in the same period in 2004. This increase resulted primarily from the addition of capacity (ASMs increased by 20.7% in the nine months ended September 30, 2005 as compared to the same period in 2004) that resulted from an increase in departures and, to a lesser extent, an increase in average departures per aircraft, higher average stage length and the addition of larger aircraft. Revenues also increased due to our higher overall load factor (load factor increased from 70.2% in the nine months ended September 30, 2004 to 73.1% in the same period in 2005) during the period and the simultaneous increase in passenger yield which rose by 0.6% to 14.32 cents in the first nine months of 2005.
      Cargo, mail and other. Cargo, mail and other totaled $27.9 million in the nine months ended September 30, 2005, a 13.7% increase over cargo, mail and other of $24.5 million in the same period in 2004. This increase was primarily the result of higher cargo revenue resulting from an increase in belly space capacity available, and to a lesser extent higher other operating revenue from excess baggage fees.
AeroRepública segment operating revenue
      During the period starting on April 22, 2005, the date on which we began consolidating AeroRepública’s results, and ending September 30, 2005, AeroRepública generated operating revenue of $61.7 million.
Operating expenses
      Our consolidated operating expenses totaled $346.6 million for the first nine-months of 2005, a 53.6% increase over operating expenses of $225.7 million for the same period in 2004 that was primarily attributable to the growth of our operations, higher fuel costs, and the consolidation of $55.8 million in operating expenses from our AeroRepública segment. An overview of the major variances on a consolidated basis follows.
      Aircraft fuel. Aircraft fuel totaled $97.7 million in the nine months ended September 30, 2005, a 123.4% increase over aircraft fuel of $43.8 million in the same period in 2004. This increase was primarily a result of higher fuel costs, higher fuel consumption due to increased capacity of our Copa operation, and the consolidation of $21.2 million in AeroRepública’s aircraft fuel expenses.
      Salaries and benefits. Salaries and benefits totaled $48.1 million in the nine months ended September 30, 2005, a 33.8% increase over salaries and benefits of $36.0 million in the same period in 2004. This increase was primarily a result of an overall increase in headcount due to increased capacity of our Copa operation and the consolidation of $6.6 million in AeroRepública salaries and benefits expenses.
      Passenger servicing. Passenger servicing totaled $36.2 million in the nine months ended September 30, 2005, a 24.2% increase over passenger servicing of $29.1 million in the same period in 2004. This increase was primarily a result of an increase in Copa’s capacity, an increase in Copa’s on-board passengers, and the consolidation of $3.2 million in AeroRepública passenger servicing expenses.
      Commissions. Commissions totaled $31.5 million in the nine months ended September 30, 2005, a 46.6% increase over commissions of $21.5 million in the same period in 2004. This increase was primarily a result of higher passenger revenue and the consolidation of $5.4 million in AeroRepública commission expenses.

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      The remaining operating expenses totaled $133.1 million in the nine months ended September 30, 2005, an increase of $37.7 million in the same period in 2004, of which $19.4 million resulted from the consolidation of AeroRepública.
Copa segment operating expenses
      The breakdown of operating expenses per available seat mile is as follows:
                         
    Nine Months Ended    
    September 30,    
        Percent
    2004   2005   Change
             
    (in cents)    
Operating Expenses per ASM:
                       
Salaries and benefits
    1.34       1.28       (4.4 )%
Passenger servicing
    1.08       1.02       (6.2 )%
Commissions
    0.80       0.80       0.8  %
Reservation and sales
    0.59       0.58       (0.2 )%
Maintenance, materials and repairs
    0.52       0.47       (8.4 )%
Depreciation
    0.50       0.44       (11.1 )%
Flight operations
    0.49       0.49       0.3  %
Aircraft rentals
    0.39       0.51       30.1  %
Landing fees and other rentals
    0.33       0.32       (2.8 )%
Other
    0.74       0.69       (7.1 )%
                   
Total operating expenses per ASM before aircraft fuel
    6.77       6.61       (2.4 )%
Aircraft fuel
    1.63       2.36       44.9  %
                   
Total operating expenses per ASM
    8.40       8.97       6.8  %
                   
      Aircraft fuel. Aircraft fuel totaled $76.5 million in the nine months ended September 30, 2005, a 74.9% increase over aircraft fuel of $43.8 million in the same period in 2004. This increase was primarily a result of a 42.4% increase in the average price per gallon of jet fuel ($1.75 in the nine months ended September 30, 2005 as compared to $1.23 in the same period in 2004) and the consumption of 14.7% more fuel due to a 9.6% increase in departures and an increase in average stage length. These increases were partially offset by our newer, more fuel-efficient aircraft. Aircraft fuel per available seat mile increased by approximately 44.9% due to the increase in average fuel cost per gallon.
      Salaries and benefits. Salaries and benefits totaled $41.5 million in the nine months ended September 30, 2005, a 15.5% increase over salaries and benefits of $36.0 million in the same period in 2004. This increase was primarily a result of an overall increase of 9.8% in headcount at period end in 2005 versus the same period end in 2004, mainly to cover increased operations. Salaries and benefits per available seat mile decreased by 4.4%.
      Passenger servicing. Passenger servicing totaled $33.0 million in the nine months ended September 30, 2005, a 13.2% increase over passenger servicing of $29.1 million in the same period in 2004. This increase was primarily a result of Copa’s 20.7% increase in capacity and an increase of 19.2% in on-board passengers. Passenger servicing per available seat mile decreased by 6.2% as a result of fixed costs being spread over a higher number of available seat miles.
      Commissions. Commissions totaled $26.1 million in the nine months ended September 30, 2005, a 21.6% increase over commissions of $21.5 million in the same period in 2004. This increase was primarily a result of higher passenger revenue. Commissions per available seat mile increased by 0.8%.
      Reservations and sales. Reservations and sales totaled $19.0 million in the nine months ended September 30, 2005, a 20.5% increase over reservations and sales of $15.7 million in the same period in 2004. This increase was primarily a result of a 28.5% increase in charges related to global distribution systems

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resulting from a 19.2% increase in on-board passengers and a 10.1% increase in average rates. Reservations and sales expenses per available seat mile decreased by 0.2%.
      Maintenance, materials and repairs. Maintenance, materials and repairs totaled $15.4 million in the nine months ended September 30, 2005, a 10.6% increase over maintenance, materials and repairs of $13.9 million in the same period in 2004. This increase was a result of an increase in the total number of hours flown by our aircraft, partially offset by lower average maintenance costs due to the replacement of the older Boeing 737-200s. Maintenance, materials and repair per available seat mile decreased by 8.4% as a result of the lower cost associated with the newer Boeing 737-Next Generation fleet.
      Depreciation. Depreciation totaled $14.3 million in the nine months ended September 30, 2005, a 7.3% increase over depreciation of $13.4 million in the same period in 2004. This increase was primarily due to the acquisition of three new Boeing 737-Next Generation aircraft in 2004, partially offset by lower depreciation expenses related to non-aircraft related assets. Depreciation per available seat mile decreased by 11.1%.
      Aircraft rentals. Aircraft rentals totaled $16.4 million in the nine months ended September 30, 2005, a 57.1% increase over aircraft rentals of $10.4 million in the same period in 2004. This increase was a result of three additional leased Boeing 737-Next Generation aircraft in December 2004, February 2005 and May 2005. Aircraft rentals per available seat mile increased by 30.1% as a result of the higher average lease rate of the three aircraft received.
      Flight operations and landing fees and other rentals. Combined, flight operations and landing fees and other rentals increased from $22.1 million in the nine months ended September 30, 2004 to $26.4 million in the same period in 2005, primarily as a result of Copa’s 20.7% increase in capacity.
      Other. Other expenses totaled $22.3 million in the nine months ended September 30, 2005, a 12.2% increase over other expenses of $19.8 million in the same period in 2004. This increase was primarily a result of a 17.0% increase in OnePass frequent flyer miles earned by customers during the period, as well as other miscellaneous administrative expenses such as software licenses and legal expenses. Other expenses per available seat mile decreased by 7.1% as result of administrative expenses growing slower than capacity.
AeroRepública segment operating expenses
      During the period starting on April 22, 2005, the date on which we began consolidating AeroRepública’s results, and ending September 30, 2005, AeroRepública generated operating expenses of $55.8 million. AeroRepública’s operating margin was 9.6% over the same period.
Non-operating income (expense)
      Our consolidated non-operating expenses totaled $8.7 million for the first nine-months of 2005, a 42.2% increase over non-operating expenses of $6.1 million for the same period in 2004 that was primarily attributable to the consolidation of $2.9 million in non-operating expenses from our AeroRepública segment.
Copa segment non-operating income (expense)
      Non-operating expense totaled $5.8 million in the nine months ended September 30, 2005, a 5.7% decrease over non-operating expense of $6.1 million in the same period in 2004, attributable primarily to higher interest income and other non-operating income partially offset by higher interest expense.
      Interest expense. Interest expense totaled $14.2 million in the nine months ended September 30, 2005, a 17.5% increase over interest expense of $12.1 million in the same period in 2004, resulting from a higher amount of debt related to a greater number of owned aircraft and higher interest rate. The average effective interest rates on our debt also increased by 40 basis points from 4.20% during the first nine months of 2004 to 4.60% during the same period in 2005. At period’s end, approximately 73% of our outstanding debt was fixed at an average effective rate of 4.47%.

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      Interest capitalized. Interest capitalized totaled $0.7 million in the nine months ended September 30, 2005, a 30.7% decrease over interest capitalized of $0.9 million in the same period in 2004, resulting from lower average debt relating to pre-delivery payments on aircraft.
      Interest income. Interest income totaled $2.2 million in the nine months ended September 30, 2005, a 150.3% increase over interest income of $0.9 million in the same period in 2004. This increase was mainly a result of our higher average cash balance over the year and higher interest rates during the period.
      Other, net. Other, net income totaled $5.5 million in the nine months ended September 30, 2005, a 35.0% increase over other, net income of $4.1 million in the same period in 2004. This increase was primarily the result of a $1.1 million gain on sale of two Boeing 737-200 we disposed of during the nine months ended September 30, 2005 as compared to a $0.6 million gain on sale of one Boeing 737-200 during the same period in 2004.
Year 2004 Compared to Year 2003
      Our net income for the year 2004 was $68.6 million, a 41.4% increase over net income of $48.5 million in 2003. We had operating income of $82.3 million in 2004, a 41.2% increase over operating income of $58.3 million in 2003. Our operating margin in 2004 was 20.6%, an increase of 3.5 percentage points over an operating margin of 17.1% in 2003.
Operating revenue
      Our operating revenue totaled $399.8 million in 2004, a 17.0% increase over operating revenue of $341.8 million in 2003 due to increases in both passenger and cargo revenues.
      Passenger revenue. Passenger revenue totaled $364.6 million in 2004, a 17.0% increase over passenger revenue of $311.7 million in 2003. This increase resulted primarily from the addition of capacity (ASMs increased by 12.8% in 2004 as compared to 2003) that resulted from an increase in departures and, to a lesser extent, an increase in average departures per aircraft, higher average stage length and the addition of larger aircraft. Revenues also increased due to our higher overall load factor (load factor increased from 68.0% in 2003 to 70.0% in 2004) during the period and the simultaneous increase in passenger yield, which rose by 0.7% to 14.31 cents in 2004. A general increase in passenger demand for air travel in 2004, in part as a result of growing Latin American and U.S. economies, allowed us to increase both capacity and load factor without affecting yields.
      Cargo, mail and other. Cargo, mail and other totaled $35.2 million in 2004, a 17.0% increase over cargo, mail and other of $30.1 million in 2003. This increase was primarily the result of higher cargo revenue primarily resulting from an increase in belly space capacity available as we replaced four Boeing 737-200s with larger Boeing 737-Next Generation aircraft during 2004, plus the full year effect of four Boeing 737-Next Generation aircraft received in the second half of 2003. There was also a general increase in demand for courier services in the region during 2004.

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Operating expenses
      Operating expenses totaled $317.5 million in 2004, a 12.0% increase over operating expenses of $283.5 million in 2003. The increase in operating expenses was primarily attributable to a 12.0% increase in capacity, an increase in the average cost of jet fuel and an increase in salaries and benefits expenses. The breakdown of operating expenses per available seat mile is as follows:
                         
    Year Ended    
    December 31,    
        Percent
    2003   2004   Change
             
    (in cents)    
Operating expenses per ASM:
                       
Salaries and benefits
    1.40       1.42       1.3  %
Passenger servicing
    1.14       1.08       (5.7 )%
Commissions
    0.86       0.80       (6.9 )%
Reservation and sales
    0.56       0.61       8.8  %
Depreciation
    0.44       0.53       21.7  %
Maintenance, materials and repairs
    0.63       0.54       (14.0 )%
Flight operations
    0.50       0.49       (0.7 )%
Aircraft rentals
    0.52       0.40       (23.3 )%
Landing fees and other rentals
    0.33       0.33       2.1  %
Other
    0.81       0.81       0.0  %
                   
Total operating expenses per ASM before aircraft fuel and fleet impairment charges
    7.17       7.01       (2.3 )%
Aircraft fuel
    1.50       1.72       14.3  %
                   
Total operating expenses per ASM before fleet impairment charges
    8.68       8.72       0.5  %
Fleet impairment charges
    0.11       0.00       N/A  
                   
Total operating expenses per ASM
    8.79       8.72       (0.7 )%
                   
      Aircraft fuel. Aircraft fuel totaled $62.5 million in 2004, a 28.9% increase over aircraft fuel of $48.5 million in 2003. This increase was primarily a result of a 30.3% increase in the average price per gallon of jet fuel ($1.32 in 2004 as compared to $1.01 in 2003) and the consumption of 4.9% more fuel due to a 6.7% increase in departures. These increases were partially offset by our newer, more fuel-efficient aircraft. Aircraft fuel per available seat mile increased by approximately 14.3% due to the increase in average fuel cost per gallon.
      Salaries and benefits. Salaries and benefits totaled $51.7 million in 2004, a 14.2% increase over salaries and benefits of $45.3 million in 2003. This increase was primarily a result of the full year effect of employees hired throughout 2003, higher performance bonuses paid as a result of our improved operating results and an overall increase of 4.3% in full-time equivalent employees at period end from 2003 to 2004, mainly to cover increased operations. Salaries and benefits per available seat mile increased by 1.3%.
      Passenger servicing. Passenger servicing totaled $39.2 million in 2004, a 6.4% increase over passenger servicing of $36.9 million in 2003. This increase was primarily a result of our 12.8% increase in capacity and an increase of 15.0% in on-board passengers. Passenger servicing per available seat mile decreased by 5.7% as a result of fixed costs being spread over a higher number of available seat miles.
      Commissions. Commissions totaled $29.1 million in 2004, a 5.0% increase over commissions of $27.7 million in 2003. This increase was primarily a result of higher passenger revenue, partially offset by lower average commissions. Commissions per available seat mile decreased by approximately 6.9% due to lower average commissions and more direct sales.
      Reservations and sales. Reservations and sales totaled $22.1 million in 2004, a 22.8% increase over reservations and sales of $18.0 million in 2003. This increase was a result of a 15.0% increase in on-board passengers, a 5.7% increase in average rates charged by global distribution systems and the cost of terminating our relationship with a General Sales Agent in Puerto Rico. Reservations and sales expenses per available seat mile increased by 8.8%.

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      Depreciation. Depreciation totaled $19.3 million in 2004, a 37.3% increase over depreciation of $14.0 million in 2003. This increase was primarily due three new Boeing 737-Next Generation aircraft acquired in 2004 and the full year effect of four Boeing 737-Next Generation aircraft acquired in 2003. Depreciation per available seat mile increased by 21.7%.
      Maintenance, materials and repairs. Maintenance, materials and repairs totaled $19.7 million in 2004, a 3.0% decrease over maintenance, materials and repairs of $20.4 million in 2003. This decreased was a result of the replacement of four Boeing 737-200 aircraft with newer Boeing 737-Next Generation and the full year effect of disposing of two Boeing 737-200 aircraft in 2003, partially offset by beginning of the airframe overhaul schedule for the first four of our Boeing 737-Next Generation aircraft. Maintenance, materials and repair per available seat mile decreased by 14.0%.
      Aircraft rentals. Aircraft rentals totaled $14.4 million in 2004, a 13.4% decrease over aircraft rentals cost of $16.7 million in 2003. This decrease resulted from new aircraft leases with better rates as we experienced the effect of four lease contracts we renegotiated in 2003. Aircraft rentals per available seat mile decreased by 23.3% due to higher capacity and the lower lease rates.
      Flight operations and landing fees and other rentals. As a group, flight operations and landing fees and other rentals increased from $26.5 million in 2003 to $30.1 million in 2004, or 13.3%, primarily as a result of our 12.8% increase in capacity.
      Other. Other expenses totaled $29.3 million in 2004, a 12.8% increase over other expenses of $26.0 million in 2003. This increase was primarily due to technology initiatives related to improving our telecommunications capabilities, non-recurring expenses related to our evaluation of a potential acquisition that we chose not to pursue and a 9.0% increase in publicity and promotion resulting from higher OnePass frequent flyer miles earned by customers. Other expenses per available seat mile remained unchanged.
Non-operating income (expense)
      Non-operating expense totaled $8.0 million in 2004, a 30.4% increase over non-operating expense of $6.2 million in 2003, attributable primarily to greater interest expense partially offset by higher interest income and other non-operating income.
      Interest expense. Interest expense totaled $16.5 million in 2004, a 42.0% increase over interest expense of $11.6 million in 2003, resulting from a higher amount of debt related to a greater number of owned aircraft. The average effective interest rates on our debt also increased by 57 basis points from 3.64% during 2003 to 4.21% during 2004. At the end of 2004, we had approximately 77% of our outstanding debt fixed at an effective rate of 4.47%.
      Interest capitalized. Interest capitalized totaled $1.0 million in 2004, a 52.1% decrease over interest capitalized of $2.0 million in 2003, resulting from lower average debt relating to pre-delivery payments on aircraft.
      Interest income. Interest income totaled $1.4 million in 2004, a 60.4% increase over interest income of $0.9 million in 2003. This increase was mainly a result of our higher average cash balance over the year and higher prevailing interest rates during 2004.
      Other, net. Other, net income totaled $6.1 million in 2004, a 137.4% increase over other, net income of $2.6 million in 2003. This increase was the result of non-recurring adjustments and a gain of $1.1 million resulting from the sale of two Boeing 737-200 aircraft, partially offset by a decrease in the market value of fuel hedge instruments of $0.9 million.
Year 2003 Compared to Year 2002
      Our net income for the year 2003 was $48.5 million, a 134.6% increase over net income of $20.7 million in 2002. We had operating income of $58.3 million in 2003, an 89.0% increase over operating income of $30.8 million in 2002. Our operating margin was 17.1%, an increase of 6.8 percentage points over an operating margin of 10.3% in 2002.

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Operating revenue
      Our operating revenue totaled $341.8 million in 2003, a 13.7% increase over operating revenues of $300.6 million in 2002 due primarily to increased passenger revenues.
      Passenger revenue. Our passenger revenue totaled $311.7 million in 2003, a 15.6% increase over passenger revenues of $269.6 million in 2002. This increase resulted primarily from the addition of capacity (ASMs increased by 13.3% in 2003) that resulted from an increase in departures, an increase in average departures per aircraft and our continued transition to larger aircraft. Revenues also increased due to our higher overall load factor (increased by 2.1 percentage points from 65.9% in 2002 to 68.0% in 2003) during the period. Passenger yield decreased slightly by 1.2% from 14.38 cents in 2002 to 14.22 cents in 2003, as a result of the longer average stage length. A general increase in passenger demand for air travel in 2003, in part as a result of growth in the Latin American economy, allowed us to increase both capacity and load factor.
      Cargo, mail and other. Cargo, mail and other totaled $30.1 million in 2003, a 2.9% decrease over cargo, mail and other of $31.0 million in 2002. This decrease was primarily the result of a 20.1% reduction in excess baggage revenues as a result of the standardization of our policies for excess baggage, which effectively reduced our revenues per passenger. This decrease was partially offset by an increase in cargo revenues of 3.9% to $24.1 million in 2003 as a result of an increase in demand in the region and an increase in our available cargo capacity as we replaced four Boeing 737-200s with larger Boeing 737-Next Generation aircraft in the second half of 2003.
Operating expenses
      Operating expenses totaled $283.5 million in 2003, a 5.1% increase in operating expenses of $269.8 million in 2002. The increase in operating expenses was primarily attributable to a 13.3% increase in capacity and an increase in the average cost of jet fuel per gallon of 18.2%. Operating expenses for 2003 also include a fleet impairment charge of $3.6 million related to the Boeing 737-200 fleet, as compared to the fleet impairment charge of $13.7 million in 2002 related to the Boeing 737-200 fleet. The breakdown of operating expenses per available seat mile is as follows:
                         
    Year Ended    
    December 31,    
        Percent
    2002   2003   Change
             
    (in cents)    
Operating expenses per ASM:
                       
Salaries and benefits
    1.38       1.40       1.7  %
Passenger servicing
    1.19       1.14       (4.0 )%
Commissions
    1.01       0.86       (14.9 )%
Reservation and sales
    0.59       0.56       (4.9 )%
Depreciation
    0.47       0.44       (7.4 )%
Maintenance, materials and repairs
    0.73       0.63       (13.4 )%
Flight operations
    0.51       0.50       (3.2 )%
Aircraft rentals
    0.74       0.52       (30.5 )%
Landing fees and other rentals
    0.30       0.33       9.6  %
Other
    0.67       0.81       19.6  %
                   
Total operating expenses per ASM before aircraft fuel and fleet impairment charges
    7.59       7.17       (5.5 )%
Aircraft Fuel
    1.41       1.50       7.0  %
                   
Total operating expenses per ASM before fleet impairment charges
    9.00       8.68       (3.6 )%
Fleet impairment charges
    0.48       0.11       (76.9 )%
                   
Total operating expenses per ASM
    9.48       8.79       (7.3 )%
                   
      Aircraft Fuel. Aircraft fuel totaled $48.5 million in 2003, a 21.2% increase over aircraft fuel of $40.0 million in 2002. This increase was a result of an 18.2% increase in the average price per gallon of jet fuel ($1.01 in 2003 as compared to $0.86 in 2002) and the consumption of 8.1% more fuel due to a 10.0% increase in departures. These increases were partially offset by our newer, more fuel-efficient aircraft. Aircraft fuel per available seat mile increased by 7.0% due to the increase in average fuel cost per gallon.

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      Salaries and benefits. Salaries and benefits totaled $45.3 million in 2003, a 15.3% increase over salaries and benefits of $39.3 million in 2002. This increase was primarily the result of a 7.6% increase in full time equivalent employees, mainly to cover increased operations, and the full year effect of salary increases made in October 2002. Salaries and benefits per available seat mile increased by 1.7%.
      Passenger servicing. Passenger servicing totaled $36.9 million in 2003, an 8.8% increase over passenger servicing of $33.9 million in 2002. This increase was primarily a result of higher handling and aircraft servicing expenses which were partially offset by lower passenger liability insurance rates resulting from Copa joining Continental’s insurance policies. Passenger servicing per available seat mile decreased by 4.0% as a result of lower insurance costs and the distribution of similar fixed costs over a greater number of available seat miles.
      Commissions. Commissions totaled $27.7 million in 2003, a 3.6% decrease as compared to commissions of $28.7 million in 2002. This decrease was primarily a result of lower average commissions and a higher percentage of direct revenues (23% in 2002 as compared to 25% in 2003), partially offset by a higher volume of sales. Commissions per available seat mile decreased by 14.9%.
      Reservations and sales. Reservations and sales totaled $18.0 million in 2003, a 7.8% increase over reservation and sales of $16.7 million in 2002. This increase was a result of an 11.5% increase in on-board passengers. Reservations and sales cost per available seat mile decreased by 4.9%.
      Depreciation. Depreciation totaled $14.0 million in 2003, a 5.0% increase over depreciation of $13.4 million in 2002. This increase was primarily due to four new Boeing 737-Next Generation aircraft acquired in 2003 and the full year effect of four Boeing 737-Next Generation aircraft acquired in 2002, partially offset by lower depreciation expenses of non-aircraft related equipment. Depreciation per available seat mile decreased by 7.4%.
      Maintenance, materials and repairs. Maintenance, materials and repairs totaled $20.4 million in 2003, a 1.8% decrease as compared to maintenance, materials and repairs of $20.7 million in 2002. This decrease was a result of the replacement of two Boeing 737-200 aircraft with newer Boeing 737-Next Generation and the full year effect of disposing of three Boeing 737-200 aircraft in 2002. Maintenance, materials and repairs per available seat mile decreased by 13.4%.
      Flight operations. Flight operations cost totaled $16.0 million in 2003, a 9.7% increase over flight operations of $14.6 million in 2002, primarily as a result of a 10.0% increase in the number of departures. Flight operations per available seat mile decreased by 3.2%.
      Aircraft rentals. Aircraft rentals totaled $16.7 million in 2003, a 21.2% decrease over aircraft rentals of $21.2 million in 2002. This decrease resulted from the replacement of two leased Boeing 737-200 with owned Boeing 737-Next Generation aircraft in 2003 and the full year effect of the replacement of another two leased Boeing 737-200 with owned Boeing 737-Next Generation aircraft in 2002. Aircraft rentals per available seat mile decreased by 30.5%.
      Landing fees and other rentals. Landing fees and other rentals totaled $10.6 million in 2003, a 24.2% increase over landing fees and other rentals cost of $8.5 million in 2002. This increase was primarily a result of an increase in departures of 10.0%, increased rates for landing fees at three of the airports we serve, and the higher landing fees associated with the heavier Boeing 737-800 aircraft. Landing fees and other rentals per available seat miles increased by 9.6%.
      Other. Other expenses totaled $26.0 million in 2003, a 35.5% increase over other expenses of $19.2 million in 2002. This increase was primarily a result of an increase of $2.2 million in publicity and promotion expenses due to a new television advertising campaign, as well as an increase in technology related initiatives, specifically the outsourcing of information technology services at our locations outside Panama, which are expected to have a net positive long-term effect on the results of the company. Other expenses per available seat mile increased by 19.6%.
      Fleet impairment charges. Fleet impairment charges were recorded relating to the Boeing 737-200 fleet in the amounts of $3.6 million in 2003 and $13.7 million in 2002 in accordance with Statement of Financial

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Account Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. See Note 8 to our consolidated financial statements.
Non-operating income (expense)
      Non-operating expense totaled $6.2 million in 2003, a 14.1% decrease over non-operating expense of $7.2 million in 2002, attributable primarily to greater interest expense partially offset by higher interest income and other non-operating income.
      Interest expense. Interest expense totaled $11.6 million in 2003, a 52.2% increase over interest expense of $7.6 million in 2002, resulting from a higher amount of debt related to a greater number of owned aircraft. The average effective interest rates paid increased slightly from 3.53% during 2002 to 3.64% during 2003.
      Interest capitalized. Interest capitalized totaled $2.0 million in 2003, an 80.3% increase over interest capitalized of $1.1 million in 2002, resulting from higher average debt relating to pre-delivery payments for aircraft deliveries.
      Interest income. Interest income totaled $0.9 million in 2003, a 6.7% increase over interest income of $0.8 million in 2002, as higher balances in 2003 were offset by lower prevailing interest rates.
      Other, net. Other, net income totaled $2.6 million in 2003 versus other, net expense of $1.5 million in 2002. This difference was primarily attributable to a foreign exchange loss of $0.2 million in 2003 as compared to a foreign exchange loss of $3.2 million in 2002. The lower foreign exchange loss in 2003 is mainly attributable to gains totaling $1.0 million in Argentina and Brazil versus a loss of $1.1 million in Argentina during 2002.

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Quarterly Results of Operations
      The following table sets forth, for each of our last five quarters, selected data from our statement of income as well as other financial data and operating statistics. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited financial statements appearing elsewhere in this prospectus.
                                         
    Three Months Ended
     
    September 30,   December 31,   March 31,   June 30,   September 30,
    2004   2004   2005   2005   2005
                     
    (in thousands of dollars, except share and per share data and operating data)
INCOME STATEMENT DATA
                                       
Operating revenue
  $ 106,060     $ 106,671     $ 113,608     $ 137,374     $ 177,947  
Operating expenses
    80,690       91,830       87,631       117,083       141,874  
Depreciation
    4,661       5,911       4,739       4,996       5,109  
Interest expense
    4,204       4,412       4,557       5,152       6,046  
Interest capitalized
    167       15       143       201       313  
Interest income
    351       545       687       673       940  
Net income before tax
    22,967       12,948       24,446       17,986       31,172  
Net income
    21,137       11,879       22,560       15,111       27,675  
OTHER FINANCIAL DATA
                                       
EBITDA(1)
    31,314       22,711       32,912       27,260       41,074  
Aircraft rentals
    3,583       4,010       4,678       7,236       7,437  
Operating margin
    . 23.9 %     13.9 %     22.9 %     14.8 %     20.3 %
Weighted average shares used in computing net income per share(2)
    42,812,500       42,812,500       42,812,500       42,812,500       42,812,500  
Net income (loss) per share(2) OPERATING DATA
  $ 0.49     $ 0.28     $ 0.53     $ 0.35     $ 0.65  
Revenue passenger miles
    681       663       736       875       1,131  
Available seat miles
    945       952       1,018       1,266       1,535  
Load factor
    72.0 %     69.7 %     72.3 %     69.1 %     73.7 %
Break-even load factor
    51.1 %     57.9 %     52.1 %     58.1 %     58.4 %
Yield
    14.35       14.46       14.28       14.49       14.73  
Passenger revenue per ASM
    10.33       10.08       10.33       10.02       10.86  
Operating revenue per ASM
    11.22       11.20       11.16       10.85       11.60  
Operating expenses per ASM
    8.53       9.64       8.61       9.25       9.25  
SEGMENT FINANCIAL DATA
                                       
Copa:
                                       
Operating revenue
    106,060       106,671       113,608       115,955       137,690  
Operating expenses
    80,690       91,830       87,631       96,260       106,941  
Depreciation
    4,661       5,911       4,739       4,770       4,833  
Aircraft rentals
    3,583       4,010       4,678       5,831       5,882  
Interest expense
    4,204       4,412       4,557       4,691       4,940  
Interest capitalized
    167       15       143       201       313  
Interest income
    351       545       687       656       851  
Net income before tax
    22,967       12,948       24,446       18,360       27,823  
AeroRepública (since April 22, 2005):
                                       
Operating revenue     21,419       40,257  
Operating expenses     20,823       34,933  
Depreciation     226       276  
Aircraft rentals     1,405       1,555  
Interest expense     461       1,106  
Interest capitalized            
Interest income     17       89  
Net income (loss) before tax     (374 )     3,349  
 
(1)  EBITDA represents net income (loss) plus the sum of interest expense, income taxes, depreciation and amortization minus the sum of interest capitalized and interest income. EBITDA is presented as supplemental information because we believe it is a useful

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indicator of our operating performance and is useful in comparing our operating performance with other airlines. However, EBITDA should not be considered in isolation, as a substitute for net income prepared in accordance with U.S. GAAP or as a measure of a company’s profitability. In addition, our calculation of EBITDA may not be comparable to other companies’ similarly titled measures. The following table presents a reconciliation of our net income to EBITDA for the specified periods:

                                           
    Three Months Ended
     
    September 30,   December 31,   March 31,   June 30,   September 30,
    2004   2004   2005   2005   2005
                     
    (in thousands of dollars)
Net income (loss)
  $ 21,137     $ 11,879     $ 22,560     $ 15,111     $ 27,675  
Interest expense
    4,204       4,412       4,557       5,152       6,046  
Income taxes
    1,830       1,069       1,886       2,875       3,497  
Depreciation
    4,661       5,911       4,739       4,996       5,109  
                               
 
Subtotal
    31,832       23,271       33,742       28,134       42,327  
                               
Interest capitalized
    (167 )     (15 )     (143 )     (201 )     (313 )
Interest income
    (351 )     (545 )     (687 )     (673 )     (940 )
                               
 
EBITDA
    31,314       22,711       32,912       27,260       41,074  
                               
(2)  All share and per share amounts have been retroactively restated to reflect the current capital structure described under “Description of Capital Stock” and in the notes to our consolidated financial statements.
Liquidity and Capital Resources
      In recent years, we have been able to meet our working capital requirements through cash from our operations. Our capital expenditures, which consist primarily of aircraft purchases, are funded through a combination of our cash from operations and long-term financing. From time to time, we finance pre-delivery payments related to our aircraft with medium-term financing in the form of bonds privately placed with commercial banks.
      Our cash, cash equivalents and short-term investments increased by $48.9 million from $66.0 million at December 31, 2003 to $114.9 million at December 31, 2004. These totals include $3.9 million and $4.5 million of restricted cash and cash equivalents as of December 31, 2004 and 2003, respectively. Our cash, cash equivalents and short-term investments increased to $129.2 million at September 30, 2005. This total includes $4.9 million of restricted cash and cash equivalents. At September 30, 2005 we had available credit lines totaling $23.5 million of which there were no amounts outstanding.
Operating Activities
      We rely primarily on cash flows from operations to provide working capital for current and future operations. For the first nine months of 2005, cash flow from operating activities totaled $78.3 million. Cash flows from operating activities totaled $98.6 million in 2004, $73.6 million in 2003 and $50.9 million in 2002. The increase in operating cash flows over these periods was primarily due to the growth of our business. Our accounts receivable at September 30, 2005 increased by $27.3 million since December 31, 2004 primarily as a result of the consolidation of $14.3 million of AeroRepública’s receivables and growth in operating revenues.
Investing Activities
      During the first nine months of 2005, capital expenditures were $7.1 million. During 2004, capital expenditures were $65.8 million, which consisted primarily of expenditures related to our purchase of three Boeing 737-Next Generation aircraft. During 2003, capital expenditures were $112.2 million, which consisted primarily of expenditures related to our purchase of four Boeing 737-Next Generation aircraft and one CFM 56-7B spare engine. During 2002, capital expenditures were $76.0 million, which consisted primarily of expenditures related to our purchase of four Boeing 737-Next Generation aircraft.
Financing Activities
      Financing activities during the first nine months of 2005 consisted primarily of the financing for aircraft pre-delivery payments with $21.9 million of privately-placed bonds, the issuance of $20.4 million in

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commercial debt by AeroRepública, primarily related to the refinancing of existing liabilities, the repayment of $34.3 million in long-term debt and $10.1 million in dividends declared and paid.
      Financing activities during 2004 consisted primarily of financing for three Boeing 737-Next Generation aircraft for $101.2 million ($35.7 million of the proceeds of which were used to redeem privately-placed bonds used for pre-delivery payments related to those aircraft), the financing for aircraft pre-delivery payments with $6.4 million of privately-placed bonds, the repayment of $32.1 million in long-term debt and $10.0 million in dividends declared and paid.
      Financing activities during 2003 consisted primarily of financing for four Boeing 737-Next Generation aircraft and a spare engine for $140.7 million ($35.2 million of the proceeds of which were used to redeem privately-placed bonds used for pre-delivery payments related to those aircraft), the financing for aircraft pre-delivery payments with $21.7 million of privately-placed bonds and the repayment of $22.0 million in long-term debt.
      Financing activities during 2002 consisted primarily of financing for four Boeing 737-Next Generation aircraft for $112.9 million ($47.8 million of the proceeds of which were used to repay loans used for pre-delivery payments related to those aircraft), the financing for aircraft pre-delivery payments with $42.8 million of privately-placed bonds and the repayment of $55.3 million in long-term debt which includes payments on debt related to loans used for pre-delivery payments.
      We have generally been able to arrange medium-term financing for pre-delivery payments through loans with commercial banks through a private issuance of bonds. Although we believe that financing on similar terms should be available for our future aircraft pre-delivery payments, we may not be able to secure such financing on terms attractive to us.
      We have financed the acquisition of fifteen Boeing 737-Next Generation aircraft and three spare engines through syndicated loans provided by international financial institutions with the support of partial guarantees issued by the Export-Import Bank of the United States, or Ex-Im, with repayment profiles of 12 years. The Ex-Im guarantees support 85% of the net purchase price and are secured with a first priority mortgage on the aircraft in favor of a security trustee on behalf of Ex-Im. The documentation for each loan follows standard market forms for this type of financing, including standard events of default. Our Ex-Im supported financings amortize on a quarterly basis, are denominated in dollars and originally bear interest at a floating rate linked to LIBOR. Our Ex-Im guarantee facilities typically offer an option to fix the applicable interest rate. We have exercised this option with respect to $299.2 million as of September 30, 2005 at an average weighted interest rate of 4.47%. The remaining $45.7 million bears interest at an average weighted interest of LIBOR plus 0.03%. At September 30, 2005, the total amount outstanding under our Ex-Im-supported financings totaled $344.9 million.
      We effectively extend the maturity of our Boeing aircraft financing to 15 years through the use of a “Stretched Overall Amortization and Repayment,” or SOAR, structure which provides serial draw-downs calculated to result in a 100% loan accreting to a recourse balloon at the maturity of the Ex-Im guaranteed loan. The SOAR portions of our facilities require us to maintain certain financial covenants, including an EBITDAR to fixed charge ratio, a net debt to capitalization ratio and minimum net worth. To comply with the first ratio, our EBITDA plus aircraft rent expense, or EBITDAR, for the prior year must be at least 2.5 times our fixed charge expenses (including interest, commission, fees, discounts and other finance payments) for that year. To comply with the second ratio, our tangible net worth shall be at least five times our long-term obligations. Third, our tangible net worth must be at least $50 million. As of September 30, 2005 we complied with all required covenants. We also pay a commitment fee on the unutilized portion of our SOAR loans.
      We also typically finance approximately 10% of the purchase price of our Boeing aircraft through commercial loans which totaled $22.2 million as of September 30, 2005. Under the commercial loan agreements for aircraft received in 2002, we are required to comply with four specific financial covenants. The first covenant requires our EBITDAR for the prior year to be at least 1.9 times our finance charge expenses (including interest, commission, fees, discounts and other finance payments) for the first year of the agreement and 2.0 times our finance charge expenses for the remainder of the agreement. The second covenant limits our net borrowings to 92% of our capitalization during the first two years, 90% during the next two years and 85% during the last six years of the agreement. The third covenant requires our tangible net worth to be at least $30 million for the first

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two years, $70 million for the next three years and $120 million for the last four years of the agreement. The last covenant requires us to maintain a minimum of $30 million in available cash (including cash equivalents and committed credit facilities) for the first five years and $50 million for the last five years of the agreement. As of September 30, 2005 we complied with all required covenants.
      Our Embraer aircraft purchases will not be eligible for Ex-Im guaranteed financing. We have arranged financing for the six Embraer aircraft to be delivered through the end of 2006, having obtained a commitment for senior term loan facilities in the amount of approximately $134 million from PK AirFinance US, Inc., an affiliate of General Electric. The loans will have a term of twelve years. We entered into definitive documentation with respect to these facilities and drew our first installment under the facilities in connection with the delivery of our first Embraer 190 on November 16, 2005. We will also pay a commitment fee with respect to the unused portion of the facilities.
      Upon our acquisition of AeroRepública, we arranged a commercial credit facility in the amount of $15.0 million, primarily to refinance existing liabilities and to provide AeroRepública with working capital. This facility was divided in two tranches of $5.0 million and $10.0 million with maturities of three and five years, respectively. This facility is secured by credit card receivables. The facility requires AeroRepública to maintain certain financial covenants such as a financial debt to EBITDAR ratio of less than 4.5. As of September 30, 2005 we complied with all required covenants.
      Capital resources. We finance our aircraft through long term debt and operating lease financings. Although we expect to finance future aircraft deliveries with a combination of similar debt arrangements and financing leases, we may not be able to secure such financing on attractive terms. To the extent we cannot secure financing, we may be required to modify our aircraft acquisition plans or incur higher than anticipated financing costs. We expect to meet our operating obligations as they become due through available cash and internally generated funds, supplemented as necessary by short-term credit lines.
      We have placed firm orders with The Boeing Company for seven Boeing 737-Next Generation aircraft and we have purchase rights for an additional ten Boeing 737-Next Generation aircraft. We have also placed firm orders with Embraer for eleven Embraer 190 aircraft and we have options to purchase an additional eighteen Embraer 190 aircraft. The schedule for delivery of our firm orders is as follows: one in 2005, six in 2006, six in 2007, four in 2008 and one in 2009. We meet our pre-delivery deposit requirements for our Boeing 737-Next Generation aircraft by paying cash, or by using medium-term borrowing facilities and/or vendor financing for deposits required 24 to 6 months prior to delivery. We are also required to make pre-delivery payments with respect to our Embraer aircraft at the time of our commitment to purchase and at periodic intervals prior to delivery. We fund these deposits with our own cash.
Contractual Obligations
      Our non-cancelable contractual obligations at September 30, 2005 included the following:
                                                         
    At September 30, 2005
     
        Remainder    
    Total   of 2005   2006   2007   2008   2009   Thereafter
                             
            (in thousands of dollars)        
Aircraft and engine purchase commitments
  $ 579,407     $ 62,004     $ 166,091     $ 189,549     $ 128,742     $ 33,020     $ 12,802  
Aircraft operating leases
    126,051       7,960       28,418       28,203       26,918       21,750       12,802  
Other operating leases
    24,473       1,615       3,944       3,569       3,474       3,370       8,501  
Short-term debt and long-term debt (1)
    500,475       15,455       84,436       49,466       47,685       44,030       259,372  
                                           
Total
  $ 1,230,405     $ 87,034     $ 282,889     $ 270,787     $ 206,819     $ 102,171     $ 280,676  
                                           
 
(1) Includes actual interest and estimated interest for floating-rate debt based on September 30, 2005 rates.
     Most contract leases include renewal options. Non-aircraft related leases have renewable terms of one year, and their respective amounts included in the table below have been estimated through 2009, but we cannot estimate amounts with respect to those leases for later years. Our leases do not include residual value guarantees.

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Off-Balance Sheet Arrangements
      None of our operating lease obligations are reflected on our balance sheet and we have no other off-balance sheet arrangements. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value or other guarantees to our lessors.
Quantitative and Qualitative Disclosures about Market Risk
      The risks inherent in our business are the potential losses arising from adverse changes to the price of fuel, interest rates and the U.S. dollar exchange rate.
      Aircraft Fuel. Our results of operations are affected by changes in the price and availability of aircraft fuel. To manage the price risk, we use crude oil option contracts, zero cost collars and swap agreements. Market risk is estimated as a hypothetical 10% increase in the December 31, 2004 cost per gallon of fuel. Based on projected 2005 fuel consumption, such an increase would result in an increase to aircraft fuel expense of approximately $7.9 million in 2005, not taking into account our derivative contracts. We currently have hedged approximately 15% of Copa’s projected 2005 fuel requirements and 10% of Copa’s projected fuel consumption from January 1, 2006 to March 31, 2006. All existing hedge contracts settle by March 2006.
      Interest. Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate debt instruments and operating leases and on interest income generated from our cash and investment balances. If interest rates average 10% more in 2005 than they did during 2004, our interest expense would increase by approximately $130,000, and the fair value of our debt would decrease by approximately $3.6 million. If interest rates average 10% less in 2005 than they did in 2004, our interest income from cash equivalents would decrease by approximately $238,000 and the fair value of our debt would increase by approximately $3.7 million. These amounts are determined by considering the impact of the hypothetical interest rates on our variable-rate debt and cash equivalent balances at December 31, 2004.
      Foreign Currencies. The majority of our obligations are denominated in U.S. dollars. Since Panama uses the U.S. dollar as legal tender, the majority of our operating expenses are also denominated in U.S. dollars. Our foreign exchange risk is limited as approximately 50% of our revenues are in U.S. dollars. While a significant part of our revenues are in foreign currency, no single currency represented more than 6.0% of our operating revenues in 2004, except for the Colombian Peso which represented 10.3%. Generally, our exposure to most of these foreign currencies is limited to the period of up to two weeks between the completion of a sale and the repatriation to Panama in dollars.
2004 Revenues and Expenses Breakdown by Currency
                 
    Revenue   Expense
         
Brazilian Real
    4.95%       2.30%  
Colombian Peso
    10.26%       4.58%  
Costa Rican Colon
    5.18%       2.07%  
Mexican Peso
    5.57%       2.51%  
U.S. Dollar
    51.07%       78.75%  
Venezuelan Bolivar
    4.56%       2.07%  
Other(1)
    18.41%       7.71%  
 
(1) Argentine Peso, Chilean Peso, Dominican Peso, Guatemalan Quetzal, Jamaican Dollar, Honduran Lempira, Haitian Gourde.
     As a result of the acquisition of AeroRepública in April 2005, we have an increased exposure to the Colombian Peso than that noted in the table above. AeroRepública’s revenues from April 22, 2005 to September 30, 2005 represent 14.2% of total consolidated revenues.
Outlook: Remainder of 2005 and 2006
      We seek to expand our operations by adding additional flights to existing routes and adding new routes, which includes, among others, increasing the number of flights to San Salvador in December 2005 and Santiago, Chile in January 2006. For the remainder of 2005, we expect to continue to concentrate on keeping

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our operating costs low and pursuing ways to make our operations more efficient. In 2006, we expect to expand our operations by adding frequencies and new routes with the addition of six new aircraft to our fleet, including two Boeing-737 Next Generation and four Embraer 190 aircraft.
      We expect jet fuel prices will continue to be high in 2005 and expect to continue evaluating fuel hedging programs to help protect us against short-term movements in crude oil prices. We also expect interest rates to increase during the rest of 2005 which would increase the amount of interest expense related to the 27% of our debt that bears interest at floating rates. We also expect that our 2005 earnings will be affected by a new Panamanian corporate income tax law and a new Panamanian social security law. For 2005, we expect the new corporate income tax law to increase our Panamanian tax liability to approximately $1.3 million. We estimate that the new social security law would have had an incremental effect of approximately $300,000 from June 1, 2005 through the remainder of 2005 had the new social security law not been suspended until December 2005.
      We took delivery of our first Embraer 190 aircraft on November 16, 2005. We believe that the addition of the Embraer 190 aircraft will enhance our ability to provide efficient service to new destinations in mid-sized markets that currently do not generate sufficient demand to justify service with our larger Boeing aircraft. Nevertheless, we expect to incur one-time charges associated with integrating a new aircraft type into our fleet prior to it entering revenue service, including obtaining the necessary certifications, the hiring and training of new pilots, technicians and flight attendants. We do not expect these expenses to be material.
      We expect that our recent acquisition of AeroRepública will enhance our access and visibility in the Colombian market of 45 million inhabitants, which we expect to translate into additional passenger traffic through our network and increased revenues. However, we also believe that the consolidation of AeroRepública’s results in future periods will continue to reduce our consolidated operating margins. AeroRepública expects to initiate international flights between Medellín and Panama City, Cali and Panama City and between Cartagena and Panama City. In addition, AeroRepública expects to initiate flights between Cali and Medellín and between Bogotá and Cúcuta and expects to take delivery of one additional MD-80 aircraft in December of 2005.
      We expect our consolidated capacity to increase by approximately 3.2% in the last quarter of 2005 as compared to the previous quarter primarily as a result of AeroRepública’s new flights. We currently expect AeroRepública to break even or have a small loss for the year ended December 31, 2005 and to experience improvement for 2006. Over the next few years we expect to fund between $8 million and $12 million in AeroRepública which will be primarily used for capital investment projects and short term working capital needs.

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BUSINESS
Overview
      We are a leading Latin American provider of international airline passenger and cargo service. Operating from our strategically located position in the Republic of Panama, we currently offer approximately 80 daily scheduled flights among 30 destinations in 20 countries in North, Central and South America and the Caribbean. Additionally, we provide passengers with access to flights to more than 110 other destinations through codeshare arrangements with Continental Airlines pursuant to which each airline places its name and flight designation code on the other’s flights. We provide airline passenger and cargo service through our Panama City hub which enables us to consolidate passenger traffic from multiple points to serve each destination effectively. We also operate a Colombian carrier, AeroRepública S.A., that we acquired during the second quarter of 2005.
      We operate a modern fleet of 22 Boeing 737-Next Generation aircraft with an average age of approximately 3.3 years as of September 30, 2005 (not taking into account the fleet of AeroRepública, our recently-purchased operating subsidiary). We also accepted delivery of our first 94-seat Embraer 190 aircraft on November 16, 2005. To meet our growing capacity requirements, we have firm commitments to accept delivery of 18 additional aircraft through 2009 and have negotiated purchase rights and options that, if exercised, would allow us to accept delivery of up to 28 additional aircraft through 2011. Our firm orders are for seven additional Boeing 737-Next Generation aircraft and eleven additional Embraer 190s, and our purchase rights and options are for up to ten Boeing 737-Next Generation aircraft and up to 18 Embraer 190s.
      Since January 2001, Copa Holdings has grown significantly and has established a track record of consistent profitability, recording four consecutive years of increasing earnings. Our total operating revenues have increased from $290.4 million in 2001 to $399.8 million in 2004, while our net income has increased from $14.8 million to $68.6 million over the same period. Our operating margins also improved from 8.6% in 2001 to 20.6% in 2004. Over the same period, Copa Airlines increased its capacity from 2,920 million available seat miles to 3,639 million available seat miles while improving its load factor from 64.0% during 2001 to 70.0% during 2004 and its yield from 13.79 cents during 2001 to 14.31 cents during 2004.
      We started our strategic alliance with Continental Airlines in 1998 in conjunction with its purchase of 49% of our capital stock. Together, we conduct joint marketing and code-sharing arrangements, and we participate in the award-winning OnePass frequent flyer loyalty program globally and on a co-branded basis in Latin America. We believe that our co-branding and joint marketing activities with Continental have enhanced our brand and reputation in Latin America, and that our relationship has afforded us many cost-related benefits, such as improving our purchasing power in negotiations with service providers, aircraft vendors and insurers. Immediately prior to the consummation of this offering, our alliance and related services agreements with Continental will be extended until 2015.
      We recently purchased AeroRepública S.A. for an aggregate purchase price of approximately $23.4 million, including acquisition costs. AeroRepública is a Colombian air carrier that operates a fleet of ten leased MD-80s and two owned DC-9s. According to the Colombian Civil Aviation Administration, Unidad Especial Administrativa de Aeronáutica Civil, in 2004 AeroRepública was the second-largest domestic carrier in Colombia in terms of number of passengers carried, providing service to 11 cities in Colombia through a point-to-point route network. We believe that this acquisition represents an attractive opportunity to increase our access to one of the largest airline passenger markets in Latin America and to improve AeroRepública’s operational and financial performance.
Our Strengths
      We believe our primary business strengths that have allowed us to compete successfully in the airline industry include the following:
  •   Our “Hub of the Americas” airport is strategically located. We believe that our base of operations at the geographically central location of Tocumen International Airport in Panama City, Panama

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  provides convenient connections to our principal markets in North, Central and South America and the Caribbean, enabling us to consolidate traffic to serve several destinations that do not generate enough demand to justify point-to-point service. Flights from Panama operate with few service disruptions due to weather, contributing to high completion factors and on-time performance. Tocumen International Airport’s sea-level altitude allows our aircraft to operate without performance restrictions that they would be subject to at higher-altitude airports. We believe that the geographic reach provided by our central location allows us to generate revenue across a large and diverse base of destinations. We also believe that our hub in Panama allows us to benefit from Panama City’s status as a center for financial services, shipping and commerce and from Panama’s stable, dollar-based economy, free-trade zone and growing tourism industry.
 
  •   We focus on keeping our operating costs low. In recent years, our low operating costs and efficiency have contributed significantly to our profitability. Our cost per available seat mile was 8.72 cents in 2004 and 9.08 cents in the first nine months of 2005. The cost per available seat mile of our Copa operating segment when excluding costs for fuel and fleet impairment charges was 7.50 cents in 2001, 7.59 cents in 2002, 7.17 cents in 2003, 7.01 cents in 2004 and 6.61 cents during the nine months ended September 30, 2005. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations” for a reconciliation of our cost per available seat mile when excluding costs for fuel and fleet impairment charges to our cost per available seat mile. We believe that our cost per available seat mile reflects our modern fleet, efficient operations and the competitive cost of labor in Panama.
 
  •   We operate a modern fleet. Copa Airlines recently completed a fleet renovation program through which it replaced all of its older Boeing 737-200s with Boeing 737-Next Generation aircraft equipped with winglets and other modern cost-saving and safety features. We also recently accepted delivery of our first Embraer 190 aircraft. Over the next four years, we intend to further enhance our modern fleet through the addition of at least seven additional Boeing 737-Next Generation aircraft and eleven new Embraer 190s. We expect our Boeing 737-700s and 737-800s and our new Embraer 190s to offer substantial operational cost savings over the replaced aircraft in terms of fuel efficiency and maintenance costs. In addition, Copa Airlines believes that its modern fleet contributes to its excellent on-time performance and high completion factor which contribute to passenger satisfaction.
 
  •   We believe we have a strong brand and a reputation for quality service. We believe that the Copa brand is associated with value to passengers, providing world-class service and competitive pricing. For the nine months ended September 30, 2005, Copa Airline’s statistic for on-time performance was 93.3%, completion factor was 99.7% and baggage handling was 0.8 mishandled bags per 1000 passengers. Our goal is to apply our expertise in these areas to improve AeroRepública’s service statistics to comparable levels. Our focus on customer service has helped to build passenger loyalty. We believe that our brand has also been enhanced through our relationship with Continental, including our joint marketing of the OnePass loyalty program in Latin America, the similarity of our aircraft livery and aircraft interiors and our participation in Continental’s President’s Club lounge program.
 
  •   Our management fosters a culture of teamwork and continuous improvement. Our management team has been successful at creating a culture based on teamwork and focused on achieving greater efficiencies through continuous improvement. Each of our employees has individual objectives based on corporate goals that serve as a basis for measuring performance. When corporate operational and financial targets are met, employees are eligible to receive bonuses according to our profit sharing program. See “Business—Employees.” We also recognize outstanding performance of individual employees through company-wide recognition, one-time awards, special events and, in the case of our senior management after this offering, grants of restricted stock and stock options. According to internal surveys, over 90% of our employees report being satisfied with their job. Our goal-oriented culture and incentive programs have contributed to a motivated work force that is focused on satisfying customers, achieving efficiencies and growing profitability.

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Our Strategy
      Our goal is to continue to grow profitably and enhance our position as a leader in Latin American aviation by providing a combination of superior customer service, convenient schedules and competitive fares, while maintaining competitive costs. The key elements of our business strategy include the following:
  •   Expand our network by increasing frequencies and adding new destinations. We believe that demand for air travel in Latin America is likely to expand in the next decade, and we intend to use our increasing fleet capacity to meet this growing demand. We intend to focus on expanding our operations by increasing flight frequencies on our most profitable routes and initiating service to new destinations. Our Panama City hub allows us to consolidate traffic and provide service to certain underserved markets, particularly in Central America and the Caribbean, and we intend to focus on providing new service to regional destinations that we believe best enhance the overall connectivity and profitability of our network. With the addition of Embraer 190 aircraft and growth in overall capacity, we will have more flexibility in scheduling our flights for our customers’ convenience.
 
  •   Continue to focus on keeping our costs low. We seek to reduce our cost per available seat mile without sacrificing services valued by our customers as we execute our growth plans. Our goal is to maintain a young fleet of modern aircraft and to make effective use of our resources through efficient aircraft utilization and employee productivity. We intend to reduce our distribution costs by increasing direct sales, including internet and call center sales, as well as improving efficiency through technology and automated processes.
 
  •   Introduce service with new Embraer 190 aircraft. We believe that the addition of the Embraer 190 aircraft in late 2005 will allow us to provide service to new destinations in underserved markets whose demand would be more efficiently served with the 94-seat Embraer 190 aircraft. In addition, we believe that the Embraer 190s will also enable us to more efficiently match our capacity to demand, allowing us to improve service frequencies to currently served markets and to redeploy the higher capacity Boeing 737-Next Generation aircraft to serve routes with greater demand.
 
  •   Emphasize superior service and value to our customers. We intend to continue to focus on satisfying our customers and earning their loyalty by providing a combination of superior service and competitive fares. We believe that continuing our operational success in keeping flights on time, reducing mishandled luggage and offering convenient schedules to attractive destinations will be essential to achieving this goal. We intend to continue to incentivize our employees to improve or maintain operating and service metrics relating to our customers’ satisfaction by continuing our profit sharing plan and employee recognition programs and to reward customer loyalty with the popular OnePass frequent flyer program, upgrades and access to President’s Club lounges.
 
  •   Selectively evaluate future acquisitions. From time to time in the future, we expect to evaluate acquisition opportunities in the Latin American aviation sector as they arise. We intend to evaluate any such opportunities selectively, focusing in particular on the extent to which they might complement our existing operations and provide potential for growth and increased shareholder value.
History
      Copa was established in 1947 by a group of Panamanian investors and Pan American World Airways, which provided technical and economic assistance as well as capital. Initially, Copa served three domestic destinations in Panama with a fleet of three Douglas C-47 aircraft. In the 1960s, Copa began its international service with three weekly flights to cities in Costa Rica, Jamaica and Colombia using a small fleet of Avro 748s and Electra 188s. In 1971, Pan American World Airways sold its stake in Copa to a group of Panamanian investors who retained control of the airline until 1986. During the 1980s, Copa suspended its domestic service to focus on international flights.
      In 1986, CIASA purchased 99% of Copa, which was controlled by the group of Panamanian shareholders who currently control CIASA. From 1992 until 1998, Copa was a part of a commercial alliance with Grupo TACA’s network of Central American airline carriers. In 1997, together with Grupo TACA, Copa entered

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into a strategic alliance with American Airlines. After a year our alliance with American was terminated by mutual consent. In May 1998, CIASA sold a 49% stake in Copa Holdings to Continental and entered into an extensive alliance agreement with Continental providing for code-sharing, joint marketing, technical exchanges and other cooperative initiatives between the airlines.
      Since 1998, we have grown and modernized our fleet while improving customer service and reliability. In 1999, we received our first Boeing 737-700s and in 2003 we received our first Boeing 737-800s. In the first quarter of 2005, we completed our fleet renovation program and discontinued use of our last Boeing 737-200s. Since 1998, we have expanded from 24 destinations in 18 countries to 30 destinations in 20 countries. We plan to continue our expansion in the future, and we plan to almost double our fleet over the next five years.
AeroRepública
      We acquired 85% of AeroRepública on April 22, 2005 and another 14.7% in a series of transactions ending in the third quarter of 2005. We carried out the acquisition by purchasing substantially all of the equity ownership interest in AeroRepública from its several former shareholders for an aggregate purchase price of approximately $23.4 million, including acquisition costs. According to the Colombian Civil Aviation Administration, Unidad Especial Administrative de Aeronáutica Civil, AeroRepública is the second largest passenger air carrier in Colombia, with a market share of approximately 27% of the domestic traffic in Colombia in 2004 and approximately 1,300 employees.
      Our goal is to achieve growth at AeroRepública through a combination of increasing Colombian domestic passenger traffic volume and increasing market share, particularly in the business travelers segment. We believe that Copa’s operational coordination with AeroRepública may create additional passenger traffic in our existing route network by providing Colombian passengers more convenient access to the international destinations served through our Panama hub.
      We believe that AeroRepública’s revenues were approximately $87 million for 2003 and approximately $118 million for 2004. We also believe that during those years AeroRepública operated with very low net operating margins and experienced a net loss in 2003. However, in the course of our due diligence investigations in connection with the purchase, we and our external accounting advisors discovered certain inconsistencies in AeroRepública’s accounting and internal controls that caused us to believe that its published financial statements as prepared under Colombian GAAP may not have accurately reflected its results of operations for the years covered. Since we acquired AeroRepública, we have retained an internationally recognized accounting firm to assist us in the maintenance of accounting records, perform additional analyses and post-closing procedures necessary for the preparation of AeroRepública’s financial statements and provide other assistance in areas in which AeroRepública had insufficient internal resources. Additionally, our accounting personnel have been directly involved in the preparation and review of AeroRepública’s financial information consolidated into our financial statements subsequent to the acquisition. As a result, we believe the financial information of AeroRepública that is consolidated into our financial statements has been prepared in accordance with U.S. GAAP and that our interim financial statements for the periods subsequent to our acquisition of AeroRepública are materially correct. Our management and audit committee are developing plans for the remediation of the deficiencies in AeroRepública’s internal controls. These plans include additional oversight by our accounting personnel, further education and training in U.S. GAAP for AeroRepública’s existing personnel and engaging outside resources to assist in the design and implementation of additional internal controls. We expect to carry out these plans during the next year in connection with our initial assessment of our internal control over financial reporting as of December 31, 2006, as required by Section 404 of the Sarbanes-Oxley Act of 2002. The consolidation of AeroRepública into our results of operations has substantially increased our revenues and decreased our operating margins and is likely to do so for the foreseeable future.
Industry
      In Latin America, the scheduled passenger service market consists of three principal groups of travelers: strictly leisure, business and travelers visiting friends and family. Leisure passengers and passengers visiting

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friends and family typically place a higher emphasis on lower fares, whereas business passengers typically place a higher emphasis on flight frequency, on-time performance, breadth of network and service enhancements, including loyalty programs and airport lounges.
      According to data from the International Air Transport Association, or IATA, Latin America comprised approximately 7% of worldwide passengers flown in 2004, or 94 million passengers. The majority of this traffic consisted of passengers flying between the United States and Latin America.
      The Central American aviation market is dominated by international traffic. According to data from IATA, international traffic represented more than 61.6% of passengers carried and 79.2% of passenger miles flown in Central America in 2004. International passenger traffic is concentrated between North America and Central America. This segment represented 61.9% of international passengers flown in Central America in 2004, compared to 20.0% for passengers flown between Central America and South America and 18.1% for passengers flown within Central American countries. Total passengers flown on international flights in Central America grew by 7.3% in 2004, and load factors on international flights to and from Central America were 68.9% on average.
      Domestic traffic, or flights within Central American countries, represented approximately 38.4% of passengers carried and 20.8% of passenger miles flown in 2004. According to data collected by IATA, domestic passenger miles in Central America grew by 2.6% in 2004 while passengers flown grew by 1.6%. Average load factors on domestic flights within Central America were 63.7% in 2004. The chart below details passenger traffic in 2004.
                                                         
    2004 IATA Traffic Results
     
    Passengers       Passenger    
    Carried   Change   Miles   Change   ASMs   Change   Load
    (Thousands)   (%)   (Millions)   (%)   (Million)   (%)   Factor
                             
International Scheduled Service
                                                       
North America—Central America
    12,671       11.10%       17,682       16.10%       25,288       11.30%       69.90%  
North America—South America
    18,686       17.70%       39,448       20.50%       55,761       17.30%       70.70%  
Central America—South America
    4,101       15.80%       8,271       19.60%       11,978       15.60%       69.10%  
Within Central America
    3,711       27.50%       4,256       29.10%       6,581       31.70%       64.70%  
Within South America
    7,498       12.90%       5,656       7.50%       8,756       4.40%       64.60%  
Domestic Scheduled Service
                                                       
Central America
    12,749       1.60%       7,941       2.60%       12,464       0.80%       63.70%  
South America
    34,251       15.60%       17,584       16.10%       26,423       7.50%       66.50%  
      Panama serves as a hub for connecting passenger traffic between major North American, South American, Caribbean and Central American markets. Accordingly, passenger traffic to and from Panama is significantly influenced by economic growth in surrounding regions. Major passenger traffic markets in North America, South America and Central America experienced growth in their GDP in 2004 on both an absolute and per capita basis. Real GDP in our two most important markets also grew in 2004, increasing by 6.0% in Panama and 4.0% in Colombia in 2004.
                         
    GDP   GDP per Capita
         
    2004 GDP   2004 Real GDP   2004 GDP per Capita
    (US$bn)   (% Growth)   (US$)
             
Brazil
    599.7       5.2%       3,417.1  
Argentina
    151.9       9.0%       3,912.1  
Chile
    93.7       6.0%       5,856.2  
Mexico
    676.5       4.4%       6,506.3  
Colombia
    95.2       4.0%       2,099.2  
Panama
    13.8       6.0%       4,523.8  
USA
    11,733.5       4.4%       39,934.3  
 
Source: International Monetary Fund, World Economic Outlook Database, April 2005; real GDP growth calculated in local currency
     Panama has benefitted from a stable economy with moderate inflation and steady GDP growth. According to World Bank estimates, from 1999 to 2003 Panama’s real GDP grew at an average annual rate of

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2.9% while inflation averaged 0.6% per year. The service sector represents approximately 76% of total real GDP in Panama, a higher percentage of GDP than the service sector represents in most other Latin American countries. The World Bank currently estimates Panama’s population to be 3.0 million, an increase of 1.5% from 2.9 million in 2002, with the majority of the population concentrated in Panama City, where our hub at Tocumen International Airport is located. We believe the combination of a stable, service-oriented economy and steady population growth has helped drive our domestic origin and destination passenger traffic. The World Bank estimates that annual aircraft departures in Panama increased by 17% from 21,900 in 2002 to 25,700 in 2003.
      Domestic travel within Panama primarily consists of individuals visiting families as well as domestic and foreign tourist visiting the countryside. Most of this travel is done via ground transportation, and its main flow is to and from Panama City, where most of the economic activity and population is concentrated. Demand for domestic air travel is growing and relates primarily to leisure travel from foreign and local tourist. The market is served primarily by two local airlines, Turismo Aereo and Aeroperlas, which operate turbo prop aircraft generally with less than 50 seats. These airlines do not offer international service and operate in the domestic terminal of Panama City, which is located 30 minutes by car from Tocumen International Airport.
      Colombia is the third largest country in Latin America in terms of population, with a population of approximately 45 million in 2004 according to the World Bank, and has a land area of approximately 440,000 square miles. Colombia’s GDP was approximately $98.2 billion in 2004, and per capita income was $2,216. Colombia’s geography is marked by the Andean mountains and an inadequate road and rail infrastructure, making air travel a convenient and attractive transportation alternative. Colombia shares a border with Panama, and for historic, cultural and business reasons it represents a significant market for many Panamanian businesses.
Route Network and Schedules
Copa
      As of September 30, 2005, we provided regularly scheduled flights to 30 cities in North, Central and South America and the Caribbean. Substantially all of our flights operate through our hub in Panama which allows us to transport passengers and cargo among a large number of destinations with service which is more frequent than if each route were served directly.
      We believe our hub-and-spoke model is the most efficient way for us to operate our business since most of the origination/destination city pairs we serve would not generate sufficient traffic to justify a point-to-point connection, and because we serve many countries, it would be very difficult to obtain the bilateral route rights necessary to operate a point-to-point system.
      We schedule a morning bank and an evening bank of flights, with flights timed to arrive at the hub at approximately the same time and to depart a short time later. Over the next few years, as our hub expands to allow us to de-peak our schedules and with the addition of two new banks to our hub, we intend to increase the number of destinations and frequencies. Operating more banks during the day will increase our asset utilization and allow us to utilize the employees at our hub more efficiently since periods of low activity without arriving or departing flights at the hub will be shorter. Additional banks will also give us the opportunity to provide more frequent service to many destinations, allow some passengers more convenient connections and increase the flexibility of scheduling flights throughout our route network.

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      The following table sets forth certain information with respect to our route system based on our flight schedule in effect as of September 30, 2005:
                                 
        Number of Passengers
        Carried in Year Ended
        December 31,
         
Region   ASMs per Week   2002   2003   2004
                 
North America
    21,833,388       247,995       335,294       395,497  
Central America
    7,889,543       593,258       655,726       741,295  
South America
    33,274,109       739,067       799,057       884,298  
Caribbean
    12,367,023       245,788       265,660       290,372  
      As a part of our strategic relationship with Continental, we provide flights through code-sharing arrangements to over 110 other destinations. To a limited extent, we also provide flights through tactical and regional code-sharing arrangements with Mexicana, Gol and Gulfstream International Airlines.
      In addition to increasing the frequencies to destinations we already serve, our business strategy is also focused on adding new destinations across Latin America, the Caribbean and North America in order to increase the attractiveness of our Hub of the Americas at Tocumen International Airport hub for intra-American traffic. We currently plan to introduce new destinations and to increase frequencies to many of the destinations that we currently serve. The addition of the Embraer 190s should also allow us to improve our service by enabling us to increase frequencies and service new destinations that cannot be served efficiently with a Boeing 737-Next Generation or that can be served more profitably with a smaller aircraft.
      Our plans to introduce new destinations and increase frequencies depend on the allocation of route rights, a process over which we do not have direct influence. Route rights are allocated through negotiations between the government of Panama and the governments of countries to which we intend to increase flights. If we are unable to obtain route rights, we will exercise the flexibility within our route network to re-allocate capacity as appropriate.
      We do not currently provide any domestic service in the Republic of Panama, choosing instead to focus entirely on international traffic both regionally and around the Americas. We divide our sales and marketing into the following regions: North America; South America; Central America (excluding Panama); the Caribbean; and Panama. The following table shows our sales generated in each of these regions.
Revenue by Region
                         
    Year Ended
    December 31,
     
Region   2002   2003   2004
             
North America(1)
    13.4%       15.5%       17.3%  
South America
    39.4%       38.6%       38.3%  
Central America
    16.7%       16.0%       15.2%  
Caribbean(2)
    14.0%       13.3%       12.9%  
Panama
    16.6%       16.6%       16.2%  
 
(1)  The United States, Canada and Mexico.
 
(2)  Cuba, Dominican Republic, Haiti, Jamaica, Puerto Rico

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AeroRepública
      AeroRepública currently provides scheduled service to the following cities in Colombia:
                         
            Number of Passengers
        Departures   Carried During the
    Date Service   Scheduled   Year Ended
Destinations Served   Commenced   per Week(1)   December 31, 2004
             
Barranquilla
    Jun 1995       22       102,012  
Bogotá
    Jun 1993       211       1,002,500  
Bucaramanga
    May 1995       21       85,093  
Cali
    Jun 1993       57       323,311  
Cartagena
    Jun 1993       32       174,867  
Leticia
    Nov 1993       5       24,501  
Medellín
    Oct 1994       53       228,594  
Montería
    Jul 1994       14       56,221  
Pereira
    Mar 2003       15       27,169  
San Andrés
    Jun 1993       41       203,185  
Santa Marta
    Jun 1993       15       83,677  
 
(1)  As of September 30, 2005.
     In addition to the destinations described above, AeroRepública periodically operates charter flights to Margarita Island, Venezuela; Havana, Cuba; Punta Cana, Dominican Republic and Montego Bay, Jamaica.
      AeroRepública is in the process of adding limited international service to its schedule and, in June 2005, AeroRepública was granted the authorization to fly regular services to Panama City from Cali, Medellín and San Andrés, Colombia. We expect that AeroRepública’s new service on these routes will provide feeder traffic and complement Copa’s existing service out of Panama City. In addition, AeroRepública has been granted the authorization to fly between Cali and Medellín and between Bogotá and Cúcuta. AeroRepública has applied for authorization to fly routes between Bogotá and Quito and between Bogotá and Guayaquil. It also has code-sharing agreements with the Venezuelan carrier, Aeropostal, and the Spanish carrier, Air Plus Comet, both of which provide AeroRepública the ability to offer expanded international service to its customers. Colombia has open-skies agreements with the Andean Pact (Comunidad Andina) nations of Bolivia, Ecuador, Peru and Venezuela.
Airline Operations
Passenger Operations
      Passenger revenues accounted for approximately $364.6 million or 91.2% of Copa’s total revenues in 2004, all earned from international routes. Leisure traffic, which makes up close to half of Copa’s total loads, tends to coincide with holidays, school schedules and cultural events and peaks in July and August and again in December and January. Despite these seasonal variations, Copa’s overall traffic pattern is relatively stable due to the constant influx of business travelers. Approximately 40% of Copa passengers regard Panama City as their destination or origination point, and most of the remaining passengers pass through Panama City in transit to other points on our route network.
      AeroRepública’s business is more concentrated on passenger service, which in 2004 accounted for approximately 97% of its total revenues. The majority of AeroRepública’s customers are leisure travelers and travelers visiting friends and family, and traffic is heaviest during the vacation months of July, August and the holiday season in December.
Cargo Operations
      In addition to our passenger service, we make efficient use of extra capacity in the belly of our aircraft by carrying cargo. Our cargo business generated revenues of approximately $23.2 million in 2002, $24.1 million in

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2003 and $28.2 million in 2004, representing 7.7%, 7.0% and 7.0%, respectively, of Copa’s operating revenues. We sold our remaining dedicated Boeing 737-200 Freighter aircraft in April 2002. However, we still wet-lease freighter capacity from time to time to reliably meet our cargo customers’ needs. In 2004, our cargo business consisted of approximately 69.5% in mail and freight; 28.3% in wet leases; and 2.2% in courier service. Of these sub-categories of service, courier traffic has shown the most growth, and we expect that in the future it will constitute a larger share of our cargo business.
      We recently acquired a cargo management system that allows us to improve our monitoring, tracking, and pricing capabilities. This new system includes a reservations module, a web-tracking system, electronic delivery confirmations and information management through bar codes. This new system complies with Cargo 2000 standards, a worldwide quality management system for the air cargo industry.
Pricing and Revenue Management
      We have designed our fare structure to balance our load factors and yields in a way that we believe will maximize profits on our flights. We also maintain revenue management policies and procedures that are intended to maximize total revenues, while remaining generally competitive with those of our major competitors.
      We charge slightly more for tickets on higher-demand routes, tickets purchased on short notice and other itineraries suggesting a passenger would be willing to pay a premium. This represents strong value to our business customers, who can count on competitive rates when flying with Copa. The number of seats we offer at each fare level in each market results from a continual process of analysis and forecasting. Past booking history, seasonality, the effects of competition and current booking trends are used to forecast demand. Current fares and knowledge of upcoming events at destinations that will affect traffic volumes are included in our forecasting model to arrive at optimal seat allocations for our fares on specific routes. We use a combination of approaches, taking into account yields, flight load factors and effects on load factors of continuing traffic, depending on the characteristics of the markets served, to arrive at a strategy for achieving the best possible revenue per available seat mile, balancing the average fare charged against the corresponding effect on our load factors. We recently replaced our Revenue Management software with a more sophisticated revenue management system designed by SABRE.
      During 2002, we purchased an automated pricing system from SMG Technologies that allows us to efficiently monitor our competitors’ published, unpublished and web fares and easily file fares with automated services. This gives us the time to publish competitive fares to and from points in the United States that we serve via our code-share agreement with Continental and to analyze the impact of any change on revenue. The system was fully implemented in February 2004.
      Improvements are being made to AeroRepública’s revenue management, pricing capabilities and systems that we expect will be completely in place by early 2006. We are evaluating options to upgrade AeroRepública’s revenue management system with the capability of working more effectively in a low-cost airline business model.
Relationship with Continental Airlines
      In recent years, many airlines have sought to form marketing alliances with other carriers. Such alliances generally provide for codesharing, frequent flyer reciprocity, coordinated scheduling of flights of each alliance member to permit convenient connections and other joint marketing activities. Such arrangements permit an airline to market flights operated by other alliance members as its own. This increases the destinations, connections and frequencies offered by the airline, which provide an opportunity for the airline to increase traffic on flight segments which connect with those of the alliance partners.
      Concurrently with its 49% investment in our company in May 1998, Continental entered into an alliance agreement, as well as related services, frequent flyer participation, trademark and other agreements with Copa. These agreements were initially signed for a period of ten years. We intend to amend and restate the major

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agreements in connection with the offering and extend them through 2015. Continental’s continued ownership of our shares is not a condition to the ongoing effectiveness of these agreements. As we coordinate our activities more closely with our new AeroRepública subsidiary, we may involve the Colombian carrier in some aspects of our alliance with Continental. Our alliance with Continental currently enjoys antitrust immunity in the United States which allows us to coordinate pricing, scheduling and joint marketing initiatives. In an effort to maximize the benefit from the relationship, Continental and Copa work together on the following initiatives:
      Product Positioning. Since the start of the alliance with Continental, we have introduced a new image to align ourselves more tangibly with the U.S. carrier. Our color scheme, logo, aircraft interior and staff uniforms are similar to Continental’s. With initiatives such as the introduction of our business class product Clase Ejecutiva and a smoke-free cabin, the Copa “in-flight” product was modeled on Continental’s. Furthermore, our business class passengers enjoy access to Continental’s President’s Club business lounges, and we jointly operate a co-branded President’s Club lounge with Continental at Tocumen International Airport.
      We have also adopted Continental’s OnePass frequent flyer program globally and on a co-branded basis in Latin America which has enabled us to develop brand loyalty among business travelers. The co-branding of the OnePass loyalty programs has helped us by leveraging the brand recognition that Continental already enjoyed across Latin America and enabling the two airlines to compete more effectively against regional competition such as Grupo TACA and the oneworld alliance represented by American Airlines and LAN Airlines.
      Continental is sponsoring our proposed affiliation with the Sky Team global alliance network, which also includes Delta, Northwest, Aeroméxico, Air France, Alitalia, KLM, Korean Air and CSA Czech.
      Code-sharing. We currently place the Copa designator code on Continental operated flights from Panama to Houston and Panama to Newark. In addition, flights carrying the Copa code operate to over 110 other Continental destinations, primarily through Continental’s gateways in Houston and Newark. Continental’s flights from Guatemala City and Managua City to Houston, and from Guatemala City to Newark also share our code. In May 2001, the DOT awarded us antitrust immunity for our code-share agreement, allowing us to deepen the alliance through, among other things, coordinating schedules and pricing. The downgrading of the Panamanian AAC to IASA’s Category 2 in 2001, although no reflection on our own safety standards, resulted in the suspension of our code-share status with Continental until Category 1 status was restored in April 2004. See “—Safety.”
      Aircraft Maintenance & Flight Safety. Continental and Copa have been cooperating closely to fully integrate both airlines’ maintenance programs. Continental and Copa’s maintenance programs for the Boeing 737-Next Generation are identical. We share Continental’s Sceptre inventory management software which allows us to pool spare parts with the larger airline and we rely on Continental to provide engineering support for maintenance projects. We have also been able to take advantage of Continental’s purchasing power and negotiate more competitive rates for spare parts and third-party maintenance work.
      Sales & Revenue Management. The two airlines recently embarked upon a co-branding of our city ticket offices, or CTOs, throughout Latin America, and as a result both now enjoy greater access to this important direct sales channel at little incremental cost. Joint corporate and travel agency incentive programs have been launched. Also, a new revenue management system and team were introduced at Copa under the direct management of experts brought in from Continental. We believe that we benefit from Continental’s experience in distribution costs and channel strategy studies, and management as a whole is gaining an intangible benefit from the high level of cooperation with Continental.
      Information Technology. By leveraging Continental’s expertise and experience, we have implemented several important information technology systems, such as the Sceptre system for maintenance and the “SHARES” computer reservation system. In November 2000, we transitioned from the SABRE reservation and airport check-in system to “SHARES” in an effort to maintain commonality with Continental.

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      Fleet Modernization. All of our Boeing aircraft share nearly identical configurations to Continental’s configurations. We have also been able to take advantage of Continental’s greater purchasing power with its suppliers, including Boeing, thus enabling us to negotiate lower purchase prices for these new aircraft.
Sales, Marketing and Distribution
Copa
      Sales and Distribution. Approximately 75% of sales during 2004 were through travel agents and other airlines while approximately 25% were direct sales via our CTOs, our call centers, our airport counters or our website. Travel agents receive base commissions, not including back-end incentive payments, ranging from 0% to 12% depending on the country. The weighted average rate for these commissions during 2004 was 5.5%. In recent years, base commissions have decreased significantly in most markets as more efficient back-end incentive programs have been implemented to reward selected travel agencies that exceed their sales targets.
      Travel agents obtain airline travel information and issue airline tickets through global distribution systems, or GDSs, that enable them to make reservations on flights from a large number of airlines. GDSs are also used by travel agents to make hotel and car rental reservations. We participate actively in all major international GDSs, including SABRE, Amadeus, Galileo and Worldspan. In return for access to these systems, we pay transaction fees that are generally based on the number of reservations booked through each system.
      We have a sales and marketing network consisting of 78 domestic and international ticket offices, including airport and city ticket offices. We have 17 CTOs co-branded with Continental. Approximately 20.3% and 4.1% of our sales for the year ended December 31, 2004 were booked through our ticket counters and our call centers, respectively.
      E-tickets, a key component of our sales efforts through the Internet and our call centers, was launched at the end of 2002 and, by December 2003, E-Ticketing for direct sales, non-revenue passengers (company business, elite reward travel and promotional travel), as well as American Airlines and Continental interline tickets had been implemented. E-tickets for travel agencies was implemented in the second quarter of 2004.
      The call center that operates our reservations and sales services handles calls from Panama as well as most other countries we fly to. Such centralization has resulted in a significant increase in telephone sales as it efficiently allowed for improvements in service levels such as 24-hour-a-day, 7-days-a-week service.
      We encourage the use of direct Internet bookings by our customers because it is our most efficient distribution channel. During mid 2002, we signed a contract with Amadeus to use their booking engine to facilitate ticket purchases on www.copaair.com and launched the system on January 6, 2003. The cost of each booking via the website is roughly 25% the cost of a regular travel agency booking. In 2004, we purchased a new booking engine in order to further reduce distribution costs, and 0.8% of our sales were made via our website. Our goal is to channel more of our total sales through the website.
      Advertising and Promotional Activities. Our advertising and promotional activities include the use of television, print, radio and billboards, as well as targeted public relation events in the cities where we fly. We believe that the corporate traveler is an important part of our business, and we particularly promote our service to these customers by conveying the reliability, convenience and consistency of our service and offering value-added services such as convention and conference travel arrangements, as well as our Business Rewards loyalty program for our frequent corporate travelers. We also promote package deals among the destinations where we fly through combined efforts with selected hotels and travel agencies.
AeroRepública
      AeroRepública does not currently have a mileage-based frequent flyer program but instead offers one free ticket to passengers for every five purchased trips. We are in the process of implementing the OnePass frequent flyer program at AeroRepública. AeroRepública is also in the process of implementing e-ticketing and expects to complete implementation by December 2005 to complement its call center, 26 city ticket

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offices and 11 airport ticket offices. We believe e-ticketing will improve passenger convenience and reduce commission costs. In 2004, approximately 75% of AeroRepública’s sales were made through travel agencies and 25% were made directly to passengers.
Competition
      We face intense competition throughout our route network. Overall airline industry profit margins are low and industry earnings are volatile. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs and other services. Copa competes with a number of other airlines that currently serve the routes on which we operate, including Grupo TACA, American Airlines Inc., LAN Airlines S.A. and Avianca. Some of our competitors, such as American Airlines, have larger customer bases and greater brand recognition in the markets we serve outside Panama, and some of our competitors have significantly greater financial and marketing resources than we have. Airlines based in other countries may also receive subsidies, tax incentives or other state aid from their respective governments, which are not provided by the Panamanian government. The commencement of, or increase in, service on the routes we serve by existing or new carriers could negatively impact our operating results. Likewise, competitors’ service on routes that we are targeting for expansion may make those expansion plans less attractive. We must constantly react to changes in prices and services offered by our competitors to remain competitive.
      Traditional hub-and-spoke carriers in the United States and Europe have in recent years faced substantial and increasing competitive pressure from low-cost carriers offering discounted fares. The low-cost carriers’ operations are typically characterized by point-to-point route networks focusing on the highest demand city pairs, high aircraft utilization, single class service and fewer in-flight amenities. As evidenced by the operations of Gol in Brazil and several new low-cost carriers planning to start service in Mexico, among others, the “low-cost carrier” business model appears to be gaining acceptance in the Latin American aviation industry, and we may face new and substantial competition from low-cost carriers in the future.
      The main source of competition to Copa, and our alliance with Continental, comes from the multinational Grupo TACA and its alliance partner, American Airlines, the U.S. airline with the largest Latin American route network. Colombian carrier Avianca and Chilean carrier LAN Airlines are also significant competitors.
      Grupo TACA’s strategy has been to develop three hubs at San Jose, Costa Rica, San Salvador, El Salvador and Lima, Peru, which serve more than 40 cities in 19 countries and compete with Copa’s hub at Tocumen International Airport. In addition, Grupo TACA’s strategic alliance with American Airlines has enabled it to utilize American Airlines’ Latin American hub in Miami. Grupo TACA also has alliances with Iberia and Air France. Grupo TACA primarily operates a fleet of Airbus A319 and A320 aircraft and they intend to take delivery of a significant number of new Airbus aircraft between now and December 2009. We have routes to several of the Central American republics where Grupo TACA has established service, including Managua, Nicaragua, San Jose, Costa Rica and Guatemala. Grupo TACA places its code on our flights between San Salvador and Managua. Grupo TACA lowered many of its fares a year ago in an effort to generate higher demand, and we have been forced to respond by adjusting our fares to remain competitive on the affected routes. It is premature to determine whether or not Grupo TACA’s recent fare reductions represent the commencement of its transition to a new business model. Such a transition could result in significant and lasting downward pressure on the fares we charge for flights on the routes on which we compete with Grupo TACA.
      American Airlines also offers significant competition. American attracts strong brand recognition throughout the Americas and is able to attract brand loyalty through its “AAdvantage” frequent flyer program. American Airlines competes through its hubs at Miami and San Juan, Puerto Rico. American Airlines was a founding member of the oneworld global marketing alliance.
      LAN Airlines is another oneworld member that offers service to more than 50 destinations, primarily in Latin America. LAN Airlines is comprised of LAN Chile, LAN Peru, LAN Ecuador, LAN Argentina, LAN Cargo and LAN Express. While we do not compete directly with LAN Airlines on many of our current routes,

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LAN Airlines has grown rapidly over the past several years and may become a more significant competitor in the future.
      We are also introducing service to and from destinations where the local airline is less viable and competitive, such as the Dominican Republic (Santo Domingo), Ecuador (Quito and Guayaquil) and Venezuela (Caracas). Several smaller airlines also compete in Central America, including AeroHonduras and Tikal Jets.
      Copa has also established itself as a significant player on traffic to and from Colombia, with strong market share on routes to and from Barranquilla, Bogotá, Cali, Cartagena, Medellín and San Andrés. AeroRepública competes more directly with Avianca and other Colombian carriers in the Colombian domestic market. Avianca recently emerged from U.S. bankruptcy protection, after being purchased by Brazil’s Synergy Group. The new owners of Avianca have announced their intention to increase Avianca’s market share and transform Bogotá into a major international aviation hub which, if successful, will compete directly with our hub at Tocumen International Airport. We cannot predict whether Avianca will become more competitive under its new management, or if their increased operations from Bogotá will prove successful. The other Colombian carriers against which AeroRepública competes, Aires, Aerolineas de Antioquia and the state-owned airline Satena, collectively accounted for approximately 25% of the domestic Colombian market in 2004. Airlines that seek to compete in the Colombian air transportation market face substantial barriers to entry, as the Colombian government requires an airline to operate at least five aircraft and comply with extensive filing and certification requirements before it becomes eligible to receive domestic route rights on certain Colombian routes between major cities. In addition, the number of air carriers offering service on any route is currently regulated by the Colombian Aviation Authority.
      With respect to our cargo operations, we will continue to face competition from all of the major airfreight companies, most notably DHL, which has a large cargo hub operation at Tocumen International Airport.
Aircraft
Copa
      As of September 30, 2005 Copa operated a fleet consisting of 22 aircraft, including 18 Boeing 737-700 Next Generation aircraft and four Boeing 737-800 Next Generation aircraft. In the first quarter of 2005, we discontinued use of our remaining Boeing 737-200 aircraft. On November 16, 2005, we accepted delivery on the first of our twelve firm commitments to purchase the Embraer 190. We currently have firm orders to purchase seven additional Boeing 737-Next Generation aircraft and eleven Embraer 190s. We also have options for an additional 18 Embraer 190s and purchase rights for an additional ten 737-Next Generation aircraft, some of which may be used to purchase aircraft for our AeroRepública subsidiary.
      The current composition of the Copa fleet as of September 30, 2005 is more fully described below:
                                                 
        Average Term        
    Number of Aircraft   of Lease        
        Remaining   Average Age   Seating
    Total   Owned   Leased   (Years)   (Years)   Capacity
                         
Boeing 737-700
    18       12       6       5.4       3.7       124  
Boeing 737-800
    4       3       1       7.1       1.3       155  
                                     
Total
    22       15       7       5.7       3.3       n/a  
                                     

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      As of September 30, 2005, the Copa fleet consisted of 18 Boeing 737-700s (six of which we leased) and four Boeing 737-800s (one of which we leased). Our fleet will continue to center on the Boeing 737-700 model, although we will continue to add Boeing 737-800s to our fleet in order to cover high-demand routes and Embraer 190s to serve underserved markets as well as fly additional frequencies where we believe excess demand exists. The table below describes the expected development of our Copa fleet until December 31, 2009.
Expected Fleet Plan (Year End)
                                                 
Aircraft Type   2004   2005   2006   2007   2008   2009
                         
737-200
    2       0       0       0       0       0  
737-700
    17       18       20       20       20       20  
737-800(1)
    3       4       4       6       8       10  
Embraer 190
    0       2       6       11       15       20  
                                     
Total Fleet
    22       24       30       37       43       50  
                                     
 
(1)  We have the option to take delivery of Boeing 737-700s rather than Boeing 737-800s for deliveries scheduled after 2006.
     The Boeing 737-700 and Boeing 737-800 aircraft currently in our fleet are fuel-efficient and suit our operations well for the following reasons:
  •   They have simplified maintenance procedures.
 
  •   They require just one type of standardized training for our crews.
 
  •   They have one of the lowest operating costs in their class.
      Our focus on profitable operations means that we periodically review our fleet composition. As a result, our fleet composition changes over time when we conclude that adding other types of aircraft will help us achieve this goal. The introduction of any new type of aircraft to our fleet is only done if, after careful consideration, we determine that such a step will improve our profitability. In line with this philosophy, after conducting a careful cost-benefit analysis, we decided to add the Embraer 190 aircraft because its combination of smaller size and highly efficient operating characteristics made it the ideal aircraft to serve new mid-sized markets and to increase frequency to existing destinations. The Embraer 190 incorporates advanced design features, such as integrated avionics, fly-by-wire flight controls, and efficient CF34-10 engines made by General Electric. The Embraer E190 is expected to have a range of approximately 2,000 nautical miles enabling it to fly to a wide range of destinations from short-haul to certain medium-haul destinations. We will configure our Embraer aircraft with a business class section similar to the business class section we have on our Boeing 737-Next Generation aircraft.
      Through several special purpose vehicles, we currently have beneficial ownership of 16 of our aircraft, including our new Embraer 190. In addition, we lease six of our Boeing 737-700s and one of our Boeing 737-800s under long-term operating lease agreements that have an average remaining term of 71 months. Leasing some of our aircraft provides us with flexibility to change our fleet composition if we consider it to be in our best interests to do so. We make monthly rental payments, some of which are based on floating rates, but are not required to make termination payments at the end of the lease. Currently, we do not have purchase options in any of our lease agreements. Under our operating lease agreements, we are required in some cases to maintain maintenance reserve accounts and in other cases to make supplemental rent payments at the end of the lease that are calculated with reference to the aircrafts’ maintenance schedule. In either case, we must return the aircraft in the agreed upon condition at the end of the lease term. Title to the aircraft remains with the lessor. We are responsible for the maintenance, servicing, insurance, repair and overhaul of the aircraft during the term of the lease.
      To respond to and cater to the growing number of business travelers, we introduced business class (Clase Ejecutiva) in November of 1998. Our business class service features twelve luxury seats in the Boeing 737-700s with a 38-inch pitch, upgraded meal service, special check-in desks, bonus mileage for full-fare

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business class passengers and access to VIP lounges. Our Boeing 737-800s are configured with 14 business class seats. Our Embraer 190s will have 10 business class seats in a three abreast configuration and 38-inch pitch.
      Each of our Boeing 737-Next Generation aircraft is powered by two CFM International Model CFM 56-7B engines. We currently have three spare engines for service replacements and for periodic rotation through our fleet.
AeroRepública
      AeroRepública currently operates a fleet of two owned DC-9s, five leased MD-81s, three leased MD-82s and two leased MD-83s with an average age in excess of 20 years. AeroRepública expects to take delivery of one additional MD-82 aircraft in 2005. All of the AeroRepública fleet is configured as a single class, with the MD fleet having an average capacity of 157 seats and the DC-9 fleet having an average capacity of 110 seats.
Maintenance
      The maintenance performed on our aircraft can be divided into two general categories: line and heavy maintenance. Line maintenance consists of routine, scheduled maintenance checks on our aircraft, including pre-flight, daily and overnight checks, “A-checks” and any diagnostics and routine repairs. Most of our line maintenance is performed by our own highly experienced technicians at our base in Panama. Some line maintenance is also carried out at the foreign stations by Copa employees or third-party contractors. Heavy maintenance consists of more complex inspections and overhauls, including “C-checks,” and servicing of the aircraft that cannot be accomplished during an overnight visit. Maintenance checks are performed as defined by the aircraft manufacturer. These checks are based on the number of hours or calendar months flown. We contract with certified outside maintenance providers, such as Goodrich Aviation Technical Services, Inc. in Everett, Washington, which is certified as an authorized repair station by the FAA and the AAC, for heavy aircraft maintenance services. We also have an exclusive long-term contract with GE Engines whereby they will perform maintenance on all of our CFM-56 engines. In 2004, outside contractors performed airframe heavy maintenance on four of our aircraft. When possible, we attempt to schedule heavy maintenance during our lower-demand season in April, May, October and November.
      We employ over 200 maintenance professionals, including engineers, supervisors, technicians and mechanics, who perform maintenance in accordance with maintenance programs that are established by the manufacturer and approved and certified by international aviation authorities. Every mechanic is trained in factory procedures and goes through our own rigorous in-house training program. Every mechanic is licensed by the AAC and approximately 22 of our mechanics are also licensed by the FAA. Our safety and maintenance procedures are reviewed and periodically audited by the aircraft manufacturer, the AAC, the FAA, IATA and, to a lesser extent, every foreign country to which we fly. Our maintenance facility at Tocumen International Airport has been certified by the FAA as an approved repair station, and each year the FAA inspects our facilities to renew the certification. Our aircraft are initially covered by warranties that have a term of four years, resulting in lower maintenance expenses during the period of coverage. As part of the purchase agreement for the new Embraer 190s, several of our mechanics are enrolled in a comprehensive factory training course on the maintenance program for the Embraer 190s. All of our mechanics will eventually be trained to perform line maintenance on the Embraer 190s.
      All maintenance for AeroRepública’s DC-9s and line maintenance for the MD-80s is performed by AeroRepública’s in-house maintenance staff, while C-checks on the MD-80s are performed by FAA certified third-party aviation maintenance companies. All of AeroRepública’s maintenance and safety procedures are performed according to Boeing standards (certified by the FAA), and certified by the Aeronáutica Civil of Colombia and BVQi, the institute that issues ISO quality certificates. All of AeroRepública’s maintenance personnel are licensed by the Aeronáutica Civil of Colombia.

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Safety
      We place a high priority on providing safe and reliable air service. We have uniform safety standards and safety-related training programs that cover all of our operations. In particular, we periodically evaluate the skills, experience and safety records of our pilots in order to maintain strict control over the quality of our pilot crews. All of our pilots participate in training programs, some of which are sponsored by aircraft manufacturers, and all are required to undergo recurrent training two times per year. We have a full time program of Flight Data Analysis (FOQA) wherein the flight data from every Copa flight is analyzed for safety or technical anomalies. During 2005, Copa Airlines completed a Line Operations Safety Audit under contract with University of Texas researchers. We also recently successfully completed our IATA Operational Safety Audit (IOSA).
      In the last ten years, Copa has had no accidents or incidents involving major injury to passengers, crew or aircraft. Over thirteen years ago, we lost one aircraft and all of its passengers in an accident believed to have been caused by failure of a navigation instrument. Just prior to our acquisition of AeroRepública, one of its planes slid off of a runway in an accident without serious injuries to passengers; however, the aircraft was severely damaged and declared a total loss by its insurers.
      The FAA periodically audits the aviation regulatory authorities of other countries. As a result of their investigation, each country is given an International Aviation Safety Assessment, or IASA, rating. In May 2001, Panama’s IASA rating was downgraded from Category 1 to Category 2 due to alleged deficiencies in the Panamanian government’s air safety standards and AAC’s capability to provide regulatory oversight. As a result of this downgrade, we were prevented from adding flights to new destinations in the United States and from certifying new aircraft for flights to the United States, and Continental was prevented from placing its code on our flights. On April 14, 2004, the FAA upgraded the IASA rating for Panama from “Category 2” to “Category 1,” which indicates a strong level of confidence in the safety regulation of the AAC. The return to Category 1 allowed Continental to reestablish placing its code on our flights and allowed us to add new U.S. destinations to our network.
      In order to recover Category 1 status, the Panamanian government passed a new law regulating aviation; and the AAC issued new regulations compliant with standards of the International Civil Aviation Organization, or ICAO. FAA inspectors and ICAO advisors were hired to help with training; and the government approved a budget of $14 million for the AAC to comply with various regulations of ICAO.
Airport Facilities
      We believe that our hub at Panama City’s Tocumen International Airport (PTY) is an excellent base of operations for the following reasons:
  •   Panama’s consistently temperate climate is ideal for airport operations. For example, Tocumen was closed and unavailable for flight operations for a total of less than two hours in each 2003 and 2004.
 
  •   Tocumen is the only airport in Central America with two operational runways. Also unlike some other regional airports, we are currently not constrained by a lack of available gates/parking positions at Tocumen, and there is ample room to expand Tocumen.
 
  •   From Panama’s central location, our 124-seat Boeing 737-700s can efficiently serve long-haul destinations in South American cities such as Santiago, Chile; Buenos Aires, Argentina; and São Paulo, Brazil as well as short-haul destinations in Central and South America.
 
  •   Travelers can generally make connections easily through Tocumen because of its manageable size and Panama’s policies accommodating in-transit passengers.
      Tocumen International Airport is operated by an independent corporate entity established by the government, where stakeholders have a say in the operation and development of the airport. A Copa executive, as a representative of the Panamanian Airline Association, holds a seat on the board of this airport operator. The law that created this entity also provided for a significant portion of revenues generated at Tocumen to be used for airport expansion and improvements. We do not have any formal, written agreements with the airport

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management that govern access fees, landing rights or allocation of terminal gates. We rely upon our good working relationship with the airport’s management and the Panamanian government to ensure that we have access to the airport resources we need at prices that are reasonable.
      We have worked closely with the airport’s management and consulted with the IATA infrastructure group to provide plans and guidance for Phase I of an airport expansion that will provide up to eight new gate positions with jet bridges, six new remote parking positions, expand retail areas and improve the baggage-handling facilities. The government has authorized $70 million to cover the costs of this expansion. In April 2004, Leo A. Daly, an American company whose experience includes the renovation of the Miami, Dallas and Washington, D.C. (Reagan) airports, won the bid to remodel and expand the terminal. Work on Phase I is expected to be completed by the first quarter of 2006. We are considering an increased role for Copa in facilitating a planned Phase II of the airport expansion that would add another five gates to the airport.
      We provide all of our own ground services and handling of passengers and cargo at Tocumen International Airport. In addition, we provide services to several of the principal foreign airlines that operate at Tocumen. At most of the foreign airports where we operate, foreign airport services companies provide all of our support services other than sales, counter services and some minor maintenance.
      We lease a variety of facilities at Tocumen, including our maintenance hangar and our operations facilities in the airport terminal. From our System Operations Control Center located at Tocumen International Airport, we dispatch, track and direct our aircraft throughout the hemisphere and respond to operational contingencies as necessary. We generally cooperate with the airport authority to modify the lease terms as necessary to account for capital improvements and expansion plans. Currently, our elite passengers have access to a President’s Club at the airport, which is jointly operated with Continental and was opened in March 2000. The President’s Club will be expanded to approximately twice its current size as part of the Tocumen International Airport expansion project.
      Bogota’s El Dorado Airport is AeroRepública’s main operating terminal. It is also Colombia’s main international and domestic terminal, with two operational runways. El Dorado is undergoing a privatization process in which improvements are expected to the passenger and cargo terminals. AeroRepública currently leases a variety of facilities at El Dorado, including counters, maintenance and administrative and dispatch areas.
Fuel
      Fuel costs are extremely volatile, as they are subject to many global economic and geopolitical factors that we can neither control nor accurately predict. Due to its inherent volatility, aircraft fuel has historically been our most unpredictable unit cost. Concurrent with the world’s economic recovery, demand for oil has surged, especially in fast-growing China. This increase in demand coupled with limited refinery capacity and instability in oil-exporting countries has led to a rapid increase in prices. When combined with the relative weakness of the U.S. dollar, the currency in which oil is traded, these factors have caused a record high price for oil in nominal dollar terms.

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    Aircraft Fuel Data
     
        Nine Months Ended
    2000   2001   2002   2003   2004   September 30, 2005
                         
Copa
                                               
 
Average price per gallon of jet fuel into plane (excluding hedge) (in U.S. dollars)
  $ 1.08     $ 0.95     $ 0.86     $ 1.01     $ 1.32     $ 1.75  
 
Gallons consumed (in thousands)
    43,187       46,669       44,788       48,444       50,833       43,332  
 
Available seat miles (in millions)
    2,589       2,920       2,847       3,226       3,639       3,244  
 
Gallons per ASM (in hundredths)
    1.67       1.60       1.57       1.50       1.40       1.34  
AeroRepública(1)
                                               
Average price per gallon of jet fuel into plane
(excluding hedge) (in U.S. dollars)
  $ 1.93  
Gallons consumed (in thousands)     10,985  
Available seat miles (in millions)     575  
Gallons per ASM (in hundredths)     1.91  
 
(1)  Since April 22, 2005
     During 2004, we paid an average price, including into plane charges, of $1.32 per gallon of jet fuel; a 30.7% increase from 2003’s rate of $1.01 per gallon. On a per unit basis, our consumption did not increase in line with the rise in the cost of jet fuel due to the replacement of older, less fuel efficient Boeing 737-200s with new Boeing 737-Next Generation aircraft. Based on our experience, the Boeing 737-Next Generation family is 15-20% more fuel efficient than first generation Boeing 737 models. We have equipped all of our Boeing 737-Next Generation Aircraft with winglets which are believed to increase their fuel efficiency by approximately 4%. All of our new Embraer 190s will also be equipped with winglets.
      Since 2004, the price of jet fuel has continued to climb. The continued increase in prices was exacerbated by the disruptions in refining capacity caused by Hurricane Katrina and Hurricane Rita. During the month ended September 30, 2005, we paid an average of $2.15 per gallon for jet fuel. We cannot predict when, or if, these prices will decline in the future.
      Since 1998, we have had a policy of consistently hedging a portion of our exposure to fluctuations in world fuel prices. In 2004, we hedged 35% of our requirements through the use of swap and zero-cost collar transactions. We have hedged only 15% of our anticipated fuel needs for 2005, and therefore any prolonged increase in the price of jet fuel will likely materially and negatively affect our business, financial condition and results of operation.
      AeroRepública is supplied by two fuel providers. The price for fuel is fixed by the Colombian government on a monthly basis based on international fuel indices. Although AeroRepública does not currently have a hedging policy, it expects to implement one in the future.
Employees