Türk Hava Yollari Anonim Ortakligi : 2021 12 Months Financial Statements - USD

TÜRK HAVA YOLLARI ANONİM

ORTAKLIĞI AND ITS SUBSIDIARIES

Consolidated Financial Statements as at and

for The Year Ended 31 December 2021

with Independent Auditor's Report

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of Türk Hava Yolları Anonim Ortaklığı

Our opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Türk Hava Yolları Anonim Ortaklığı (the "Company") and its subsidiaries (together the "Group") as at 31 December 2021, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRS").

What we have audited

The Group's consolidated financial statements comprise:

• the consolidated balance sheet as at 31 December 2021;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of changes in equity for the year then ended;
• the consolidated statement of cash flows for the year then ended and
• the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing ("ISA"). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter

Impacts of Covid-19 pandemic

Negative impacts of COVID-19 over aviation industry have continued in 2021. We draw attention to Note

2.8 to the consolidated financial statements, which describes the Group's assessments regarding the effects of the Covid-19 pandemic. Our opinion is not qualified in respect of this matter.

Independence

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code"). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.

BJK Plaza, Süleyman Seba Caddesi No:48 B Blok Kat:9 Akaretler Beşiktaş 34357 İstanbul-Turkey

T: [phone], F: [phone], www.pwc.com.tr

Mersis Numaramız: 0-1460-0224-0500015

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. Key audit matters were addressed in the context of our independent audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters	How our audit addressed the key audit
		matter
The recognition of the revenue, passenger
flight liabilities and the frequent flyer
program liabilities
Revenue and passenger flight liabilities	The following procedures were performed to
(Please refer to Note 2.3.1, 14 and 26)	audit of the revenue and passenger flight
		liabilities:
The major part of the Group's revenue consists of
the passenger revenue. The passenger revenue is	-	Through involvement of our IT experts,
recognized when the transportation service is		we have tested the effectiveness of
completed. Total passenger revenue recognized in		internal controls on IT systems that are
the consolidated financial statements of the Group		designed to account passenger revenue.
amounted to USD6,390 million for the year ended		Additionally, we have tested accuracy and
31 December 2021. Unused tickets are recognized		completeness of the reconciliations
as passenger flight liabilities, until the flights are		among IT systems which have been
completed. Total passenger flight liabilities		determined as key systems by us.
amounted to USD1,018 million as of 31 December
2021.		-	We have understood the business
			processes and controls over accounting of
We focused on this area in our audit due to the		the passenger revenue.
following reasons:
		-	We have tested key controls over
-	Significant estimates and judgments based		accounting of the passenger revenue
	on historical data and trends are used in		processes.
	calculation of revenue from unused tickets
	which are accounted for passenger revenue	-	We have tested unredeemed tickets
	in the consolidated financial statements,		through sampling method.
-	Recognition of passenger revenue upon	-	We have tested consistency and
	completion of the services includes complex		mathematical accuracy of the methods
	and different integrated information		used in calculation of unused ticket
	technology ("IT") systems which processes		revenue which are estimated based on
	high volume of transactions and data,		historical data.

• The necessity for our IT experts to be involved in the audit process due to the complexity of the systems.

Key audit matters	How our audit addressed the key audit
		matter
The recognition of the revenue, passenger
flight liabilities and the frequent flyer
program liabilities
Frequent flyer program liabilities	The following procedures were performed to
(Please refer to Note 2.3.19 and 14)	audit of the frequent flyer program liabilities:
The Group provides a frequent flyer program	-	We have understood the business
named "Miles and Smiles" in the form of free		processes and controls over accounting of
travel award to its members on accumulated		the frequent flyer program liabilities.
mileage earned from flights. Miles are recognized
as a separately identifiable component of each	-	Through involvement of our IT experts,
sales transactions. Frequent flyer program		we have tested the effectiveness of
liabilities amounted to USD198 million in the		internal controls on IT systems and
consolidated financial statements as of		internal controls that are designed to
31 December 2021.		account frequent flyer program liabilities.
The amount deferred as a liability is measured	-	We have tested consistency and
based on the fair value of the awarded miles. The		mathematical accuracy of the methods
fair value is measured on the basis of the value of		used in calculation of frequent flyer
the awards for which they could be redeemed. The		liabilities which are estimated based on
amount deferred is recognized as revenue when		historical data.
Miles and Smiles members fly using their miles or
when the Group does not expect that the miles to	-	We have controlled consistency of
be redeemed by its customers ("breakage").		frequent flyer program liabilities
			calculated at the end of the reporting
We focused on this area in our audit due to the		period with frequent flyer program.
following reasons:
		-	We have controlled breakage estimates
-	Breakage estimate ("the estimate of miles		through comparing the ratio with the
	earned that will not be redeemed") are		historical usage data.
	complex and highly judgmental due to the
	significant assumptions used in the
	estimate,

• Complex calculations are performed in determination of the value of the awards for which they could be redeemed,
• The necessity for our IT experts to be involved in the audit process due to the complexity of the systems.

	Key audit matters	How our audit addressed the key audit
			matter
	The Component accounting of aircrafts
	(Please refer to Note 2.3.3, 2.3.4 and 15)
	The carrying values of aircrafts' components	-	The following procedures were performed
	accounted for property, plant and equipment and		to audit of the component accounting of
	right of use assets amounted to USD16,455 million		aircrafts:
	in the consolidated financial statements as of
	31 December 2021.	-	We have inquired with the management
		to understand the accounting policies
	The Group accounts for the cost of aircrafts which		applied and how they meet the provisions
		of IAS 16, "Property, plant and
	are acquired directly or through leases separating
		equipment".
	into the components (fuselage, engine, fuselage
	overhaul and engine overhaul). Useful lives of	-	The useful life and residual value
	these components are determined separately and
		estimates were controlled by comparing
	each components are amortized during their
		the fleet plan of the Group and the
	useful lives.
		contracts of the aircraft purchases and
	We focused on this area in our audit due to the		leasing transactions recently made.
	following reasons:	-	We have compared the consistency of the
-	The impacts to the consolidated financial		components and their useful lives with
	the sectoral applications.
		statements as of 31 December 2021 is
		significant,	-	We have recalculated current year's
				depreciation expenses.

• The assessment of determination of components involves significant level of management's estimates,
• The assessment of determination of useful lives of each components and residual values involves managements' significant estimates.