Related party transactions

The ultimate controlling party of the Company is the Government of the Russian Federation. According to IAS 24 Related party disclosures a reporting entity is exempt from the disclosure requirements in relation to related party transactions and outstanding balance, including commitments, with the government that has control over the reporting entity, or with another entity, controlled by the government since 1 January 2011.

The Consolidated financial statements of the Group include the following balances and transaction with related parties other than government — related entities:

Purchases consist primarily of aviation security services. During 2012 and 2011 most of the transactions between the Group and its related parties were based on market prices.

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

In 2012 total amounts of guarantees given and received relating to associates are nil.

Government-related entities

The Group operates in an economic regime where the entities directly or indirectly controlled by Government of Russian Federation through its government authorities, agencies, affiliations and other organizations, collectively referred to as government-related entities. The Group has transactions with other government-related entities including but not limited to sales, purchase of air navigation and airport services.

Significant loans obtained from the banks controlled by Russian government are disclosed in Note 31 and 32.

For the year ended 31 December 2012, management estimates that the aggregate amount of Group’s significant transactions with other government-related entities are on the same level as at previous year and less than 15% of total expenses, and less than 1% of total sales.

Compensation of key management personnel

The remuneration of directors and other members of key management (the members of the Board of Directors and Management Committee as well as key managers of flight and ground personnel who have significant power and responsibilities on key control and planning decisions of the Group) consist of short-term benefits including salary and bonuses as well as short-term compensation for serving on the management bodies of Group companies of 2012 amounted to approximately USD 23.1 million (31 December 2011: USD 19.8 million).

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

During 2010, the Group initiated a share option programme for its key executives and employees. The program will run for three years and will be exercised in three tranches granted over the three-year period from 1 January 2011 through to 31 December 2013. The vesting requirement of the share option programme is the continuous employment of participants during the vesting period. The fair value of services received in return for the share option granted is measured by reference to the fair value of the share option granted. The estimate of the fair value of the services received is determined using the Black-Scholes model. The following variables have been used in the model: the market share price at the grant date of USD 1.9, the expected volatility of 40% and a risk free interest rate of 5%. During 2012 expenses related to the programme amounted to USD 0.2 million. These have been recognised as wages and salaries in the consolidated statement of income (Note 8). The outstanding amount at the end of the reporting period is USD 6.8 million (31 December 2011: USD 10.7 million).