Air Canada 2006 Annual Report Download - page 37

9.6 Capital Expenditures
In 2004, Air Canada signed definitive purchase agreements with Embraer - Empresa Brasileira de Aeronautica
S.A. ("Embraer") for the acquisition of regional jet aircraft. In November 2005, Air Canada also concluded
agreements with The Boeing Company ("Boeing") for the acquisition of Boeing 777 and Boeing 787 aircraft.
Embraer
The agreement with Embraer covers firm orders for 15 Embraer 175 series aircraft as well as 45 Embraer 190
series aircraft. The purchase agreement also contains rights to exercise options for up to 60 additional Embraer
190 series aircraft as well as providing for conversion rights to other Embraer models. As at December 31,
2006, 49 options remain exercisable.
Deliveries of the 15 Embraer 175 series aircraft commenced in July 2005 and the last aircraft was delivered in
January 2006. All Embraer ERJ-175 deliveries were 80 percent financed by a third party as described in Note 7
to Air Canada’s combined consolidated financial statements.
The Embraer 190 series deliveries commenced in December 2005. As at December 31, 2006, 18 of the
Embraer 190 series firm aircraft orders have been completed and the remaining 27 deliveries were planned to
be completed by November 2007 in accordance with the purchase agreement. Certain aircraft deliveries, which
were planned to be completed by November 2007, have been delayed with the last delivery expected by
January 2008. The impact of these delays has been reflected in the projected planned and committed capital
expenditures table below. These projections are based on estimates using information currently available and
are subject to change.
For the first 18 firm Embraer 190 deliveries, all of which have been delivered, Air Canada received loans from a
syndicate of banks and the manufacturer covering 80 percent of the capital expenditure as described in Note 7
to Air Canada’s combined consolidated financial statements.
Air Canada has also received loan commitments from a third party for an additional 18 firm Embraer 190 series
aircraft covering approximately 80 percent of the capital expenditure to be repaid in quarterly installments for a
12-year term. Financing for a maximum of five of these aircraft may be based on fixed rates while the remaining
13 aircraft will be based on floating rates. The borrowings bear interest at the 90-day USD LIBOR rate plus a
margin of 1.90 percent or, as appropriate, the fixed rate equivalent.
Air Canada also received loan commitments from a syndicate of banks for the remaining nine Embraer 190
series firm aircraft to cover approximately 80 percent of the capital expenditure and to be repaid in quarterly
installments for a 12-year term. The borrowings bear interest either at the 90-day USD LIBOR rate plus a
margin of 1.70 percent or the fixed rate equivalent.
Boeing
In November 2005, Air Canada concluded agreements with Boeing for the acquisition of up to 36 Boeing 777
aircraft and up to 60 Boeing 787 aircraft.
The order for the 36 Boeing 777 aircraft is comprised of firm orders for 18 aircraft plus purchase rights for 18
more, in a yet-to-be determined mix of the 777 family's newest models. As of December 31, 2006, Air Canada
has confirmed with Boeing the delivery of eight Boeing 777-300ER aircraft and six Boeing 777-200LR aircraft.
The models of the remaining four firm Boeing 777 aircraft are yet to be determined. Delivery of the first Boeing
777 aircraft is scheduled for March 2007.
The order for the 60 Boeing 787 aircraft is comprised of firm orders for 14 aircraft plus options and purchase
rights for an additional 46 aircraft. Air Canada's first Boeing 787 aircraft is scheduled for delivery in 2010.
Air Canada has received financing commitments from Boeing and the engine manufacturer for all firm aircraft
orders covering up to 90 percent of the capital expenditure. This available financing would be at an interest rate
of 9.86 percent, based on interest rates as at December 31, 2006. The term to maturity would be 15 years with
principal payments made on a mortgage style basis resulting in equal installment payments of principal and
interest over the term to maturity. On November 3, 2006, Air Canada made an application for loan guarantee
support from the Export-Import Bank of the United States for the first seven Boeing 777 aircraft deliveries in
2007. The loan guarantee, if provided, would cover a 12-year loan term for 85 percent of the capital expenditure
at an interest rate of approximately 5.36 percent, based on interest rates as at December 31, 2006.
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Management's Discussion and Analysis of Results and Financial Condition