Air Canada 2007 Annual Report Download - page 104

2007 Air Canada Annual Report
104
(j) The Corporation has entered into aircraft and engine lease transactions with several special purpose entities that
qualify as VIEs. The debt has a weighted average effective interest rate of approximately 8% (2006 - 8%). These
aircraft and engines have a carrying value of $973 and are charged as collateral against the debt by the owners
thereof. The creditors under these leasing arrangements have recourse to the Corporation, as lessee, in the event
of default or early termination of the lease. Aircraft related debt amounting to US$780 ($771) [2006 - US$902
($1,051)] is summarized as follows:
Final Maturity 2007 2006
Canadian Regional Jet 2010 - 2011 $ 218 $ 316
Boeing 767-300 2011 - 2016 163 211
Engines 2008 54 71
Airbus 319 2011 - 2014 215 304
Airbus 321 2017 121 149
Total $ 771 $ 1,051
(k) Under AcG-15, the Corporation is the primary benefi ciary of certain of the Fuel Facility Corporations in Canada.
The debt is comprised of bankers’ acceptances with interest rates ranging from 5.72% - 6.93%, bank loans at prime
plus 0.25% to prime plus 1.5%, and bonds payable with an interest rate of 5.09%. $110 of debt is due in 2032 with
equal semi-annual payments of principal and interest. The remaining debt has varying maturities. The debt is secured
by a general security agreement covering all assets of the Fuel Facility Corporations. The carrying value of the fuel
facilities debt is $123 as at December 31, 2007.
(l) Capital lease obligations, related to computer equipment, facilities and 39 aircraft, total $972 ($71 and US$912)
[2006 total $1,281 ($80 and US$1,030)]. The debt has a weighted average effective interest rate of approximately
8% and fi nal maturities range from 2008 to 2027. During 2007, the Corporation recorded interest expense on capital
lease obligations of $96 (2006 - $101).
Certain aircraft lease agreements contain a fair value test, beginning on July 1, 2009, and annually thereafter until
lease expiry. This test relates to 26 aircraft under lease of which 23 are accounted for as capital leases. Under the test,
the Corporation may be required to prepay certain lease amounts, based on aircraft fair values, as of the date of the
test. Any amounts prepaid would be recorded as a reduction of the lease obligation. The Corporation contracts with
certain third parties to provide residual value support for certain aircraft. If the Corporation is required under the loan
to value test to prepay lease obligations, these amounts are recoverable from the third party residual value support
provider upon lease expiry to the extent that the adjusted obligation taking into account prepayments is less than
the residual value support. The maximum amount payable on July 1, 2009, assuming the related aircraft are worth
nil, is $722 (US$731). This amount declines over time to nil upon lease expiry. As the Corporation does not expect
to have to prepay any amounts based upon expectations of aircraft fair values into the future, the amortized cost of
these capital lease obligations refl ects the scheduled payments over the term to fi nal maturity.
As at December 31, 2007, obligations under capital leases for future minimum lease payments are as follows:
2008 $ 223
2009 147
2010 142
2011 136
2012 177
Thereafter 569
Total minimum lease payments 1,394
Less amount representing interest (422 )
Total obligation under capital leases $ 972
The above minimum lease payments include residual value guarantees, except for those for which the Corporation has
obtained residual value support.
Interest paid on long-term debt and capital lease obligations in 2007 by the Corporation was $263 (2006 - $251).