Air Canada 2008 Annual Report Download - page 111

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Consolidated Financial Statements and Notes
111
expected to be delivered in February 2009. At year-end 2008, the balance outstanding on the PDP loans was $81
(US$66) (2007 - $521 (US$528)). The year to date capitalized interest relating to this financing is $10 (2007 - $5)
at an interest rate of 30 day LIBOR plus 1.14% (1.61% as at December 31, 2008).
(m) 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% (2007 - 8%). These
aircraft have a carrying value of $836 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$676 ($828) (2007 - US$780 ($771)) is
summarized as follows:
Final Maturity 2008 2007
Canadian Regional Jet 2010 - 2011 $ 257 $ 218
Boeing 767-300 2011 - 2016 185 163
Engines 2008 - 54
Airbus 319 2011 - 2014 242 215
Airbus 321 2017 144 121
Total $ 828 $ 771
(n) Under AcG-15, the Corporation is the primary beneficiary of certain Fuel Facility Corporations in Canada. The debt
is comprised of bankers’ acceptances with bankers’ acceptance plus 2%, bank loans at prime plus 0.25%, and bonds
payable with an interest rate of 5.09%. $107 of debt matures 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 assets of the fuel facilities is $150 as
at December 31, 2008.
(o) Capital leases, related to computer equipment, facilities and 41 aircraft, total $1,082 ($84 and US$815) (2007 -
total $972 ($71 and US$912)). The debt has a weighted average effective interest rate of approximately 8% and
final maturities range from 2009 to 2027. During 2008, the Corporation recorded interest expense on capital lease
obligations of $78 (2007 - $96).
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 $896 (US$731). The maximum payable amount declines over time to nil upon lease expiry. As the
Corporation does not expect to have to prepay any significant amounts based upon expectations of aircraft fair
values into the future, the amortized cost of these capital lease obligations reflects the scheduled payments over the
term to final maturity.
Interest paid on Long-term debt and capital leases in 2008 by the Corporation was $293 (2007 - $263).
Refer to Note 14 for the Corporation’s 5 year principal and interest repayment requirements as at December 31, 2008.