Air Canada 2008 Annual Report Download - page 32

2008 Air Canada Annual Report
32
Aircraft maintenance expense decreased 13% from 2007
In 2008, aircraft maintenance expense of $659 million decreased $98 million or 13% from 2007. The decrease was
partly due to timing of maintenance activities in engine and component maintenance as well as an overall reduction in
maintenance expenses due to the sale, sublease to third parties or lease returns of certain aircraft previously in Air Canada’s
fleet. In addition, the insourcing of supply chain management had a positive impact on aircraft maintenance expense,
accounting for a decrease of $26 million to aircraft maintenance expense. This decrease was partly offset by growth in FTE
employees, resulting in an increase to wages and salaries. The impact of a stronger Canadian dollar versus the US dollar was
also a factor in the decline versus the same period in 2007, accounting for a decrease of $13 million to aircraft maintenance
expense. Partly offsetting these decreases were expenses of $32 million relating to Boeing 777, Embraer E190 and Embraer
E175 aircraft in 2008 as well as an increase in airframe maintenance activities largely due to timing of maintenance events
for narrow-body Airbus aircraft.
Other operating expenses increased 2% from 2007
Other operating expenses amounted to $1,450 million in 2008, an increase of $30 million or 2% from 2007. Factors
contributing to the year-over-year change in other expenses included:
• IncreasedexpensesforgroundpackagesatAirCanadaVacations,whichwaslargelytheresultofhigherpassenger
volumes versus 2007.
• Highercreditcardfees,whichwaslargelydrivenbyhigherpassengersalesandcardusage.
• The decreases in other expenses included taxes, employee injury compensation, aircraft engine rental, training,
insurance, joint venture and cargo trucking expenses.
The following table provides a breakdown of the significant items included in other expenses:
Change
(Canadian dollars in millions) 2008 2007 $ %
Other expenses
Air Canada Vacations' land costs $ 223 $ 195 $ 28 14
Credit card fees 197 184 13 7
Terminal handling 180 176 4 2
Building rent and maintenance 137 129 8 6
Crew expenses (meals, transportation and hotels) 117 117 - -
Miscellaneous fees and services 112 103 9 9
Remaining other expenses 484 516 (32) (6)
$ 1,450 $ 1,420 $ 30 2%
Non-operating expense amounted to $170 million in 2008
Non-operating expense amounted to $170 million in 2008 compared to non-operating expense of $122 million in 2007.
Factors contributing to the year-over-year change in non-operating expense included:
• Gainsrelatingtofairvalueadjustmentsonderivativesinstrumentsamountedto$92millionin2008versusgains
of $26 million in 2007. The non-cash mark-to-market gain on financial instruments of $92 million recorded for the
year ended December 31, 2008 represented a gain of $74 million related to the fair value of fuel derivatives as well
as other gains on interest rate swaps. Refer to section 12 of this MD&A for additional information on Air Canada’s
derivative instruments.
• Anincreaseinnetinterestexpenseof$77million.Aloweramountofcapitalizedinterestrelatedtonewaircraft
and a decrease in interest income due to both lower cash balances and lower rates of return more than offset a $29
million decrease in interest expense. The decrease in interest expense was driven by lower financing costs on the
Boeing 777 aircraft commitments due to the favourable impact of the pre-delivery financing arranged in 2007, lower
interest rates on floating rate debt, and the favourable impact of a stronger Canadian dollar versus the US dollar in
2008 compared to 2007, partially offset by the financing of additional aircraft year-over-year.
• In2008,AirCanadarecordedanimpairmentchargeof$38millionrelatedtotheretirementofitseetofBoeing
767-200 aircraft.