Air Canada 2008 Annual Report Download - page 37

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2008 Management’s Discussion and Analysis
37
9.2 ADJUSTED NET DEBT
The table reflects Air Canada’s adjusted net debt balances and net debt to net debt plus equity ratio as at December 31,
2008 and as at December 31, 2007.
(Canadian dollars in millions)
December31,
2008
December31,
2007 Change
Total long-term debt and capital leases $ 4,691 $ 4,006 $ 685
Current portion of long-term debt and capital leases 663 413 250
5,354 4,419 935
Non-controlling interest 190 184 6
Less cash, cash equivalents and short-term investments (1,005) (1,239) 234
Netdebtandnon-controllinginterest 4,539 3,364 1,175
Capitalized operating leases (1) 2,093 2,115 (22)
Adjustednetdebtandnon-controllinginterest 6,632 5,479 1,153
Less pre-delivery (PDP) financing included in long-term debt (81) (521) 440
Adjustednetdebtandnon-controllinginterest,excludingPDPnancing 6,551 4,958 1,593
Shareholders’ equity $ 762 $ 2,443 $ (1,681)
Adjustednetdebttonetdebtplusequityratio,excludingPDPnancing 89.6 % 67.0 % 22.6 pp
(1) Adjusted net debt is a non-GAAP measure used by the Corporation and is not likely to be comparable to measures presented by other public companies. The
Corporation includes capitalized operating leases which is a measure commonly used in the industry to ascribe a value to obligations under operating leases.
Common industry practice is to multiply annualized aircraft rent expense by 7.5. This definition of capital is used by the Corporation and may not be comparable to
similar measures presented by other public companies. Aircraft rent was $279 million for the twelve months ended December 31, 2008 and $282 million for the
twelve months ended December 31, 2007. Aircraft rent expense includes aircraft rent associated with aircraft subleased to third parties. The sublease revenue
associated with these aircraft leases is included in Other revenues on Air Canada’s consolidated statement of operations.
At December 31, 2008, adjusted net debt and non-controlling interest, including capitalized operating leases, and excluding
the pre-delivery payment (“PDP”) financing, increased $1,593 million from December 31, 2007. Net debt was adversely
impacted by the substantial depreciation of the Canadian dollar and the resulting impact on US denominated debt. Net
debt was also adversely impacted by the decrease in cash in 2008 which was driven by many factors including high fuel
prices during most of 2008, the requirement to fund $322 million under fuel collateral deposits, higher past service pension
funding payments and deteriorating economic conditions impacting travel demand. To offset these factors, Air Canada has
been actively pursuing cost cutting and other measures and alternative financing arrangements as described in section 9.3
of this MD&A.
The adjusted net debt to net debt plus equity ratio for Air Canada increased to 89.6% at December 31, 2008 from 67.0% at
December 31, 2007. The 22.6 percentage point deterioration from December 31, 2007 was impacted by both an increase
in net debt and a decrease in shareholders’ equity in the twelve months ended December 31, 2008.