Air Canada 2008 Annual Report Download - page 57

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2008 Management’s Discussion and Analysis
57
The following are the current derivatives employed in foreign exchange risk management activities and the adjustments
recorded in 2008 and as at January 31, 2009:
• AsatDecember31,2008,theCorporationhadenteredintoforeigncurrencyforwardcontractsandoptionagreements
converting US dollars and Euros into Canadian dollars on $632 million (US$516 million) and $5 million (EUR 3
million) which mature in 2009 and 2010 (2007 - $2,132 million (US$2,158 million) and $26 million (EUR 18 million)
of future purchases in 2008 and 2009). The fair value of these foreign currency contracts as at December 31, 2008
was $64 million in favour of the Corporation (2007 - $124 million in favour of the counterparties). These derivative
instruments have not been designated as hedges for accounting purposes and are fair valued on a quarterly basis. In
2008, a gain of $327 million was recorded in foreign exchange gain (loss) related to these derivatives (2007 - $(221)
million loss).
• AsatJanuary31,2009,theCorporationhadenteredintoforeigncurrencyforwardcontractsandoptionagreements
converting US dollars and Euros into Canadian dollars on $367 million (US$297 million) and $5 million (EUR 3
million) which mature in 2009 and 2010. The fair value of these foreign currency contracts as at January 31, 2009
was $51 million in favour of the Corporation. These derivative instruments have not been designated as hedges for
accounting purposes and are fair valued on a quarterly basis.
• Thecross-currencyswap,asdescribedaboveunderinterestrateriskmanagement,actedasaneconomichedgeof
the foreign exchange risk on the financing related to two Boeing 777 aircraft with a principal amount of $300 million
(US$283 million).
• The Corporation had entered into currency swap agreements for 16 CRJ aircraft operating leases until lease
terminations between 2007 and 2011. The final 11 currency swap agreements matured in January 2008 with
a nominal fair value (2007 - $10 million in favour of the Corporation for five agreements). No gain or loss was
recorded during the period (2007 - nil). These currency swaps with third parties had a nominal fair value in favour
of the Corporation as at December 31, 2007 and had a notional amount of $78 million (US$79 million). These were
not designated as hedges for hedge accounting purposes.
Summary of Gain (loss) on Financial Instruments Recorded at Fair Value
The following is a summary of gains and losses on financial instruments recorded at fair value included in non-operating
income (expense) on Air Canada’s consolidated statement of operations:
Fourth Quarter Full Year
($ millions) 2008 2007 2008 2007
Ineffective portion of fuel hedges $ 59 $ (20) $ 83 $ (12)
Fuel derivatives not under hedge accounting (40) 14 (9) 26
Cross-currency interest rate swaps (2) - 4 -
Other 15 5 14 12
Gain (loss) on financial instruments recorded at fair value $ 32 $ (1) $ 92 $ 26
Liquidityrisk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with its financial
liabilities and other contractual obligations.
For additional information on Air Canada’s liquidity risks, refer to section 9.3 of this MD&A.