Air Canada 2009 Annual Report Download - page 31

2009 Management’s Discussion and Analysis
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Capacity purchase costs with Jazz increased 3% from 2008
Capacity purchase costs with Jazz, pursuant to the Jazz CPA, amounted to $973 million in 2009 compared to $948 million
in 2008, an increase of $25 million or 3%. This year-over-year increase in capacity purchase costs was mainly due to
the unfavourable impact of foreign exchange on U.S. denominated Jazz CPA charges paid by Air Canada, which accounted
for an increase of $30 million, a year-over-year increase in Jazz CPA rates of $42 million, and other costs amounting to
$1 million. Partially offsetting these increases was the impact of reduced fl ying which accounted for a decrease of
$34 million, and the impact of the reduction to the mark-up on Jazz CPA rates pursuant to an amendment to the Jazz CPA
effective August 1, 2009, which accounted for a decrease of $14 million.
Ownership costs increased 2% from 2008
Ownership costs, comprised of depreciation and amortization, and aircraft rent expense, of $995 million in 2009 increased
$22 million or 2% from 2008. Factors contributing to the year-over-year change in ownership costs included:
• The addition of new Boeing 777 aircraft to Air Canada’s operating fl eet, which accounted for an increase of
$49 million.
• The impact of a weaker Canadian dollar versus the U.S. dollar, which accounted for an increase of $25 million to
aircraft rent expense.
The above-noted increases were partially offset by the following:
• Changes in aircraft residual values, the result of a weaker Canadian dollar versus the U.S. dollar, which accounted for
a decrease of $44 million to depreciation expense.
• A decrease of $10 million to aircraft rent expense as a result of reduced MD-11 freighter fl ying as no MD-11 freighter
aircraft were operated in 2009 versus one MD-11 freighter operated in the fi rst six months of 2008.
Aircraft maintenance expense increased 15% from 2008
In 2009, aircraft maintenance expense of $759 million increased $100 million or 15% from 2008. Factors contributing to
the year-over-year change in aircraft maintenance expense included:
• A net increase of $103 million in airframe maintenance, which was largely due to the timing and scope of airframe
events related to the fl eets of Airbus A319, A320 and Boeing 767-300 aircraft. In particular, scheduled heavy overhaul
maintenance was required on the Airbus A319 aircraft which were delivered in the mid-1990s.
• The impact of a weaker Canadian dollar versus the U.S. dollar on U.S. denominated maintenance expenses, mainly
engine and component maintenance, which accounted for an increase of $37 million to aircraft maintenance expense
compared to 2008.
• A net increase of $7 million in components maintenance, which was largely due to a higher level of components
maintenance activity and increased rates year-over-year.
The above-noted increases were partially offset by the following:
• A net decrease of $12 million in engine maintenance, which was largely due to the removal of Airbus A340 aircraft
from Air Canada’s operating fl eet during 2008 and lower aircraft maintenance expense related the Airbus A320 and
Boeing 767-300 aircraft. Partly offsetting these decreases was the impact of a higher volume of engine maintenance
which was mainly due to an industry campaign for the removal of high pressure turbine blades on the A320 aircraft
engine, which resulted in the removal of the blades at an earlier stage than anticipated. Also offsetting these decreases
was a higher volume of engine events related to Boeing 777 and Embraer E175 aircraft.
• A net decrease of $17 million due to an overall reduction in maintenance expenses related to the preparation of
aircraft for return to lessors or for sublease to third parties.