Westjet 2001 Annual Report Download - page 38

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36
WestJet has effectively limited this exposure by
entering into Interest Rate Collar and Forward
Starting Swap agreements. Contracts on the first
three aircraft expired without any financial impact
to WestJet; however, settlement on the fourth
contract resulted in a cash payment by WestJet of
$1.2 million. This amount will be amortized over
the term of the lease.
As a result of the terrorist attacks on September
11, 2001, insurers worldwide served notice that
coverage for all aircraft damage and for liability
resulting from war and terrorist activities was
cancelled. This coverage was later partially re-
instated at a cost of $1.25 U.S. per guest segment,
and is being recovered by WestJet through the
implementation of a surcharge of $3.00 per one-
way trip (which may be comprised of more than
one segment). The revised coverage provides for a
complete reinstatement of passenger liability
insurance; however, with limited third-party
coverage to $50 million U.S. The Canadian
Government, like other governments around the
world, agreed, on an interim basis, to indemnify
those companies that had previously purchased
coverage up to the level in place prior to the
cancellation. This indemnity became effective on
September 22, 2001 for a period of 90 days, with
an option to renew for a further 90 days at the
Government of Canada’s discretion. The indemnity
has since been extended to March 21, 2002 as the
industry attempts to find a commercial solution to
this reduced coverage.
Risk Management
In accordance with our agreements to lease 10 Next-Generation aircraft, the
U.S. dollar amount of the lease payments are determined based on the
value of the 10-year U.S. Swap Rate on the day each aircraft is delivered.
The revised coverage provides for a
complete reinstatement of passenger
liability insurance...
MANAGEMENT’S DISCUSSION AND ANALYSIS