Air Canada 2007 Annual Report Download - page 41

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Management’s Discussion and Analysis of Results and Financial Condition
41
This PDP fi nancing replaces a signifi cant portion of the pre-delivery fi nancing arrangements that Air Canada had in place
with Boeing. This PDP fi nancing was entered into as it offered more attractive terms than the arrangements with Boeing.
In January 2008, Air Canada signed letters of intent for the sale and lease back of four of the nine Boeing 777 scheduled
for delivery in 2008. The lease term for two of the Boeing 777 aircraft is 12 years. The other two Boeing 777 aircraft each
have 10.5 year lease terms and Air Canada has options to extend each for an additional 18 months. All four leases are at
market rates. This replaces an equivalent number of aircraft loan guarantee support commitments provided by EXIM. As a
result, the capital expenditure forecast in the table below does not include expenditures relating to these aircraft. These four
aircraft deliveries are included in the operating lease commitments table disclosed in section 7.5 of this MD&A. The impact
of these leases results in a signifi cant reduction in capital expenditures from what was previously projected. Operating lease
commitments have increased as a result of this change.
Embraer
The agreement with Embraer covers fi rm orders for 45 Embraer 190 series aircraft. The purchase agreement also contains
rights to exercise options for up to 60 additional Embraer 190 series aircraft as well as providing for conversion rights to
other Embraer models. As of December 31, 2007, 31 options remain exercisable.
The Embraer 190 series deliveries commenced in December 2005. As at December 31, 2007, 42 of the Embraer 190 series
fi rm aircraft orders have been completed and an additional aircraft was delivered in January 2008. The fi nal two Embraer
190 series fi rm aircraft are scheduled for delivery in the fi rst quarter of 2008.
Air Canada has received loan commitments from third parties for the remaining three fi rm aircraft covering approximately
80% of the capital expenditure to be repaid in quarterly instalments for a 12-year term. Two of these aircraft will be based
on fl oating rates at the 90-day US LIBOR plus 1.90% and one will be based at the fi xed rate equivalent of the 90-day US
LIBOR plus 1.70%.
Aircraft Interior Refurbishment Program
In addition to acquiring new aircraft, Air Canada commenced a major refurbishment of the interior of its existing aircraft
in April 2006. Air Canada has completed the refurbishment of 26 Airbus A319 aircraft, 30 Airbus A320 aircraft, 10 Airbus
A321 aircraft and 15 Boeing 767-300 aircraft to date, for a total of 81 aircraft. The Embraer and Boeing 777 aircraft are
being delivered with the new seats and entertainment systems already installed. The capital expenditures associated with
this program, which are committed, are amortized over a fi ve-year period. A signifi cant portion of the remaining capital
expenditures relating to this program are included in the capital commitments table below.
Capital Commitments
The estimated aggregate cost of the future fi rm deliveries as well as other capital purchase commitments as at December
31, 2007, including the impact of the sale and lease back transaction described above and the loan guarantee support
signed in January 2008, approximates $4,739 million (of which $2,698 million is subject to committed fi nancing, subject to
the fulfi llment of certain terms and conditions). US dollar amounts are converted using the December 31, 2007 noon day
rate of Cdn$0.9881. The estimated aggregate cost of aircraft is based on delivery prices that include estimated escalation
and, where applicable, deferred price delivery payment interest calculated based on the US 90-day LIBOR rate at December
31, 2007.
Projected Planned and Committed Capital Expenditures
The table below provides projections for aircraft expenditures for fi rm aircraft orders, net of aircraft fi nancing, combined
with planned and committed expenditures for aircraft engines, inventory, property and equipment, net of related fi nancing,
if applicable, for the years 2008 through to 2012 and thereafter.
In addition to the fi rm aircraft orders, Air Canada’s purchase agreements include options and purchase rights, none of which
are included in these projections.