Air Canada 2008 Annual Report Download - page 31

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2008 Management’s Discussion and Analysis
31
• ThereductionsinunionizedranksannouncedinJuneonlytookeffectinNovember2008.AdditionalFTEemployee
reductions are anticipated in early 2009.
• Averagewagesincreased1.0%over2007.
• In2008,AirCanadarecordedaprovisionof$8millionrelatedtothereductionofemployeesunderthestaffreduction
plan announced on June 17, 2008.
The above-noted increases were largely offset by the following:
• Provisionsrelating to stock-basedcompensation expenseamountedto$15 million in2007. In2008, provisions
relating to stock-based compensation of $5 million were reversed as management had determined that certain
performance vesting criteria would not be met.
• Provisionsrelatingtoemployeeprotsharingprogramsamountedto$43millionin2007versusprovisionsof$29
million in 2008.
• Overtimeexpenseswerereducedby$8millioncomparedto2007.
Employee benefits expense amounted to $349 million in 2008, a decrease of $46 million or 12% from 2007, mainly due
to a reduction in pension expense as a result of revised pension actuarial estimates made as of January 1, 2008. Refer to
section 9.6 of this MD&A for information on Air Canada’s pension obligations.
Airport and navigation fees decreased 2% from 2007
Airport and navigation fees of $1,001 million decreased $21 million or 2% from 2007. Factors contributing to the year-
over-year change in airport and navigation fees included:
• Lowerratesforlandingandgeneralterminalfees.LandingfeesatTorontoPearsonAirportwerereducedby3.1%and
terminal charges were reduced by 4.7% effective January 1, 2008.
• NavigationfeesinCanadawerereducedby4%effectiveAugust2007.
Capacity purchase costs with Jazz increased 3% from 2007
Capacity purchase costs with Jazz, pursuant to the Jazz CPA, amounted to $948 million in 2008 compared to $923 million in
2007, an increase of $25 million or 3%, mainly due to a predetermined contractual increase in Jazz CPA rates of $20 million
and other costs amounting to $12 million. Partly offsetting these increases was the favourable impact of foreign exchange
on US denominated Jazz CPA expenses, accounting for a decrease of $7 million compared to 2007. Jazz ASM capacity was
reduced by 1.6% in 2008 compared to 2007.
Ownership costs increased 17% from 2007
Ownership costs, comprised of aircraft rent, depreciation and amortization expenses, of $973 million in 2008 increased
$143 million or 17% from 2007. Factors contributing to the year-over-year change in ownership costs included:
• TheadditionofnewaircrafttoAirCanada’soperatingeetwhichaccountedforanincreaseof$97million.
• Anincreaseindepreciationexpensesof$68millionrelatedtoAirCanada’saircraftinteriorrefurbishmentprogram.
• Anincreaseindepreciationexpenseforenginesandrotablesparepartsof$20millionover2007.Afavourable
adjustment of $9 million relating to rotable spare parts was recorded in 2007 versus a favourable adjustment of $2
million in 2008.
• Anincreaseof$6millioninsoftwareamortizationcostscomparedto2007.
• Anincreaseof$6millionasaresultofaircraftleaseratechangescomparedto2007.
• Otherfactorsaccountingforanetincreaseof$8million.
The above-noted increases were partially offset by the following:
• TheremovalofaircraftfromAirCanada’seetwhichaccountedforadecreaseof$36millioninaircraftrentand
depreciation and amortization expenses.
• Adecreaseof$23milliontoaircraftrentexpenseasaresultofreducedMD-11freighterying.
• TheimpactofastrongerCanadiandollarversustheUSdollarwhichaccountedforadecreaseof$3milliontoaircraft
rent expense compared to 2007.