Air Canada 2008 Annual Report Download - page 43

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2008 Management’s Discussion and Analysis
43
bought put options to limit its exposure to further price reductions for the first half of 2009 and terminated options and
swap contracts with a fair value of US$129 million for a total of 2.165 million barrels covering the end of 2008 and 2009
(or 17% of its outstanding positions) to avoid additional exposure on these positions. Air Canada also benefited from the
offsetting impact of favourable foreign exchange hedging positions which reduced the collateral requirements with some
counterparties where Air Canada has both fuel and foreign currency hedging instruments.
In January 2009, the Corporation terminated fuel derivative contracts with a fair market value of US$146 million for 3.34
million barrels covering 2009 and 2010 (or 35% of its outstanding position) to avoid additional exposure on these positions.
The collateral held by the counterparty exceeded the amount owing by Air Canada therefore no additional cash outflows
resulted. The decision to terminate positions in late 2008 and early 2009 has been beneficial to the Corporation as fuel
prices have continued to drop.
Refer to section 12 of this MD&A for a discussion on fuel price risk.