Air Canada 2009 Annual Report Download - page 33

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2009 Management’s Discussion and Analysis
33
Non-operating expense amounted to $355 million in 2009
Non-operating expense amounted to $355 million in 2009 compared to non-operating expense of $170 million in 2008.
Factors contributing to the year-over-year change in 2009 non-operating expense included:
• Net interest expense increased $130 million from 2008 due to:
- A $43 million decrease in interest income which was due to both lower rates of interest and lower
cash balances;
- A $54 million increase in interest expense which was mainly due to the impact of new fi nancing transactions
completed in 2009, and the unfavourable impact of foreign exchange on interest expense. These increases
were partly offset by the impact of lower average interest rates year-over-year. In addition, in 2009,
Air Canada recorded charges amounting to $25 million related to the sale and leaseback transaction of four
Boeing 777 aircraft and a charge of $9 million related to the termination of the capital leases of two Airbus
A340 aircraft and the subsequent sale of these aircraft. These increases were partly offset by a reduction
of interest expense on aircraft pre-delivery payments related to Boeing 777 aircraft versus the same period
in 2008;
- A lower amount of capitalized interest of $33 million compared to 2008.
• In 2009, Air Canada recorded an impairment charge of $68 million related to previously capitalized costs incurred
pertaining to the development of a new reservation system, referred to as Polaris. Air Canada is currently working
towards the implementation of certain components of the solution such as web and fare technology but has
suspended activity relating to the implementation of the reservation system. In addition, Air Canada recorded a loss
on assets of $24 million pertaining to the sale and leaseback of three Boeing 777 aircraft.
• In 2008, Air Canada recorded an impairment charge of $38 million relating to the retirement of its fl eet of Boeing
767-200 aircraft and gains amounting to $7 million pertaining to the sale of aircraft-related inventory.
• Gains related to fair value adjustments on derivative instruments amounted to $95 million in 2009 versus gains of
$92 million in 2008. The mark-to-market gains on fi nancial instruments recorded in 2009 were mainly related to the
change in the fair value of fuel derivatives.
Gains on foreign exchange amounted to $657 million in 2009
Gains on foreign exchange, which were mainly related to U.S. denominated long-term debt, amounted to $657 million
in 2009 compared to losses of $655 million in 2008. The gains in 2009 were mainly attributable to a stronger Canadian
dollar at December 31, 2009 compared to December 31, 2008. The December 31, 2009 noon day exchange rate was
US$1 = C$1.0466 while the December 31, 2008 noon day exchange rate was US$1 = C$1.2246.
Income tax recovery of $5 million in 2009
Air Canada recorded an income tax recovery of $5 million on a pre-tax loss of $29 million in 2009, which related
mainly to an adjustment to current taxes payable. In 2008, a provision for income taxes of $24 million was recorded on a
pre-tax loss of $1,001 million which refl ected future income tax being reclassifi ed from other comprehensive income to
income for realized gains on fuel derivatives. Potential recovery of future income taxes on the 2008 loss was offset by a
valuation allowance.