Air Canada 2009 Annual Report Download - page 41

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2009 Management’s Discussion and Analysis
41
10.5 CONTRACTUAL OBLIGATIONS
The table below provides Air Canada’s current contractual obligations for 2010, for the next four years and after 2014.
(Canadian dollars in millions) 2010 2011 2012 2013 2014 Thereafter Total
Long-term debt, capital leases and
interest repayment obligations (1) $ 761 $ 1,004 $ 734 $ 773 $ 593 $ 2,025 $ 5,890
Operating lease obligations (2) 419 375 355 322 257 902 2,630
Committed capital expenditures (3) 74 47 121 731 979 2,860 4,812
Total contractual obligations (4) (5) $ 1,254 $ 1,426 $ 1,210 $ 1,826 $ 1,829 $ 5,787 $ 13,332
(1) The interest repayment obligations relate to long-term debt, debt consolidated under AcG-15 and capital leases.
(2) The operating lease obligations above mainly relate to U.S. dollar aircraft operating leases.
(3) The committed capital expenditures above mainly relate to U.S. dollar aircraft-related expenditures. These expenditures also include purchases relating to system
development costs, facilities and leasehold improvements.
(4) Total contractual obligations exclude commitments for goods and services required in the ordinary course of business. Also excluded are other long-term liabilities mainly
due to reasons of uncertainty of timing of cash fl ows and items which are non-cash in nature.
(5) The table above excludes the future minimum non-cancelable commitment under the capacity purchase agreement with Jazz of $732 million for 2010 and the minimum
annual commitment to purchase Aeroplan® Miles from Aeroplan of $211 million for 2010. Future commitments for 2011 and beyond are not yet determinable.
Fair value test
Certain aircraft lease agreements contain a fair value test, beginning on July 1, 2009, and annually thereafter until lease
expiry. This test relates to 24 aircraft under lease of which 23 are accounted for as capital leases and the remainder relate to
leasing entities that are consolidated under AcG-15. Under the test, the Corporation may be required to prepay certain lease
amounts or to provide additional collateral, based on aircraft fair values, as of the date of the test. Any amounts prepaid
would be recorded as a reduction of the lease obligation. The Corporation contracts with certain third parties to provide
residual value support for certain aircraft. If the Corporation is required to prepay lease obligations as a result of value tests,
these amounts would be recoverable from the third party residual value support provider upon lease expiry to the extent
that the adjusted obligation taking into account prepayments is less than the residual value support. The maximum amount
payable on July 1, 2010, assuming the related tests establish an aircraft value of nil, is $599 million (US$572 million). The
maximum payable amount declines over time to nil upon lease expiry. In July 2009, additional collateral of $8 million in the
form of cash deposits were made under the fair value test. As the Corporation does not expect to have to prepay or provide
additional collateral in any signifi cant amounts based upon expectations of aircraft fair values into the future, the amortized
cost of these capital lease obligations refl ects the scheduled payments over the term to fi nal maturity. However, there can
be no assurance that aircraft fair values will not decrease in the future such that the Corporation would be required to
prepay signifi cant amounts.