Air Canada 2009 Annual Report Download - page 50

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2009 Air Canada Annual Report
50
(Canadian dollars in millions) December 31, 2009 December 31, 2008
Consolidated Statement of Financial Position
Current assets Collateral deposits for fuel derivatives $ 43 $ 328
Current liabilities(1) Fair market value of fuel derivatives
designated under hedge accounting
Fair market value of fuel derivatives
– economic hedges
n/a
$ (31)
$ (405)
$ (15)
Shareholders’ equity (AOCL) Net loss from fuel derivatives
designated under hedge accounting
(net of tax in 2009 - $1 million
and 2008 - $5 million)
$ (184)
$ (606)
(1) The balance is refl ected within current liabilities on Air Canada’s Consolidated Statement of Financial Position due to the counterparty’s ability to terminate the
derivatives at fair value at any time prior to maturity.
Summary of gain on fi nancial instruments recorded at fair value
The following is a summary of gain on fi nancial instruments recorded at fair value included in non-operating income
(expense) on Air Canada’s consolidated statement of operations for the periods indicated:
Fourth Quarter Full Year
(Canadian dollars in millions) 2009 2008 2009 2008
Ineffective portion of fuel hedges $ - $ 59 $ - $ 83
Fuel derivatives not under hedge accounting 24 (40) 102 (9)
Cross-currency interest rate swaps - (2) - 4
Other (2) 15 (7) 14
Gain on fi nancial instruments recorded at fair value $ 22 $ 32 $ 95 $ 92
Liquidity risk
Liquidity risk is the risk that the Corporation will encounter diffi culty in meeting obligations associated with its fi nancial
liabilities and other contractual obligations. The Corporation monitors and manages liquidity risk by preparing rolling
cash fl ow forecasts, monitoring the condition and value of assets available to be used as security in fi nancing
arrangements, seeking fl exibility in fi nancing arrangements, and establishing programs to monitor and maintain compliance
with terms of fi nancing agreements. The Corporation’s principal objective in managing liquidity risk is to maintain a
minimum unrestricted cash balance in excess of a target liquidity level of 15% of annual operating revenues. As at
December 31, 2009, Air Canada had cash, cash equivalents and short-term investments of $1,407 million which represented
14% of 2009 operating revenues.
Management believes that the signifi cant events as described in section 6 of this MD&A improve the Corporation’s current
liquidity position. However, certain risks remain such as those related to the current economic environment, including risks
related to market volatility in the price of fuel, foreign exchange and interest rates and increased competitive pressures as
well as risks relating to restrictive terms under the Corporation’s fi nancing, credit card processing and other arrangements
and other risks as identifi ed below.
The H1N1 infl uenza virus may also continue to impact demand for air travel. The Corporation is continuing to monitor
the H1N1 infl uenza virus risk. While the Corporation has developed contingency plans related to the H1N1 infl uenza virus
risk, it is unable to predict the likelihood of this risk materializing or the impact on the Corporation to the extent this risk
does materialize. The Corporation is also monitoring the impact on the demand for air travel of the new security measures
imposed in December 2009 by Canadian and U.S. government authorities on fl ights from Canada to the U.S.
Pension funding obligations
Refer to section 10.6 of this MD&A for a discussion on Air Canada’s pension funding obligations.