Air Canada 2010 Annual Report Download - page 133

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Consolidated Financial Statements and Notes
133
During 2010:
t 5IF$PSQPSBUJPOSFDPSEFEBMPTTPGJO(BJOMPTTPOGJOBODJBMJOTUSVNFOUTSFDPSEFEBUGBJSWBMVFSFMBUFEUPGVFM
derivatives ($102 gain in 2009).
t 5IF$PSQPSBUJPOQVSDIBTFEDSVEFPJMDBMMPQUJPOTBOEDPMMBSTDPWFSJOHBOEGVFMFYQPTVSF5IFDBTI
premium related to these contracts was $43.
t 'VFMEFSJWBUJWFDPOUSBDUTDBTITFUUMFEXJUIBOFUGBJSWBMVFPGJOGBWPVSPGUIFDPVOUFSQBSUJFTJOGBWPVSPG
the counterparties in 2009).
As of December 31, 2010, approximately 20% of the Corporation’s anticipated purchases of jet fuel for 2011 are hedged
at an average West Texas Intermediate (“WTI”) capped price of US$92 per barrel. The Corporation’s contracts to hedge
anticipated jet fuel purchases over the 2011 period are comprised of crude-oil based contracts. The fair value of the fuel
derivatives portfolio at December 31, 2010 is $33 in favor of the Corporation ($31 in favour of the counterparties in 2009).
The Corporation had no outstanding collateral deposits with its counterparties at December 31, 2010 ($43 in 2009).
The following table outlines the notional volumes per barrel along with the WTI weighted average floor and capped price
for each year currently hedged by type of derivative instruments as at December 31, 2010.
Derivative Instruments Term Volume (bbls)
WTI Weighted
Average Floor Price
(US$/bbl)
WTI Weighted
Average Capped Price
(US$/bbl)
Call options 2011 4,400,000 $ n/a $ 92
Collars 2011 705,000 $ 80 $ 92
The Corporation is expected to generate fuel hedging gains if oil prices increase above the average capped price and is
exposed to fuel hedging losses if prices decrease below the average floor price. The types of derivative instruments used
by the Corporation within its hedging program, such as put options within collar structures, expose the Corporation to
the potential of providing collateral deposits to its counterparties. When fuel prices decrease causing the Corporation’s
derivative position to be in a liability position below the set credit thresholds with counterparties, the Corporation is
responsible for extending collateral to the counterparties.
From time to time, the Corporation may choose to adjust or restructure its hedging portfolio in light of market conditions.
In 2010, the Corporation modified its fuel hedge portfolio with the termination of swap and collar contracts for $5, in favour
of the counterparty. The collateral held by the counterparty was in excess of the settlement amount, and such excess was
returned, resulting in a cash inflow for the Corporation. During 2009, the Corporation modified its fuel hedge portfolio with
the termination of swap and put contracts for $192, in favour of the counterparties.
The Corporation discontinued applying hedge accounting effective the third quarter of 2009. Amounts that were deferred
to Accumulated Other Comprehensive Loss (“AOCL”) for derivatives previously designated under hedge accounting were
taken into fuel expense in the period when the previously forecasted hedge transaction occurred. During 2010, $183 was
reclassified from AOCL to Aircraft fuel expense ($419 in 2009). As at December 31, 2010, there are no amounts remaining
in AOCL.