Air Canada 2010 Annual Report Download - page 49

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2010 Management’s Discussion and Analysis
49
As of January 31, 2011, approximately 24% of Air Canada’s anticipated purchases of jet fuel for the remainder of 2011 are
hedged at an average West Texas Intermediate (“WTI”) capped price of US$94 per barrel and approximately 4% is subject
to an average floor price of US$82 per barrel. Air Canada’s contracts to hedge anticipated jet fuel purchases over the 2011
period are comprised of crude-oil based contracts.
The following table outlines the notional volumes per barrel along with the WTI weighted average floor and capped price
for each year currently hedged by type of derivative instruments as at January 31, 2011.
Derivative Instruments Term Volume (bbls)
WTI Weighted
Average Floor Price
(US$/bbl)
WTI Weighted
Average Capped Price
(US$/bbl)
Call options 2011 4,580,000 n/a $ 94
Collars 2011 910,000 $ 82 $ 93
Air Canada is expected to generate fuel hedging gains if oil prices increase above the average capped price and is exposed
to fuel hedging losses if oil prices decrease below the average floor price.
From time to time, Air Canada may choose to adjust or restructure its hedging portfolio in light of market conditions. In
2010, Air Canada modified its fuel hedge portfolio with the termination of swap and collar contracts for $5 million, 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 Air Canada. During 2009, Air Canada modified its fuel hedge portfolio with the
termination of swap and put contracts for $192 million, in favour of the counterparties.
Below is a table summarizing the impact of fuel derivatives on Air Canada’s Consolidated Statement of Operations,
Consolidated Statement of Comprehensive Loss and Consolidated Statement of Financial Position.
Fourth Quarter Full Year
(Canadian dollars in millions) 2010 2009 2010 2009
Consolidated Statement of Operations
Operating expense
Aircraft fuel Realized effective loss on
derivatives designated under
hedge accounting $ (31) $ (85)
$ (183)
$ (419)
Non-operating income (expense)
Gain (loss) on financial instruments
recorded at fair value Fair market value gain (loss) –
economic hedges
$ 11
$ 24
$ (11)
$ 102
Consolidated Other Comprehensive Income (Loss)
Effective loss on derivatives designated
under hedge accounting
Reclassification of net realized loss
on fuel derivatives designated under hedge
accounting to aircraft fuel expense
Tax on reclassification
n/a
$ 31
$ 1
n/a
$ 85
$ -
n/a
$ 183
$ 1
$ (1)
$ 419
$ 4