Air Canada 2011 Annual Report Download - page 37

2011 Management’s Discussion and Analysis
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Pension and other benefit liabilities increased $2,235 million in 2011, mainly due to a decrease in interest rates used to
determine the pension obligations. Total pension funding payments in 2011 amounted to $385 million. Refer to section 9.8
for additional information on Air Canada’s pension funding obligations.
9.3. Adjusted Net Debt
The following table reflects Air Canada’s adjusted net debt balances as at December 31, 2011 and as at December 31, 2010.
(Canadian dollars in millions) December 31, 2011 December 31, 2010 Change $
Total long-term debt and finance leases $3,906 $4,028 $(122)
Current portion of long-term debt and finance leases 424 567 (143)
Total long-term debt and finance leases, including current portion 4,330 4,595 (265)
Less cash, cash equivalents and short-term investments (2,099) (2,192) 93
Net debt $2,231 $2,403 $(172)
Capitalized operating leases(1) 2,345 2,471 (126)
Adjusted net debt $4,576 $4,874 $(298)
(1) Adjusted net debt is a non-GAAP financial measure used by Air Canada and may not be comparable to measures presented by other public companies. Air Canada includes
capitalized operating leases which is a measure commonly used in the industry to ascribe a value to obligations under operating leases. Common industry practice is to
multiply annualized aircraft rent expense by 7.0. This definition of capitalized operating leases is used by Air Canada and may not be comparable to similar measures
presented by other public companies. Aircraft rent was $335 million in 2011 and $353 million in 2010.
Total debt and finance leases, including current portion, amounted to $4,330 million at December 31, 2011, a decrease of
$265 million from December 31, 2010. The reduction in long-term debt and finance leases from December 31, 2010 was
mainly due to debt repayments of $608 million, including balloon maturities related so special purpose aircraft leasing entities
totalling $221 million, as further described below. This decrease was partly offset by the unfavourable impact of a weaker
Canadian dollar at December 31, 2011 compared to December 31, 2010 on Air Canada’s foreign currency denominated debt
(mainly U.S. dollars), which accounted for an increase of $92 million, and by proceeds from borrowings of $232 million.
In the fourth quarter of 2011, long-term debt and finance lease obligations decreased $149 million. The decrease in long-term
debt and finance lease obligations was due to foreign exchange gains of $120 million and scheduled debt repayments of
$124 million partly offset by new borrowings of $107 million.
In 2011, Air Canada received net financing proceeds of $125 million (U.S. $128 million), after financing fees of $2 million,
through draws on a secured term loan facility (the “Facility”). The draws on the Facility were utilized to refinance amounts
related to eight Airbus A319 aircraft and four Boeing 767-300ER aircraft with refinanced terms of seven and four years,
respectively. The Facility will also be available in 2012 to refinance up to US$42 million of the amount related to four Airbus
A319 aircraft.
In 2011, Air Canada entered into a revolving loan facility consisting of a Canadian dollar denominated revolving facility in the
amount of $50 million and a U.S. dollar denominated revolving facility in the amount of $100 million. The agreement expires
on January 31, 2015. An amount of $22 million was drawn under the facility in the fourth quarter of 2011.
In the fourth quarter of 2011, proceeds of $85 million were raised through the issuance of a bond by a Fuel Facility
Corporation that is part of the consolidated accounts of Air Canada. The financing will be used to fund capital expenditures by
the Fuel Facility Corporation over the next several years.