Air Canada 2011 Annual Report Download - page 55
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2011 Management’s Discussion and Analysis
55
Maintenance Provisions
The recording of maintenance provisions related to return conditions on aircraft leases requires management to make
estimates of the future costs associated with the maintenance events required under the lease return condition and estimates
of the expected future maintenance condition of the aircraft at the time of lease expiry. These estimates take into account
current costs of these maintenance events, estimates of inflation surrounding these costs as well as assumptions surrounding
utilization of the related aircraft. Any difference in the actual maintenance cost incurred and the amount of the provision is
recorded in maintenance expense in the period. The effect of any changes in estimates, including changes in discount rates,
inflation assumptions, cost estimates or lease expiries, is also recognized in maintenance expense in the period. For the
purposes of sensitivity of these estimates, a 2% increase in the aggregate cost for return conditions, holding all other factors
constant, results in a cumulative balance sheet adjustment increasing the provision by $12 million at December 31, 2011 and
an increase to maintenance expense in 2012 of approximately $1 million. If the discount rates were to increase by 1%,
holding all other factors constant, there would be a cumulative balance sheet adjustment to decrease the provision by
$13 million at December 31, 2011. Due to low market rates of interest, a 1% decrease in discount rates was not considered a
reasonable scenario.