Air Canada 2013 Annual Report Download - page 47

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2013 Management’s Discussion and Analysis
47
In addition, in February 2014, Air Canada took delivery of the last of five Boeing 777 aircraft. This aircraft, together with four
Boeing 777 aircraft which were delivered in 2013, are financed through the proceeds from the private offering of enhanced
equipment trust certificates as described above. Subject to certain conditions, Air Canada has purchase rights for 13
Boeing 777 aircraft (entitling Air Canada to purchase aircraft based on previously determined pricing).
In December 2013, as part of the airline’s narrow-body fleet renewal plan, Air Canada announced an agreement with Boeing,
which is subject to completion of final documentation and other conditions, which includes firm orders for 33 737 MAX 8 and
28 737 MAX 9 aircraft, with substitution rights between them as well as for the 737 MAX 7 aircraft. It also provides for
options for 18 aircraft and certain rights to purchase an additional 30 aircraft. Deliveries are scheduled to begin in 2017 with
two aircraft, and the remaining deliveries between 2018 and 2021, subject to certain deferral and acceleration rights.
Capital Commitments
As outlined in the table below, the estimated aggregate cost of the future firm Boeing 787 aircraft deliveries and other capital
purchase commitments as at December 31, 2013 approximates $4,986 million (of which $3,392 million is subject to
committed financing, subject to the fulfillment of certain terms and conditions). The table below excludes the capital
expenditures related to the purchase of Boeing 737 MAX aircraft as such agreement remains subject to the conclusion of final
documentation and other conditions. While the table below reflects available financing commitments covering 31 of 37
Boeing 787 firm aircraft orders as discussed above, Air Canada will be seeking and expects to achieve more favourable
financing arrangements closer to the delivery dates of these aircraft.
(Canadian dollars in millions) 2014 2015 2016 2017 2018 Thereafter Total
Projected committed expenditures $ 916 $727 $1,067 $1,378 $ 643 $ 255 $4,986
Projected planned but uncommitted
expenditures 195 248 212 241 192
not
available
not
available
Projected planned but uncommitted
capitalized maintenance(1) 202 149 123 123 123
not
available
not
available
Total projected expenditures(2) 1,313 1,124 1,402 1,742 958
not
available
not
available
Projected financing on committed
expenditures (678) (578) (844) (1,158) (134) – $(3,392)
Total projected expenditures,
net of financing $ 635 $546 $558 $584 $ 824
not
available
not
available
(1) The table above includes certain maintenance events which are capitalized under IFRS. Future capitalized maintenance amounts for 2016 and beyond are not yet
determinable however an estimate of $123 million has been made.
(2) U.S. dollar amounts are converted using the December 31, 2013 closing exchange rate of US$1 = C$1.0636. The estimated aggregate cost of aircraft is based on delivery
prices that include estimated escalation and, where applicable, deferred price delivery payment interest calculated based on the 90-day U.S. LIBOR rate at December 31,
2013.
9.7. Pension Funding Obligations
Air Canada maintains several pension plans, including defined benefit and defined contribution pension plans and plans
providing other retirement and post-employment benefits to its employees. The Canadian registered pension plans solvency
deficit at January 1, 2013 was $3.7 billion. The next required valuations to be made as at January 1, 2014, will be completed in
the first half of 2014, but as described below, they will not increase the 2014 pension past service cost funding obligations.
Based on preliminary estimates, in aggregate, the domestic registered pension plans are estimated to be in a small surplus
position on a solvency basis as at January 1, 2014.
The projected elimination of the $3.7 billion deficit was the result of several factors: (i) a 13.8% return on investments during
2013, (ii) the implementation of previously disclosed pension benefit amendments which are estimated to have decreased the
solvency deficit by approximately $970 million, (iii) contributions made by Air Canada for the year of $225 million in respect
of the solvency deficit and (iv) the application of a prescribed discount rate of 3.9% to calculate its future pension obligations.