Air Canada 2013 Annual Report Download - page 58

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2013 Air Canada Annual Report
58
Air Canada uses derivative contracts based on jet fuel, heating oil and crude-oil based contracts. Air Canada’s policy permits
hedging of up to 75% of the projected jet fuel purchases for the next 12 months, 50% for the next 13 to 24 months and 25%
for the next 25 to 36 months. These are maximum (but not mandated) limits. There is no minimum monthly hedging
requirement. There are regular reviews to adjust the strategy in light of market conditions.
In 2013:
• Air Canada recorded a loss of $6 million in Loss on financial instruments recorded at fair value on Air Canada’s
consolidated statement of operations related to fuel derivatives ($43 million loss in 2012).
• Air Canada purchased crude-oil and refined products-based call options and call spreads covering a portion of 2013 and
2014 fuel exposure. The cash premium related to these contracts was $39 million ($51 million in 2012 for 2012 and 2013
exposures).
• Fuel derivative contracts cash settled with a fair value of $29 million in favour of Air Canada ($3 million in favour of
Air Canada in 2012).
As of December 31, 2013, approximately 20% of Air Canada’s anticipated purchases of jet fuel for 2014 are hedged at an
average West Texas Intermediate (“WTI”) equivalent capped price of US$100 per barrel. Air Canada’s contracts to hedge
anticipated jet fuel purchases over the 2014 period are comprised of call options with notional volumes of 5,136,000 barrels.
The fair value of the fuel derivatives portfolio at December 31, 2013 was $20 million in favour of Air Canada ($16 million in
favour of Air Canada in 2012) and is recorded within Prepaid expenses and other current assets on Air Canada’s consolidated
statement of financial position.