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6262 2014 Annual Report
13. CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that are most important to the portrayal of Air Canada’s financial
condition and results of operations. They require management’s most difficult, subjective or complex
judgments, often because of the need to make estimates about the effect of matters that are inherently
uncertain. Actual results could differ from those estimates under different assumptions or conditions.
Air Canada has identified the following areas that contain critical accounting estimates utilized in the
preparation of its consolidated financial statements.
EMPLOYEE FUTURE BENEFITS
Air Canada maintains several defined benefit plans providing pension, other retirement and post-employment
benefits to its employees. The cost and related liabilities of Air Canada’s pensions, other post-retirement and
post-employment benefit programs are determined using actuarial valuations. The actuarial valuations involve
assumptions, including discount rates, future salary increases, mortality rates and future benefit increases. Also,
due to the long-term nature of these programs, such estimates are subject to significant uncertainty.
ASSUMPTIONS
Management is required to make significant estimates about actuarial and financial assumptions to determine
the cost and related liabilities of Air Canada’s employee future benefits.
Financial assumptions
Discount rate
The discount rate used to determine the pension obligation was determined by reference to market interest
rates on corporate bonds rated “AA” or better with cash flows that approximate the timing and amount of
expected benefit payments.
Future increases in compensation are based upon the current compensation policies, labour agreements and
economic forecasts.
The significant weighted average assumptions used to determine Air Canada’s accrued benefit obligations and
cost are as follows:
PENSION BENEFITS OTHER EMPLOYEE FUTURE
BENEFITS
2014 2013 2014 2013
DISCOUNT RATE USED TO DETERMINE:
Accrued benefit cost for the year ended December 31 4.90% 4.30% 4.80% 4.17%
Accrued benefit liability as at December 31 4.00% 4.90% 3.90% 4.80%
RATE OF FUTURE INCREASES IN COMPENSATION USED TO DETERMINE:
Accrued benefit cost for the year ended December 31 2.50% 2.50% not applicable not applicable
Accrued benefit obligation as at December 31 2.50% 2.50% not applicable not applicable
Actuarial assumptions
Mortality rates
The cost and related liabilities of Air Canada’s pension plans and other post-retirement and post-employment
benefit programs are determined using actuarial valuations. The actuarial valuations include several economic
and demographic assumptions including mortality rates. For the December 31, 2013 accounting valuations,
the mortality assumption has been updated to reflect the results of a mortality study specific to Air Canada
pension plan membership. The change in mortality rate assumptions resulted in an actuarial remeasurement of
the accounting liabilities with the impact being recorded in Other comprehensive income. The improvements in
assumed mortality rates are consistent with those presented by the Canadian Institute of Actuaries (“CIA”) which
issued new mortality tables for use in the valuation of Canadian pension and benefit plans in early 2014.