Westjet 2003 Annual Report Download - page 13

An inverse relationship can be observed between interest
expense and maintenance expense on our debt-encumbered
Boeing Next-Generation aircraft (see “Combined Projected
Maintenance and Interest Expense per Block Hour” graph
on page 24). Interest expense associated with the 12-year
loans of our owned 737-700s is expectedly higher during
the initial years of ownership, and will decline as the debt is
paid down. The higher interest payments that we are
realizing now more than compensate for the costs related
to maintenance not yet required on the new aircraft.
In February 2003, agreement reached with Galileo International global distribution service. 2003 WestJet Annual Report |25
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receives are essentially free of any maintenance reserve
requirements and therefore would result in maintenance being
recognized as incurred, which is consistent with the
maintenance treatment on our owned aircraft.
The owned 737-700 aircraft in our fleet require no reserve
payments to an aircraft lessor and are all still under warranty.
Therefore, these aircraft incur 71% less maintenance
charges than our 737-700 leased aircraft.
We have further enhanced maintenance cost efficiencies by
investing in blended winglets. Winglets result in better
climb performance that also lends to lower thrust settings,
thus extending engine life and reducing maintenance costs.
Maintenance costs per ASM decreased 38.9% from 1.8
cents in 2002 to 1.1 cents in 2003. Unit maintenance costs
for our owned 737-700s have declined 29% while
maintenance expenses for our 737-700 leased aircraft
have decreased 10% year over year. We can attribute a
portion of this decrease to the strengthening of the Canadian
dollar as most engine, engine accessory and other aircraft
component repair and overhaul work is performed in the
US. However, the decrease in unit maintenance costs can
also be credited to the reduced maintenance required
on our newer 700-series fleet, and the costs that
are incurred on the fleet being diluted over our
longer-haul flying. Usage-driven expenses such as
brakes, tires and engine-overhaul costs also
benefit from this dilution over our greater average
stage length.
Similar to the change in maintenance outlays
incurred on our 700-series aircraft, our 200-
series owned and leased fleet also experienced
a decline of 5% combined in unit maintenance
costs as a direct consequence of the decline in
the foreign exchange rate.
In accordance with Canadian generally
accepted accounting principles, we recognize
maintenance costs in the period incurred.
However, where the maintenance activities benefit
future periods, such as heavy maintenance (“D” checks),
the costs are deferred and expensed over the period of
benefit. Although we realize less maintenance costs in the
earlier years of owning the aircraft, the total cost of
ownership is essentially stable throughout the life of the
aircraft when interest expense is taken into consideration.
In 2003, process began to add blended winglets and increased legroom on 737-700 fleet.
24 | 2003 WestJet Annual Report
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aircraft is a maintenance reserve paid
to the lessor in the form of supplemental
rent. These funds are expensed by the
Company at the time of payment and
utilized by the lessor to offset future
maintenance costs.
In accordance with the terms of our
existing lease agreements, these reserves
are payable to the lessor as a means to
protect lessors from potential losses
caused by any maintenance expenses
that may be incurred when the
customer returns the aircraft. Collecting
maintenance reserve payments from
lessees was not an uncommon practice
for lessors at the time we entered into
these agreements; however, as a result of
today’s changing market conditions,
current lease proposals that WestJet
With free snacks and drinks on every
flight, WestJet guests have a choice.
Here’s a quick overview of their
choices in 2003:
The healthy choice or a sweet
treat? WestJet guests drank
424,000 cans of tomato juice in
2003 and 1.2 million cans of pop.
In 2003, WestJet guests drank 355,770
litres of water. That’s not nearly enough to
fill an Olympic-sized swimming pool, but
it’s a lot of water nonetheless!
Would you like some coffee with your sugar?
WestJet guests consumed 1,124,000 packs
of sugar in 2003, not to mention case loads
of artificial sweetener.
WestJet guests ate
2,850,700 cookies in 2003!
Unit maintenance costs for our
owned 737-700s have declined 29%...
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$ 0
$ 100
$ 200
$ 300
$ 400
$ 500
$ 600
$ 700
$ 800
Combined Projected Maintenance and Interest Expense per Block Hour (Owned 737-700)
Keith Horsburgh, Aircraft Maintenance Engineer: A proud
new dad of a three-month-old baby, he commutes from
Medicine Hat to work at our Calgary hangar.
WITH EVERY
EXPERIENCE, YOU
ALONE ARE PAINTING
YOUR OWN CANVAS,
THOUGHT BY
THOUGHT, CHOICE
BY CHOICE.
~ Oprah Winfrey
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Year of Ownership
Interest Expense per Block HourMaintenance Expense per Block Hour
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$ 100
$ 200
$ 300
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Combined Projected Maintenance and Interest Expense per Block Hour (Owned 737-700)