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Canadian Airline Investment Conference 2002 Toronto - June 13-14, 2002

Canadian Airline Investment Conference 2002 Toronto - June 13-14, 2002. Section I - Fleet and Capacity Strategy. Fleet and Capacity Strategy. Out With The Old … In With The New… Many of the oldest aircraft were retired or sold. Five aircraft will be returned to their lessors.

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Canadian Airline Investment Conference 2002 Toronto - June 13-14, 2002

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  1. Canadian Airline Investment Conference 2002 Toronto - June 13-14, 2002

  2. Section I - Fleet and Capacity Strategy

  3. Fleet and Capacity Strategy Out With The Old … In With The New… • Many of the oldest aircraft were retired or sold. • Five aircraft will be returned to their lessors. • 16 new Airbus aircraft will be delivered. • Six older Airbus A320 aircraft to be replaced with new A319 or A320. • Fokker F28 aircraft: parked or to be replaced by Canadair Regional Jet.

  4. Fleet and Capacity Strategy Fleet Simplification • Expand A319, A320 and A321 family... half of the fleet by end 2002. • Cost saving due to aircraft commonality. • Similar commonality with A330 & A340 aircraft.

  5. Fleet and Capacity Strategy Seat Reconfiguration Program • More economy class seating on A320, B767 and B737. • 2.5% more seat capacity at little additional cost. • A319 fleet to be completed by Summer 2002.

  6. Fleet and Capacity Strategy Improvement in Productivity • Hours flown cut by 13%. • Seat mile capacity down only 7%.

  7. Smaller / Younger Fleet

  8. Capacity Flexibility • Leases for one B747-400 and one A340-300 extended at significantly lower rentals. • Deferred A340-600 aircraft until second half of 2004. • Five B767-300 aircraft on power by the hour basis (finalizing one more). • Finalizing three A321 aircraft on power by the hour basis.

  9. Section II - The Financing World

  10. The Financing World A) Type Of Financing • Pre September 11th 2001 • Post September 11th 2001 • 2002 To Date

  11. Aircraft Financing Pre and Post September 11 These financings occurred during January 2000 to September 10, 2001

  12. Aircraft Financing Pre and Post September 11 These financings occurred during September 12th to December 2001

  13. 2002 New Aircraft Deliveries

  14. The Financing World B) Post September 11 - Sources of Credit • Bank Environment: Here Today… Gone Tomorrow... • Operating Lessor Environment: Lessors Step up to Bat • Going Forward: Back-stop in place - looking for better alternatives for the Airbus A319, A321 and A340-500 Aircraft

  15. Section III - Post Enron

  16. Post Enron Main Fallout of Enron • The intense scrutiny of Special Purpose Vehicles (SPVs) • Accounting system to change rules re SPVs • Proposed accounting change: 3% ->10% equity (maybe) and other criteria being developed

  17. Post Enron What Would Air Canada Do? • Do nothing: SPVs would be consolidated with Air Canada • Restructure: • only affects some of our leases • would need to find additional equity financing

  18. “Typical” Air Canada Leveraged Lease LESSOR/ BORROWER Loan Purchase Price Lenders Aircraft Manufacturer Aircraft Title Interest & Principal Payments Lease Agreement Lease Payment LESSEE and SUB LESSOR (SPV) Equity Injection Equity 3% Dividend Payment Sub Lease Payment Sub Lease Agreement SUB LESSEE (Air Canada)

  19. Post Enron If “Off Balance Sheet” “On Balance Sheet” • Changes to balance sheet • increase in assets • increase in debt (but by a lower amount)

  20. Post Enron If “Off Balance Sheet” “On Balance Sheet” • Changes to income statement • decrease in rent expense • increase in depreciation • increase in interest expense (non-operating)

  21. Post Enron If “Off Balance Sheet” “On Balance Sheet” • Net Result: • improvement in operating income • possible improvement in net income • timing differences

  22. Caution Concerning Forward-looking Information: Certain statements made in this presentation may be of a forward-looking nature and subject to important risks and uncertainties. The results indicated in these statements could differ materially from actual results for a number of reasons, including without limitation, general industry, market and economic conditions, the ability to reduce operating costs and fully integrate the operations of Canadian Airlines, employment relations, energy prices, currency exchange rates, interest rates, changes in laws, adverse regulatory developments or proceedings and pending litigation. Any forward-looking statements contained in this presentation represent Air Canada’s expectations as of June 13, 2002 and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

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