Presented to Scotia Capital at the Canadian Transportation Conference Toronto - May 9, 2002.

transcript

Presented to

Scotia Capitalat theCanadian Transportation Conference

Toronto - May 9, 2002

Substantially Improved Performance

2002 2001 (millions) Q1 Q1 Change

Oper. Revenue $ 2,286 $ 2,344 $ (58)

Oper. Expense 2,446 2,637 (191)

Oper. Loss (160) (293) 133

Non-oper. Expense (65) (1) (64)

Loss Before Tax $ (225) $ (294) $ 69

Non-recurring Items (36) 89 (125)

Loss Before TaxExcl. Non-recur. Items $ (189) $ (383) $ 194

• Strengthening demand

• Unit revenue performance beats all U.S. Majors

– market share up in all services

– disciplined capacity

– highest load factors in North America

– yield recovering

Key Performance Factors

• Fleet renewed and reconfigured

– hours flown cut……………………... 13%

– seat mile capacity down only……... 7%

• Labour productivity increases

– capacity per employee up…………. 11%

– traffic per employee up……………. 19%

– employee numbers down 6,400 or.. 14%

• Costs cut

– commissions

– maintenance

– fuel price down

– fuel productivity up due to new aircraft & more seats

– fleet more efficient

– over 170 ongoing projects

• Unit cost performance beats U.S. industry

* Pre-government assistance - US = 6 majors

% Operating Margin

Best Operating Results* Of Any Major International Carrier In North America

-30Q1 Q2 Q3 Q4 Q1

2001 2002

Air Canada Revenue Recovering Faster

Q1 2002/2001% change

United US Delta Cont. NW AMR AC

Air Canada’s 1st Quarter RASM Outperforms Industry

* Mainline* *Source ATA

Year/Year% Change AC*

-25Q1 Q2 Q3 Q4 Q1

2001 2002

Unit Cost** Performance Outpaces Industry

* Mainline* * Adjusted for one-timers; US = 6 majors

Year/Year% Change

Q1 Q2 Q3 Q4 Q1 2001 2002

All Expense Categories Down Except Aircraft Rent And User Fees

Q1 2002/2001

RPMs ASMs Comm. Food& Bar

A/CMtce

UserFees

A/CRent

OtherDep.

Year/Year% Change

Air Canada’s Products

Jazz Zip AC JetzMainline Tango

• “Air Canada”

• Hub – network

• Transborder and Domestic network

• Rapidair

• International

• Two-class

• Air Canada brand

• Air Canada code

• Key feed to mainline

• Regional markets

• Good frequency coverage

• Distinct brand

• Unique code*

* Air Canada codeshare

• Low fare

• Lower cost

• Supplemental flying in key markets

• Sun, long haul domestic, transcontinental routes

• Distinct brand

• Air Canada code

• Leisure, low yield

• Low cost

• Point-to-point, short haul

• Domestic/Transborder

• Distinct brand

• Unique code*

* Air Canada codeshare

• Specialty charter

• Executive First configuration of surplus B-737

• Focus on specialty charters (i.e. sports teams, etc.)

• Concierge service

Why Tango and Zip?

• Full fare business segment has shrunk

• Will return but not at same level

• Leisure and price sensitive business market growing

• Full service costs too high for that market

• Low fare segment strong in good times and bad

• Full service remains critical for long-haul international and high volume/frequency North American markets

Goal: Higher margins in low fare markets

Seating Mixed All economy All economy

Network Worldwide Mostly long haul, Short haul point to point N.A. N.A.

Aircraft utilization Standard Above Above mainline mainline

Labour cost Standard Same as Lower than(incl. work rules) mainline mainline and

ZipMainline Tango

Food & bar/ Full service Limited + pay for Limitedentertainment

Internet About 4% 80% Primarily in 2001 internet internet

Ticketing E-ticket – All e-ticket Mostly e-ticketpaper paper

for fee available

Interlining Full None Full

ZipMainline Tango

Global dist. Yes No Yessystems

Aeroplan Standard Half point TBD award

Refunds Yes No Yes

Planned domestic 60% 20% 20%runrate capacity

ZipMainline Tango

Manpower Levels Coming Down

30,000

32,000

34,000

36,000

38,000

40,000

Q4 2000 Q2 2001 Q4 2001

Full Time Equivalents (mainline)

Q1 2002

Labor Contract Stability

Air Canada Canadian

Maintenance and Ramp June 2005 -

Flight Attendants Oct. 2001 June 2004

Pilots Apr. 2004 -

Customer Sales & Service Mar. 2004 -

Future Labor Cost Much Lower Than U.S. Carriers

2002 2003 2004

Maintenance and Ramp 2.5% 2.5% 2.5%

Flight Attendants - - -

Pilots 2.5% 2.5% -

Customer Sales & Service 2.5% 2.5% -

Air Canada

Smaller / Younger Fleet

Change ChangeDec / 00 Dec / 01 01/00 Dec/02 02/01

747 7 6 - 1 6 -330/340 16 20 + 4 17 - 3767-200/300 51 49 - 2 46 - 3319/320/321 82 90 + 8 105 +15737 43 34 -9 27 - 7DC9 17 4 -13 - - 4CRJ 25 25 - 25 -

Total Mainline 241 228 -13 226 - 2Jazz 134 101 -33 104 + 3

TOTAL 375 329 -46 330 + 1

2002 Aircraft DeliveriesSale/ Operating

Leasebacks LeasesA340-500 2 -A321-200 5 -A319-100 5 3A320-200 - 3CRJ (Jazz) - 10

Total 12 16

Low Cap Ex In 2002($ millions)

Aircraft $ 919Financing ( 918

Net $ 1Other 227

Total Mainline $ 228Subs 15

Total $ 243

Good Liquidity

• $924 million in cash at March 31, 2002

• Approximately $2.8 billion of unencumbered assets

– aircraft

– engines and spares

– inventory

– real estate

– lease deposit receivables

– accounts receivable

Significant Value In Air Canada’s Business Units

Leverage Better Than It Looks - One time charges in shareholders’ equity ($millions)

Shareholders’ Equity at March 31/02 $ (1,460)

F.X. Accounting Change $ (522)

Employee Future Benefits $ (218)

Income Taxes $ 36

Loyalty Programs $ (147)

Future Income Tax Valuation Allowance $ (410)

Charge Relating to Share Buy Back Program $ (1,100)

Total 1X Charges to Shareholders’ Equity $ (2,361)

Shareholders’ Equity Excluding 1X Charges $ 901

Leverage Better Than It Looks - Debt and underlying assets

Underlying Assets Total Debt

• Cash generating airline at start of cycle $3.6billion LTD

• $2.8 billion in unencumbered assets 0.5 Current LTD

• Value in business units 0.8 Perpetuals0.1 Convert. debs

(.9) Cash

$4.1billion Net debt

• $8.2 billion + in leased aircraft……. $8.2 billion Operatingleases

Investment Considerations

• Commanding share of all markets served• Comprehensive low fare market strategy• Solid hub and network strategy• Traffic almost back to normal• Pricing recovering • Industry capacity rationalized• Unit costs coming down• Good liquidity • Low capital expenses going forward• Substantial business unit value

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 May 9, 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.

Presented to Scotia Capital at the Canadian Transportation Conference Toronto - May 9, 2002.

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