Canadian Airline Investment Conference 2002

Toronto - June 13-14, 2002

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

Dec/00 Dec/01Change

01/00 Dec/02Change

02/01

747 7 6 -1 6 -

330/340 16 20 +4 17 -3

767-200/300 51 49 -2 46 -3

319/320/321 82 90 +8 105 +15

737 43 34 -9 27 -7

DC9 17 4 -13 -4

CRJ 25 25 - 25 -

Total Mainline 241 228 13 226 -2

Jazz 134 101 -33 104 +3

Total 375 329 -46 330 +1DC9

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.

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

Pre Sept. 11th 2001 US$ millions

Canadian / U.S. Pickle-Dole Lease $117

U.S. Pickle-Dole Lease $120

U.S. Pickle-Dole Lease $185

Japanese Operating Lease $199

Spare Engines Non-Leverage Lease $80

Japanese Operating Lease $98

U.S. Pickle-Dole Lease $227

Non-Leverage Lease $416

U.S. ETI Lease $82

Total $1,524

12

Aircraft Financing Pre and Post September 11

These financings occurred during September 12th to December 2001

Post Sept. 11th 2001 US$ millions

U.S. ETI Lease $83

Spare Engines Non-Leverage Lease $40

Non-Leverage Lease $100

German Leverage Lease $150

Operating Lease $339

Operating Lease $23

Total $735

13

2002 New Aircraft Deliveries

Aircraft Delivered Remaining

A319 5 3

A320 1 2

A321 2 3

A340-500 0 2

Total 8 10

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

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

LESSEEand

SUB LESSOR(SPV)

LESSEEand

SUB LESSOR(SPV)

SUB LESSEE(Air Canada)

SUB LESSEE(Air Canada)

LESSOR/BORROWER

LESSOR/BORROWER

Lease Payment

Dividend Payment

Equity3%

Equity3%

LendersLenders

Loan

Equity Injection

Interest & Principal Payments

Aircraft Manufacturer

Aircraft Manufacturer

Aircraft Title

Purchase Price

Lease Agreement

Sub Lease Agreement

Sub Lease Payment

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

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.