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2004 Annual Report ACE Aviation Holdings Inc

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2004 Annual Report ACE Aviation Holdings Inc 2004 Annual Report ACE Aviation Holdings Inc. Successor Company Predecessor Company - Combined (2) Predecessor Company - Highlights ACE (1) Air Canada Air Canada Period ended Three months ended Period ended Twelve months ended December 31 December 31 December 31 December 31 2004 2003 2004 2003 Financial (CDN dollars in millions except per share figures) Operating revenues 2,062 1,977 8,900 8,373 Operating income (loss) before reorganization and restructuring items (3) (77) 117 (684) Reorganization and restructuring items - (560) (871) (1,050) Non-operating expense (67) (132) (315) (282) Loss before foreign exchange on non-compromised long-term monetary items and income taxes (70) (769) (1,069) (2,016) Income (loss) for the period 15 (768) (880) (1,867) Operating margin before reorganization and restructuring items (0.1)% (3.9)% 1.3% (8.2)% EBITDAR before reorganization and restructuring items (3) 193 227 1,146 690 EBITDAR margin before reorganization and restructuring items 9.4% 11.5% 12.9% 8.2% Cash and cash equivalents (unrestricted) 1,632 670 1,632 670 Cash flows from (used for) operations (426) (20) (66) 139 Weighted average common shares used for computation - diluted (4) 90 120 - 120 Earnings (loss) per share - basic and diluted (4) $ 0.17 $ (6.39) - $ (15.53) Operating Statistics (mainline-related) (5) (6) % Change % Change Revenue passenger miles (millions) (RPM) 9,252 8,878 4 41,653 37,888 10 Available seat miles (millions) (ASM) 12,189 12,409 (2) 53,767 51,340 5 Passenger load factor 75.9% 71.5% 4.4 pts 77.5% 73.8% 3.7 pts Passenger revenue yield per RPM (excluding Aeroplan) (cents) (7) 15.6 15.8 (2) 15.4 15.9 (3) Passenger revenue yield per RPM (including Aeroplan) (cents) (7) 16.0 15.8 1 15.5 15.9 (2) Passenger revenue per ASM (excluding Aeroplan) (cents) (7) 11.8 11.3 4 11.9 11.7 2 Passenger revenue per ASM (including Aeroplan) (cents) (7) 12.1 11.3 7 12.0 11.7 3 Operating revenue per available seat mile (cents) 14.9 13.9 7 14.6 14.3 2 Operating expense per available seat mile (cents) (8) 15.0 14.5 3 14.3 15.4 (7) Operating expense (net of cargo and other non-ASM revenue) per available seat mile (cents) (8) (9) 12.2 11.9 2 11.8 12.9 (9) Average number of employees (thousands) 28.2 29.2 (3) 28.7 31.5 (9) Available seat miles per employee (thousands) 432 425 2 1,873 1,628 15 Operating revenue per employee (thousands) $64 $59 9 $273 $232 18 Aircraft in operating fleet at period end 199 214 (7) 199 214 (7) Average aircraft utilization (hours per day) (10) 10.6 10.4 1 11.0 10.3 7 Average aircraft flight length (miles) 1,284 1,212 6 1,308 1,218 7 Fuel price per litre (cents) (11) 54.3 35.2 54 45.9 37.1 24 Fuel litres (millions) 738 754 (2) 3,240 3,101 4 Operating Statistics (consolidated) % Change % Change Revenue passenger miles (millions) 9,681 9,289 4 43,427 39,565 10 Available seat miles (millions) 12,815 13,115 (2) 56,536 54,160 4 Passenger load factor 75.5% 70.8% 4.7 pts 76.8% 73.1% 3.7 pts Passenger revenue yield per RPM (excluding Aeroplan) (cents) (7) 16.9 17.3 (3) 16.7 17.3 (3) Passenger revenue yield per RPM (including Aeroplan) (cents) (7) 17.3 17.3 (0) 16.8 17.3 (3) (1) References to “Successor Company” refer to ACE and its susidiaries' results for the period ended December 31, 2004, which represents three months of operations. Refer to the MD&A for additional information. (2) Annual Supplementary Non-GAAP Combined Information (Combined) which is the combination of Air Canada's (Predecessor Company) operations and financial results for the nine months ended September 30, 2004 added to ACE Aviation Holdings Inc.'s (ACE) (Successor Company) operations and financial results for the period ended December 31, 2004. (3) EBITDAR (earnings before interest, taxes, depreciation, amortization and obsolescence and aircraft rent) is a non-GAAP financial measure commonly used in the airline industry to view operating results before aircraft rent and ownership costs as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and asset acquisitions. EBITDAR is not a recognized measure for financial statement presentation under GAAP and does not have a standardized meaning and is therefore not likely to be comparable to similar measures presented by other pub- lic companies. EBITDAR before reorganization and restructuring items is reconciled to operating income (loss) before reorganization and restructuring items as follows: Successor Company ACE (1) Predecessor Company Air Canada Combined (2) Predecessor Company Air Canada Period ended December 31 Three months ended December 31 Period ended December 31 Twelve months ended December 31 2004 2003 2004 2003 ($ millions) ($ millions) ($ millions) ($ millions) Operating income (loss) before reorganization and restructuring items (3) (77) 117 (684) Add back: Aircraft rent 111 210 632 1,008 Depreciation, amortization & obsolescence 85 94 397 366 EBITDAR before reorganization and restructuring items 193 227 1,146 690 (4) Refer to Note 20 of the 2004 Annual Consolidated Financial Statements for additional information on Earnings Per Share. (5) Includes the operations of Air Canada, Aeroplan, Air Canada Technical Services, ACGHS, AC Cargo, Air Canada Capital, Destina, AC Online and SIMCO. (6) Mainline-related operating statistics exclude Jazz operations and capacity purchase arrangements with third party carriers. (7) Beginning in October 2004, Aeroplan redemption revenues related to points redeemed for air travel on Air Canada are reflected in passenger revenues. Prior to October 2004, these revenues were recorded in “other” rev- enues. Refer to the MD&A for additional information on the Loyalty Program. (8) Before reorganization and restructuring items. (9) Represents the net cost of the passenger transportation business after deducting the revenue impact of cargo and other non-ASM businesses. (10) Excludes maintenance down-time. (11) Net of fuel hedging and includes all fuel handling expense. TABLE OF CONTENTS Page Message from the Chairman, President and Chief Executive Officer, ACE Aviation Holdings Inc. ______________________ 2 Preface ________________________________________________________________ 4 Management’s discussion and analysis of results ____________________________ 5 Consolidated financial statements and notes ______________________________ 67 Board of Directors / Senior Management Team ____________________________ 132 Investor Shareholder Information 1 MESSAGE FROM THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, ACE AVIATION HOLDINGS INC. Air Canada has weathered the perfect storm and emerged with a strong balance sheet and enhanced liquidity, significantly lower costs and a dynamic new business model. Our new fares offer great value. Customers are embracing them. And there is more to come. Having been reborn as ACE Aviation Holdings, Air Canada has transformed itself into something unique: the full value airline that can compete aggressively on price with low-cost discounters and on service and amenities with anyone else – and do it profitably. Air Canada’s restructuring under CCAA creditor protection that began on April 1, 2003 followed the SARS outbreak, the Iraq War, spiking fuel prices and rapid expansion by domestic-low cost carriers. Our 18 months under CCAA were extraordinarily challenging. Air Canada’s employees, lessors, suppliers and other stakeholders made major sacrifices, but what we accomplished together is also extraordinary. ACE is now a company with assets of $9 billion and with less than $5 billion of debt, most of that future aircraft lease obligations, making Air Canada one of the least leveraged major airlines anywhere. By grouping all Air Canada operations into subsidiaries of ACE, we are remaking each as a separate business with financial and operational benchmarks, sensitive to both internal and external customers and with a mandate to contribute more to the overall profitability of the Corporation. While this structure will make it somewhat easier to monetize some of the true value of these operations, our goal is to grow them regardless of whether we own part or all of their shares. Air Canada has turned into an ideas factory. Some of the concepts coming out of our commercial group deviate sharply from how traditional full-service airlines – legacy carriers - have been doing business for decades. Simply put, Air Canada is no longer a legacy carrier and the world’s airlines and our customers are noticing. We are changing the value the customer perceives in our product and how the customer interacts with the airline at every step of the process from booking a flight until baggage pickup. We are making customer empowerment (self-service) a virtue by offering enhanced website booking features, web check-in, expanded kiosk check-in, Aeroplan online reward redemption, and much more. The old legacy fare structure with its dozens of fare types is complicated, full of restrictions and hides inequities. Air Canada’s new fare grid is simple, transparent and based on one-way fares so customers don’t have to jump through hoops like Saturday stayovers. Customers can travel the way they want and pay for the services they value, and given our consistently strong load factors, they are responding. This year, the same one-way fare structure is being introduced internationally. The international marketplace holds enormous potential for Air Canada as the country’s principal international carrier, as shown by our successful expansion into Latin America and the preference of many travellers to make 2 connections in Toronto rather than at US airports because of visa and security issues. We look to the Canadian government and the airport authorities to further streamline the passenger processes and procedures and reduce costs to make Toronto and Canada even more competitive hubs in the coming months.
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