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INTERVISTAS MARKET INTELLIGENCE REPORT


THE HIGH PRICE OF FUEL 12 January 2005

The price of crude oil closes at $46 in January…

30 20

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

0

1980

10 1979

Senior Project Manager

40

1978

Doris Mak

Declining U.S. Oil Inventory. A recent report by the U.S. Energy Department showed a decline in U.S. consumer oil inventories. A greater than expected decline in inventory resulted in a small spike in market prices. Market prices were also affected by greater demand/consumption of heating oil during the cold winter months.

2004 US Cents/Litre

The price of crude oil tempered at $46.37 after hitting a high of $55 per barrel in late October 2004. The spot price has risen 34% in January compared to the same month last year. However, to put things into perspective, after adjusting for Inflation Adjusted Aviation Fuel Prices inflation, today’s prices are still relatively low in real (inflation adjusted) terms compared to the 70 late 1970s, early 1980s during the oil crises at 60 the time. 50

Year

Source: Air Transport Association Fuel Cost and Consumption Report. 2004 Data uses the December 30, 2004 price from the U.S. Department of Energy, Energy Information Administration, New York Jet Fuel Kerosene Spot Prices.

Other Global Factors. Unrest in Iraq continues to impact crude oil prices due to unreliable oil output. In addition, OPEC has also hinted at cutting production levels at its next meeting in late January; however, market analysts feel that it is unlikely that OPEC would reduce production from current levels at current prices. China continues to be a factor. Recent statistics show that China imported a total of 120 million tons of crude oil in 2004, 35% more than in 2003. Not only has China been a large importer of crude oil, the country has also been a big purchaser of other commodities such as iron ore.

…. Rising futures prices Throughout 2004, the price of crude oil in the futures market has been increasing steadily, this trend has continued into 2005. During the summer of 2003, the futures price of a barrel of crude oil for delivery in December 2008 was below $25. However, in January 2005, the futures price for that same barrel of crude oil is $38, a price increase of 55% compared to 18 months ago. Global Airline Industry Profitability. The price of crude will play a central role in the profitability of the airline industry. Recent comments by IATA’s Chief Economist forecast the airline industry to make a small profit in 2005 after accumulating US$35 billion in losses since 2001. However, the forecast of a small profit is based on the assumption that crude oil prices on average do not exceed $34 per barrel. By comparison, the average price in 2004 was $40 per barrel and as a result, the annual global industry loss is forecast to be US$4.8 billion. Page 2 January 2005

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WESTJET SEAT CAPACITY 2005 12 January 2005

In September 2004 WestJet entered the scheduled transborder market with daily non-stop flights from Toronto to Los Angeles and New York, and from Calgary to Los Angeles. Subsequently, other routes were added. Now that WestJet has entered the U.S. market, we will examine the low-cost carrier’s change in weekly seat capacity between January 2004 and 2005.

Overall Change – Capacity Increases

Geneva Tretheway Research Consultant

Between January 2004 and 2005, WestJet increased its overall weekly non-stop capacity by 15%. The major changes in 2004 included the shift of its eastern focus city from Hamilton to Toronto and the introduction of transborder services. The Hamilton-Toronto switch was not merely a transfer of existing routes from one city to another, WestJet also added capacity and routes to its new eastern hub. The low-cost carrier started flying the Eastern Triangle route with the addition of over 6,600 seats in and out of Toronto to each of Ottawa and Montreal. Overall, Toronto capacity is up 238% (42,700 additional weekly seats) while Hamilton is down 73% (27,100 weekly seats).

Transborder Services – now 6% of WS seats WestJet has made new service announcements at least once every month since starting transborder services in September 2004. Today, the transborder sector makes up 6% of WestJet’s non-stop capacity (14,400 weekly seats). All of this capacity is flown to and from its three main focus cities – Calgary, Toronto and Vancouver. The graph on the right shows the share of transborder capacity at each city.

January 2005 Transborder Seat Capacity 3%

Vancouver

6%

Calgary

12%

Toronto

The airline currently flies to Los Angeles, New York, Orlando, Fort Lauderdale, Tampa, San Francisco, Phoenix, and Palm Springs. The graph on the left shows the share of weekly seats WestJet flies to each U.S. market. Los Angeles, with 26% of the seats, was initially served non-stop from all three Canadian cities but WestJet Palm Springs has since changed its Toronto service to a 8% Phoenix connection through Calgary. New York, with 8% Los Angeles 23% of seats, is served only from Toronto. 26% San Francisco The carrier seems to be concentrating on 8% tourist and sun destinations as it has not yet Tampa started flying to the other major business 8% markets (e.g., Chicago, Washington D.C., Fort Lauderdale Detroit). 9% Orlando 15%

New York 23%

WestJet now serves all of the U.S. cities announced in Summer 2004, with no new destinations announced since then.

Source: OAG MaX January and December 2004 discs. Note: Seat capacity figures represent weekly non-stop seats flown in both directions.

Page 3 January 2005

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AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers- December 2004 Passenger Traffic

Air Carrier

OTHER CARRIERS:

Load Factor

Available Seat Kilometres

% Change over 2003

% Change from 2002

% Change over 2003

% Change from 2002

Air Canada1

+1.0%

+1.2%

-3.3%

-5.8%

Domestic (Mainline)

+0.4%

-0.9%

-10.1%

Jazz

+6.2%

+8.7%

International & Charter

+1.2%

WestJet Jetsgo2

LOAD FACTORS

CanJet: not reported

Capacity

Revenue Passenger Kilometres

Change over 2003 +3.2 pts (to 75.2%)

Change from 2002

-13.2%

+8.0 pts

+9.6 pts

-7.4%

-11.1%

+8.8 pts

+12.4 pts

+2.0%

-0.3%

-2.5%

+1.2 pts

+3.3 pts

+34.5%

+89.1%

+32.4%

+82.5%

+1.1 pts (to 74.7%)

+2.6 pts

N/A

N/A

N/A

N/A

N/A

N/A

Analysis: •

Following an earlier trend, Air Canada continues to reduce domestic capacity. The carrier recorded its fifth consecutive month of increased domestic passenger traffic. Domestic traffic in December 2004 was near 2002 levels. Air Canada’s total international traffic increased compared to both December 2003 and 2002. Transborder capacity was reduced by 12%, while Asia Pacific capacity increased by 3.4%. Overall international capacity is still below 2002 levels. For the first time in several months, WestJet’s traffic growth outpaced the addition of capacity, resulting in an improved load factor (75%). The carrier continued to add transborder services in December 2004, including non-stop flights between Vancouver and Los Angeles.

Air Canada Domestic Mainline 20% 15% 10% 5% 0% -5% -10% -15%

Jazz data is not included in this graph

Dec- Jan- Feb 03 04

Mar April May

Jun

Dom RPK

July Aug

Sep

Oct

Nov

Dec

Dom ASK

Air Canada International International 35% 30% 25% 20% 15% 10% 5% 0% -5% Dec- Jan03 04

Feb

Mar

April May

Aug

Sep

Oct

Nov

Mar April May Jun July Aug

Sep

Oct

Nov

Int'l RPK

Jun

July

Dec

Int'l ASK

WestJet 60% 50% 40% 30% 20% 10% 0% Dec- Jan- Feb 03 04

RPK

1Air

+5.2 pts

Dec

ASK

Canada Mainline consists of all Air Canada with the exception of Jazz. data not available at time of publication. Page 4 InterVISTAS Consulting Inc. Market Intelligence Report January 2005 ©InterVISTAS Consulting Inc.

2 Jetsgo


AIRLINE DATA – U.S. U.S. Airlines Release December 2004 Traffic Figures Traffic Data – December 2004 Airline

1

2

2

Notes:

1. 2.

Sources:

Page 5 January 2005

Load Factor

Traffic (RPMs – millions)

(ASMs – millions )

Capacity

74.6%

10,982

14,712

á0.9 pts

á6.1%

á4.9%

65.7%

571

870

á1.1 pts

á28.3%

á26.1%

69.9%

911

1,303

á1.1 pts

â11.0%

â12.4%

77.3%

5,522

7,145

á0.3 pts

á6.5%

á6.1%

73.6%

9,059

12,308

â0.5 pts

á5.4%

á6.2%

82.0%

1,446

1,763

â0.2 pts

á34.1%

á34.4%

78.2%

6,172

7,892

á0.1 pts

á7.7%

á7.6%

62.9%

4,338

6,901

â1.1 pts

á10.3%

á12.2%

77.7%

9,402

12,094

â0.7 pts

á2.3%

á3.2%

70.7%

3,036

4,294

â2.2 pts

â2.8%

á0.2%

Mainline Load factor includes scheduled service only

Carrier traffic reports

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Summary of Total Year-Over-Year Passenger Traffic Performance at Selected Canadian Airports

2003

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+2.2%

MontréalTrudeau +9.0%

+8.0%

+7.2%

+6.5%

+5.8%

-0.05%

+13.7%

+9.6%

-0.3%

+19.8%

St. John’s +9.4%

+1.9%

+2.8%

+8.5%

+5.4%

+4.9%

+6.0%

+6.0%

+2.9%

+16.1%

+9.1%

+0.8%

+2.0%

+13.9%

4th Quarter

-0.1%

+0.5%

+6.4%

+3.9%

+7.4%

+4.5%

+6.4%

+1.9%

+15.6%

+6.6%

-0.4%

+6.33% +10.8%

Full Year

-4.6%

-3.7%

+1.3%

+2.7%

+2.9%

+1.3%

+5.1%

+4.2%

+7.3%

+2.9%

-0.5%

+2.4%

+9.4%

January

+2.3%

+1.5%

+10.0%

+3.9%

+7.7%

+3.5%

+6.4%

+3.2%

+12.4%

+5.9%

-2.2%

+8.3%

+12.8%

February

+8.6%

+7.9%

+19.6%

+5.3%

+10.7%

+13.9%

+11.7%

+5.6%

+11.4%

+11.6%

+7.8%

+2.8%

+19.8%

March

+9.3%

+5.2%

+21.4%

+2.0%

+8.0%

+11.4%

+11.4%

+9.0%

+8.2%

+2.6%

+10.8%

+3.9%

+21.3%

Quarter

+6.8%

+4.8%

+17.1%

+3.7%

+8.8%

+9.7%

+9.9%

+6.1%

+10.5%

+ 6.5%

+5.3%

+5.0%

+18.0%

April

+30.6%

+20.5%

+31.7%

+11.5%

+8.6%

+20.8%

+11.2%

+16.9%

+12.7%

-0.3%

+10.9%

+2.6%

+20.1%

May

+30.8%

+20.4%

+26.3%

+5.5%

+7.5%

+7.6%

+9.0%

+19.4%

+8.0%

-1.3%

-0.3%

-5.5%

+15.2%

Toronto

Vancouver

November

+0.1%

December

1st

2004

June

+18.5%

+16.1%

+18.1%

+8.0%

+2.8%

+12.1%

+9.2%

+7.8%

+8.6%

+3.0%

+1.7%

-4.3%

+15.9%

2nd Quarter

+26.2%

+18.8%

+24.9%

+8.3%

+6.2%

+13.2%

+9.7%

+14.5%

+9.7%

+0.5%

+3.8%

-2.5%

+16.9%

July

+17.2%

+10.4%

+18.7%

+5.0%

+0.8%

+5.7%

+8.6%

+10.5%

+4.7%

-0.5%

+5.5%

+1.4%

+10.6%

August

+16.0%

+4.9%

+18.1%

+1.9%

+2.2%

+6.2%

+7.4%

+6.9%

-2.0%

-5.9%

+5.4%

+1.5%

+10.1%

September

+16.1%

+11.5%

+13.2%

+13.0%

+6.3%

+7.9%

+8.8%

+8.6%

+8.3%

+12.1%

+5.3%

-0.6%

+13.4%

3rd

+16.5%

+8.7%

+16.7%

+6.2%

+2.9%

+6.6%

+8.2%

+8.6%

+3.3%

+1.1%

+5.4%

+0.8%

+11.2%

October

+14.8%

+7.0%

+10.7%

+10.7%

-4.0%

+11.9%

+1.1%

+3.7%

-1.4%

+9.1%

+7.9%

+1.9%

+18.2%

November

+13.3%

+6.2%

+17.6%

+9.6

+4.7%

+11.4%

+4.4%

+8.3%

+0.3

+5.1%

+8.0%

-11.1%

+9.9%

Quarter

Source: Transport Canada Page 6 January 2005

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NEWS ARTICLES AIR CANADA UPDATE

FUEL PRICES 13 January 2005 SPOT OIL PRICES DROP FUTURES PRICES DECREASE Crude Oil Prices: Spot – US $48.04 (up 6% from December) Futures • 6 month - $46.95 (June 2005 delivery) • 12 month - $44.50 (January 2006 delivery) • 2 year - $41.57 (January 2007 delivery) • 5 year - $37.77 (December 2010 delivery)

Jul y Au g Se ust pte mb er Oc tob No er vem b De er cem b Jan er uar y-0 5

Jan ua ry0 Fe 4 bru ary Ma rch Ap ril Ma y Jun e

US$ per Barrel

Monthly Spot Prices $60.00 $55.00 $50.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00

AIR CANADA TO LAUNCH NON-STOP SERVICE BETWEEN TORONTO AND SEOUL Beginning 1 July 2005, Air Canada will offer non-stop service between Toronto and Seoul three times weekly. The route will be operated with A340-300 aircraft. Currently, Air Canada operates non-stop service from Toronto to three destinations in Asia including Hong Kong, Tokyo and Delhi.

OTHER CANADIAN AIRLINES WESTJET LAUNCHES TORONTOABBOTSFORD SERVICES, INCREASES SERVICES FROM CALGARY TO PALM SPRINGS, SASKATOON AND VANCOUVER Starting 5 February 2005, WestJet will offer daily non-stop service between Toronto and Abbotsford. The airline will also increase service between Calgary and Palm Springs by one flight per week, for a total of three flights per week. The Calgary-Palm Springs service will be operated until 3 April 2005. From 7 February 2005, service between Calgary-Saskatoon and Calgary-Vancouver will each increase by one non-stop flight per day, for a total of 27 and 76 non-stop flights per week respectively.

WESTJET FILES SUIT AGAINST AIR CANADA On 15 December 2004, WestJet announced that it had filed a lawsuit against Air Canada and three of its top executives (present and past), chief executive Robert Milton, vice-president Steve Smith and former vice-president Calin Rovinescu, for abuse of the judicial system. The suit is for C$30 million and alleges the airline was abusing the court in an attempt to demolish the low-cost carrier. Page 7 January 2005

WESTJET CEO ADDED TO AIR CANADA LAWSUIT On 23 December 2004, an Ontario court judge issued an order adding Clive Beddoe, chairman, president and co-founder of WestJet, along with four other WestJet executives, Scott Butler, Donald Bell, William Lamberton, and Brenda Trockstad to Air Canada’s C$220 million lawsuit against the low-cost carrier. The Order also permits Air Canada to file an amended statement of claim.

LONDON AIR RECEIVES FIFTH JET London Air Services, a charter airline owned by the H.Y. Louie Group of London Drugs fame, has taken delivery of its fifth business aircraft, a 9-seat Lear Jet XR45. The Richmond, B.C. based company also announced that it has ordered its first two AB139 helicopters from Bell/Augusta Aerospace.

U.S. & INTERNATIONAL AIRLINES ALOHA FILES FOR CHAPTER 11 The Aloha Airgroup and its subsidiary Aloha Airlines filed for reorganisation under Chapter 11 bankruptcy protection. Despite the company’s efforts at cutting costs, Aloha cited high fuel and operating costs as the main reason it has been unable to remain profitable. The airline will continue to operate flights during its restructuring period. This is the first time in its 58-year history that Aloha has sought bankruptcy protection.

SOUTHWEST GETS GATES, HANGAR FROM ATA Southwest Airlines’ US$117 million bid to acquire six gates and a maintenance hangar at Chicago Midway from ATA was approved by the U.S. Bankruptcy Court. The bid, which includes a total of US$117 million in commitments to ATA and codeshare agreements between the carriers, is still subject to approval by the City of Chicago. InterVISTAS Consulting Inc. Market Intelligence Report ©InterVISTAS Consulting Inc.


NEWS ARTICLES U.S. &INTERNATIONAL AIRLINES – CON’T AIR JAMAICA REVERTS TO GOVERNMENT CONTROL The private group, headed by hotel mogul Gordon Stewart, that owns 78% of Air Jamaica’s shares said that it is pulling out of the airline which has lost US$682 million since the group took over the airline in 1994. The shares will go to the Jamaican Government in a debt swap and the carrier will be recapitalized. The Jamaican Government plans to sell the airline as soon as it is restructured. Air Jamaica’s pilots are among the highest paid in the industry.

STAR ALLIANCE MEMBERS TO COMPARE A350 AND B7E7 The 15 Star Alliance airline members decided to go forward with a complete analysis and comparison of the Boeing 7E7 and Airbus A350. Several airlines may delay orders for the Boeing plane as they wait for the results of the analysis, which will be conducted by experts chosen by the Star Board.

CANADIAN AIRPORTS HALIFAX GETS U.S. PRECLEARANCE The U.S. Government has agreed to extend the Canada-U.S. preclearance program to Halifax International Airport. As soon as the airport’s new preclearance facility is complete, passengers on Halifax-originating scheduled or charter commercial flights will be able to go through U.S. customs, immigration and inspection before they are boarded. Halifax is the eighth Canadian airport to offer preclearance.

Page 8 January 2005

EDMONTON-LAUGHLIN NV ROUTE LAUNCHED SunFest Tours is launching charter service between Laughlin, Nevada and Edmonton International Airport. The flights will operate twice weekly from January to April 2005.

FREDERICTON AIRPORT ANNOUNCES IMPROVEMENTS The MP for Fredericton, Andy Scott, and Fredericton Airport Chairman, Lyle Smith have announced that a number of improvement projects will proceed at Fredericton Airport. The improvement projects will include the expansion of the pre-board security hold area and washroom/drinking water facilities, and the installation of a sprinkler system in the Air Terminal Building. Under the terms of the Fredericton Airport Transfer Agreement, the Government of Canada will contribute C$1 million towards these projects.

RIVIÈRE-ROUGE/MONT-TREMBLANT AIRPORT GOES INTERNATIONAL An amendment to the Canadian Air Transport Security Authority Designation Regulations and improvements in airport safety has allowed Rivière-Rouge/Mont-Tremblant Airport (YFJ) to handle direct international flights from U.S. markets. The amendment allows MontTremblant International airport to be added to the list of designated airports where the Canadian Air Transport Security Authority (CATSA) is required to provide security screening services. Work was done to lengthen and mark the runway, install a permanent lighting system and install marker boards. Mont Tremblant is located 130 km north-west of Montréal.

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NEWS ARTICLES CARGO FEDEX SECOND QUARTER PROFITS UP 289% FedEx Corp. reported a net income of US$354 million for the second quarter ended 30 November 2004. This is a dramatic increase over its $91 million net income in Q2 of the previous year. FedEx said its profits included a one-time charge of $48 million related to the U.S. Department of Transportation’s recent decision to reject the company’s arguments for additional 9/11-related compensation and directing it to repay a portion of the compensation already received.

QANTAS JOINT VENTURE CREATES THAI AIR CARGO Qantas Airways and CTI Holding of Thailand signed a joint venture agreement that establishes Bangkok-based Thai Air Cargo. Qantas will own 49% of the new carrier with the rest owned by CTI Holdings. The cargo carrier will primarily serve Asian sectors within a 5-6 hours flying radius of Bangkok with high-capacity MD-11s. Thai Air Cargo plans to begin operations by mid2005.

AIR CANADA LAUNCHES FRANKFURT CARGO FLIGHTS Air Canada has launched dedicated cargo flights five times per week between Toronto and Frankfurt. The flights are operated on 85-tonne capacity MD-11 freighters leased from Gemini Air Cargo. Air Canada has also started operating a B727 freighter on a TorontoCalgary-Vancouver route through an agreement with Cargojet Airways.

AIR CANADA FLIES CARGO TO SPAIN Air Canada has introduced a weekly cargo flight to Vitoria International Airport in Spain. The carrier is carrying 80 tonnes of fresh fish on a wet-leased MD-11. Page 9 January 2005

DHL TO OPEN NEW CALIFORNIA HUB DHL has announced that it will open a new air/ground hub at March Air Force Base in Riverside, California. The facility, slated to open in October 2005, will be used by both ABX and Astar aircraft and will also remain an operational air force base. Nine flights per day will be operated and eight aircraft will be based at March.

UPS ORDERS 10 A380 FREIGHTERS UPS has placed an order for 10 freighter-version A380 aircraft with options to buy 10 more. Deliveries are expected to start in 2009 with the final aircraft delivered in 2012. Rival FedEx signed a similar deal with Airbus in 2002. The A380 freighter version can carry three decks of cargo across distances that normally would take two or more flights.

AIR CARGO, INC. CEASES OPERATIONS Air Cargo, Inc., a Delaware corporation located in Annapolis, Maryland, ceased operations at the end of December 2004. The company had filed for bankruptcy on 7 December and had closed its logistics airport-to-airport product line on 3 December.

AIRCRAFT MANUFACTURERS BOEING BOOKS 126 7E7 ORDERS The end-of-year total of 126 orders for Boeing’s 7E7 Dreamliner falls short of its target of 200 orders for the aircraft. Continental and Vietnam Airlines ordered a total of 14 7E7s at the end of December. Other airlines that have placed orders include: All Nippon Airways, Air New Zealand, Blue Panorama, First Choice, Primaris and Japan Airlines. Boeing is also rumoured to have rechristened the 7E7 as the 787. No official announcement has been made, as Boeing is reportedly delaying the name change until it can announce a large order from Chinese airlines.

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NEWS ARTICLES AIRCRAFT MANUFACTURERS – CON’T BOEING DELIVERS 285 AIRCRAFT IN 2004 Boeing reported that it delivered 285 aircraft in 2004, 202 of which were from the 737 Next Generation program. The deliveries include 7 aircraft delivered under operating lease. For the fourth quarter of 2004, Boeing delivered 68 planes, one of which was delivered under operating lease.

AIRBUS A350 GETS FIRST MOU Air Europa of Spain became the first customer for Airbus’ proposed A350 aircraft in December 2004. The airline has signed a Memorandum of Understanding (MOU) for 10 A350-800s with options for two more. Air Europa’s A350’s will be able to transport 245 passengers over 8,600 nm (15,900 km) in a three-class configuration. The airline will also lease an A340-200 from Airbus and intends to lease two new A330-200s in the spring of 2006.

AIRBUS DELIVERS 320 NEW AIRCRAFT IN 2004, RECORDS 370 NEW ORDERS Airbus delivered 320 new aircraft in 2004 compared to 305 in 2003. Deliveries included 233 A320 family aircraft, 37 A300600F/A330-200s, and 50 A330-300/A340s. The manufacturer received 370 new firm orders during the year, valued at approximately US$34 billion.

GOVERNMENT/REGULATORY IATA SAYS INDUSTRY PROFITABLE IN 2005

Economist, Bryan Pearce, says that the industry as a whole could break even at fuel prices of $36 per barrel, but at higher levels would continue to incur losses which have accumulated to $35 billion since 2001. Pearce pointed out that were it not for the high cost of fuel, a normal cyclical recovery could have occurred that would have restored profitability following airlines’ efforts to reduce costs.

INDIA WILL ALLOW DOMESTIC AIRLINES TO FLY OVERSEAS ROUTES Until last year, only state-owned Air India and Indian Airlines were allowed to fly on international routes, but following cabinet approval, privately-held domestic airlines can now fly on lucrative international routes, outside from the Gulf countries. This exception is in place for three years to protect the state-owned carriers’ businesses. The Civil Aviation Ministry said that domestic airlines planning to start international flights will need to have been in business for five years and have a fleet of at least 20 aircraft.

AIRPORTS CAPITAL ASSISTANCE PROGRAM TO BE RENEWED The Airports Capital Assistance Program will be renewed to 31 March 2010. The program will provide eligible airports with funding for projects related to safety, asset protection and operating cost reductions. Between April 2005 and 31 March 2010, $190 million will be available, allocated at an average of $38 million per year. Existing criteria for eligibility will be retained, however airports with more than 75,000 annual passengers will now be required to contribute more towards their projects. Since 1 April 1995, the program has provided $298 million for 375 projects at 143 airports.

The International Air Transport Association (IATA) expects the airline industry to make a small profit in 2005, assuming fuel prices do not exceed US$34 per barrel on average. IATA Chief Page 10 January 2005

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NEWS ARTICLES PEOPLE Reg Milley has been selected as the incoming President and Chief Executive Officer of Edmonton Airports. Milley, President and Chief Executive Officer of the Halifax International Airport since 2001 will commence his new role at Edmonton Airports on 1 February 2005 after implementing a strong transition for the Halifax Airport Authority. Warren C. Hurren has been appointed by the Greater Toronto Airports Authority (GTAA) as the new Chairman of the Board effective 1 January 2005. Hurren succeeds Michael Butt, who has served as Chairman since 1997. Aloha Airgroup has named David Banmiller president and CEO of Aloha Airgroup and Aloha Airlines. Banmiller is a former president and CEO of Pan American Airways, Sun Country and Sun Jet, and worked in a number of positions at TWA.

Andres Conesa, Mexico’s deputy secretary for public credit, has left his position to join Cintra, an airline holding company that will join Aeromexico and Mexicana de Aviacion, and is majority owned by the Mexican Government. He replaces Rogelio Gasca, who will continue working as an advisor at Cintra. Kent George, Executive Director of the Pittsburgh International Airport, has been named Chairman of the ACI-NA Board of Directors for 2005. Ben Baldanza has left his position as Executive VP Marketing and Planning at US Airways to become President and COO of Spirit Airlines, effective 24 January 2005. He will be replaced by Bruce Ashby, current Senior VP-Alliances and President of US Airways Bruce Ashby Express.

Bombardier announced the following organisational changes: William J. Fox is stepping down as Senior Vice President, Public Affairs; and Moya Greene is stepping down as Senior Vice President, Operational Effectiveness. Philippe Camus has announced that he will resign as co-CEO of EADS to return full-time to the Lagardère Group. Noel Forgeard, current Airbus chief executive, will become the new French co-CEO of EADS in July 2005, joining his incoming German counterpart, Thomas Enders. Forgeard has requested that his position at Airbus be filled from within the company’s ranks.

Page 11 January 2005

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U.S. INTELLIGENCE REFORM ACT & CANADIAN AIRPORTS 10 January 2005

In the midst of large-scale government re-organisation following 9-11, the structure of intelligence agencies in the U.S. had remained largely unchanged until now. The U.S. National Intelligence Reform Act (NIRA) signed by President George W. Bush on 17 December 2004 heralds a new era for intelligence management. Key changes include the FBI and CIA reporting to a single Director of National Intelligence. While the details of intelligence reforms have largely focused on governance and information management, the Act contains profound implications for transportation and border security.

A Single Registered Traveller Program

Solomon Wong

Until now, Registered Traveller programs included Nexus, INSPASS, SENTRI, CBP-PASS, among others. Typically, these programs provide low-risk expedited passengers with the ability to be processed more quickly at ports-of-entry (land, sea or air). In exchange, passengers are subject to security background checks, as well as provision of some form of biometric identifier. An emerging problem within the Department of Homeland Security and Customs and Border Protection is the lack of interoperability between programs. Nexus participants for the Canada-US border, for example, could not use their status as a pre-approved traveller for the U.S.-Mexican border. Similarly, airports and land border programs are not compatible.

Director, Security & Planning

Registered Traveller will be amalgamated as one program within U.S.-VISIT

However, NIRA calls for a single registered traveller program to be implemented. A progress report on its status is due December 2005. Furthermore, NIRA directs the Department of Homeland Security to join Registered Traveller programs together with U.S.-VISIT -- the platform for entry/exit tracking.

For Preclearance airports in Canada, this signifies important changes to expedited border crossing programs. Nexus-Air, a pilot at Vancouver International Airport, will ultimately be joined together with the fingerprint biometric authentication that has been in place since January 2004.

Review of Travel Document Changes At present, Canadians travelling to the U.S. must be able to establish both identity and citizenship by providing a birth certificate (with driver’s license for photo identification), citizenship certificate or passport. By 2008, the DHS will have a plan to require new documentation to prove citizenship for foreigners -- including Canadians for whom certain provisions have been waived to date. At present, less than half of Canadian citizens (13 million) have passports. Should the U.S. move towards requiring a form of identity other than ones currently accepted, this will require a major reeducation process that will require considerable support from airports and airlines in Canada. Furthermore, still to be defined, is a biometric passport standard that the Canadian Passport Office is anticipated to unveil in 2005. Page 12 January 2005

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U.S. INTELLIGENCE REFORM ACT & CANADIAN AIRPORTS – CON’T Explosive Detection Systems The TSA is mandated to submit to Congress a Strategic Plan on Explosive Detection Systems (EDS) at Airport Screening Checkpoints by March 2005. The Strategic Plan could potentially herald a new round of equipment deployment focused on screening passengers and carry-on bags for explosives with new portal, document scanners and other equipment. While tests have been conducted in Canada on certain new technologies, the implications of new EDS equipment mandated by NIRA could add additional pressure to pre-board screening checkpoints in Canada. Should requirements for EDS be increased, transborder flights in particular could be subject to different processes. Trace Explosive Detection for documents Of particular note is the issue of re-screening of bags connecting in the U.S. In 2001, when the TSA are being tested in Canada. Future U.S. originally received a mandate for 100% EDS, direction on this technology, or larger portal scanners will impact Canadian preCanada pursued a separate track of a multi-level board screening facilities. hold baggage screening system (as discussed in the April 2003 Market Intelligence Report). With equivalency of the systems not engrained at the onset, bags must be re-screened upon arrival in the U.S. from Preclearance airports. Should equivalency not be reached for the passenger pre-board screening for the next generation of EDS deployment, there will be dire consequences for transborder processes if re-screening of passengers is required.

Long Term Impacts of NIRA In the coming months, the impact of NIRA will be pronounced through new and revised programs for border and transportation security. These will need to be assessed for the impacts on existing programs. In particular, the Smart Border Action Plan has passed its fourth year of initiatives since it was signed by Manley/Ridge. A McLellan/Chertoff dialogue is anticipated to continue the positive work of their predecessors. Yet time again shows that at a congressional level, exemptions for Canadians and the "special relationship" between the two countries appears to be an afterthought for legislative and regulatory changes. Airports and air carriers in Canada thus have a role in ensuring that legislative changes such as NIRA do not inadvertently change the landscape for airports in Canada too far away from the interests of facilitation and security.

Page 13 January 2005

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OTTAWA REPORT 11 January 2005

NavCanada Reports September & October Traffic Figures Nav Canada announced traffic figures for September and October 2004, as measured in weighted charging units for enroute, terminal and oceanic air navigation services as compared to the same period in 2003 and in 2000. Traffic for September and October increased by an average of 5.2% and 5.1%, respectively, as compared to the same months in 2003. However, traffic was 1.9% and 2.9% below the September and October 2000 levels. Fiscal year-todate traffic is 5.2% higher than in fiscal year 2003/04 and 2.4% lower than in fiscal year 2000/01.

Sam Barone Regional Vice President Ottawa, ON

Hours of Work for Truckers Finalised Transport Minister Jean-C. Lapierre announced in late December that a consensus had been reached among the key organisations in the Canadian trucking industry on safety rules for inter-provincial commercial vehicle operations. In an effort to make Canadian roads and highways even more safer, key organisations such as Transport Canada, Teamsters Canada and the Canadian Trucking Alliance have agreed on a package of proposed rules that limits commercial vehicle drivers to 13 hours of driving and 14 hours on duty per 24-hour period.

Appointment of Armand Goguen to the Transportation Appeal Tribunal Armand Goguen, of Cocagne, New Brunswick has been appointed as part-time member of the Transportation Appeal Tribunal of Canada. Mr. Goguen had worked at CN Rail for 35 years and has also served as vice-chairman of the New Brunswick Safety Council, director of the Nova Scotia Safety Council, and was a member of the Railway Safety Act Review committee in 1994. Established in June 2003, the Transportation Appeal Tribunal of Canada provides a means of recourse for the air and rail sectors pertaining to administrative decisions and enforcement actions taken under federal legislation.

Open Skies Conference The tenth anniversary of the signing of the Canada-US open skies agreement is Feb. 24, 2005. To celebrate the agreement and to debate next steps in the liberalisation of air policy, the Canadian Airports Council is organising an "Open Skies Forum" to be held in Ottawa on February 23-24. Expected to be in attendance are Transport Minister Jean Lapierre, US Secretary of Transportation Norman Mineta, and Congressman James Oberstar, who has chaired the aviation subcommittee. The forum is sponsored by the CAC, ATAC, The Canadian Industrial Transportation Association and the Van Horne Institute. Further information can be obtained by contacting the CAC.

Page 14 January 2005

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THE WASHINGTON REPORT January 2005

Congress Convened 4 Jan 2005 The 109th Congress convened at noon on 4 January 2005 and began the process of formally organising itself for the two-year period ahead. One of the biggest changes will be the consolidation of homeland security jurisdiction into the Homeland Security Committee. Homeland security had been governed primarily by the House Transportation and Infrastructure Committee (T&I), but now will be a permanent committee in the House of Representatives with jurisdiction over the key functions of the Department of Homeland Security (DHS) and the Transportation Security Administration (TSA). The House Homeland Security Committee will be chaired by Rep. Christopher Cox (R-Calif.).

FAA Unveils Air Traffic Controller Staffing Plan Charles Chambers Senior Vice President InterVISTAS-ga2 Washington, D.C.

The Federal Aviation Administration (FAA) has projected that 11,000 current air traffic control employees (73% of total employees) will be lost in the next ten years due to retirement and other factors. The FAA plans to hire 12,500 controllers over the period to cover the projected losses. This includes a buffer of 1,500 employees to cover higher than normal retirement rates beyond 2014, a 5% training failure rate and expected increases in traffic volume.

DOT Outlines Plan for Future of U.S. Aviation System The U.S. Department of Transportation (DOT), joined by NASA and others, has outlined a plan for the future of the U.S. aviation system. The Integrated National Plan for the Next Generation Air Transportation System covers eight specific areas: airport infrastructure development, security, the air traffic system, information technology, safety management, environmental stewardship, weather forecasting, and global collaboration. Additionally, the development of innovative public-private partnerships is a key component to the entire effort. The Integrated National Plan also includes a framework to deal with new modes of transport such as micro-jets, air taxi services, new commercial aircraft and commercial space vehicles.

U.S. – India Open Skies Talks The United States and India will begin negotiating a new open skies deal on 13 January 2005. The current deal is nearly 50 years old and restricts frequencies, destinations and pricing. The U.S.-India market is 1.5 million travellers per year and is growing quickly. The talks, scheduled for two days at the U.S. State Department, will cover passenger and cargo service. Air India, Delta Air Lines and Northwest Airlines currently fly non-stop between the two countries.

National Transportation Security Strategy Required in Intelligence Reform Bill An intelligence reform bill was passed by Congress and signed by President Bush that requires a national transportation security strategy. Among the list of initiatives, the bill requires advanced prescreening and biometric identification systems to be put in place, the creation of a Privacy and Civil Liberties Oversight Board of private citizens with access to all government agencies, and requires the TSA to develop a biometric standard that can be adopted by other government agencies by 31 March 2005. The TSA must also improve watch lists and create a system for passengers to correct inaccurate no-fly information. Page 15 January 2005

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THE KYOTO COMMITMENT BY ATAC 11 January 2005

ATAC commits! Air transport is claimed to account for between 3% and 9% of green house gas

(GHG) emissions. On 15 November 2004, the Air Transportation Association of Canada committed to an agreement with Transport Canada to reduce GHG emissions by 2012 by 24% relative to the Kyoto baseline. This will require the industry to reduce emissions by 1.1% per annum, beginning this year. This is a significant event, as it is the first industry in Canada to make a Kyoto commitment. It is a trailblazing commitment for the world’s aviation industry.

Air Transport has a lot to be proud of. Why would Canada’s airlines make such a Michael Tretheway Executive Vice President & Chief Economist

commitment? Its simple – the air transport industry has a remarkable record in reducing emissions (as well as noise). Unlike some other transport and industrial sectors, modern aircraft have really cleaned up their act. Few of the younger generation can appreciate just how awful the original jet aircraft were. Noise was orders of magnitude higher, and you could see clouds of black smoke from each of the four engines on the 707s, DC9s and CV880s that took off. Today, simply phasing out older models of aircraft will go a long way toward achieving the Kyoto commitment. Both Air Canada and WestJet are phasing out their 737-200s, and CanJet also has a re-equipment program.

Two categories of emissions. When considering aircraft emissions, there are two categories of

concern. The first are noxious emissions – NOx, SOx and particulates (among others). The second category is greenhouse gas emissions, CO2, which in the past were considered to be harmless, but now are the focus of Kyoto. With regard to the noxious emissions, the UEET program sponsored by the U.S. Federal Aviation Administration has been working on new engine technologies, such as the “twin annular pre-swirl” (TAPS) engine combustor technology, and are achieving significant progress in reducing NOx emissions by 50%. General Electric, one of the new engine suppliers to the 7E7 is already working to transfer new technology to the marketplace for the 7E7. Progress has been so rapid that a new goal of a 70% emissions reduction (from 1996 regulatory maximums) is being developed. For greenhouse gas emissions, apparently the key is reducing the fuel burn of an aircraft. Again, new engine technologies offer much promise with reductions of up to 20% in the works. Simply staying the course on re-equipment will be all the industry needs to meet its goal. This is a collection of information gathered from public sources, such as press releases, media articles, etc., information from Confidential sources, and items heard on the street. Thus some of the information is speculative and may not materialize. Information contained herein is provided for the use of InterVISTAS Consulting Inc. only, and may not be distributed beyond InterVISTAS Consulting Inc. Prepared by InterVISTAS Consulting Inc.

Page 16 January 2005

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CAIR Issue No. 25 - January 2005  

InterVISTAS Canadian aviation intelligence report.

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