CAIR Issue No. 69 - March 2009 by Leah Dupuis

CANADIAN AVIATION INTELLIGENCE REPORT

In this issue… Features Columns: • CEO Update (p.1) • Fuel Price Update (p.2) • Caribbean Report (p.10) • Europe Report (p.11) • Ottawa Report (p.13) • Washington Report (p.14)

Regular Reports: • Airline Data – Canada (p.3) • Airline Data – U.S. (p.4) • Selected Canadian Airport Data (p.5) • News (p.6) • InterVISTAS News (p.16)

CEO UPDATE March 2009

Welcome to the March 2009 edition of InterVISTAS Consulting Inc.’s Canadian Aviation Intelligence Report (CAIR). This month, I would like to share some more exciting news about the InterVISTAS Group.

US-based Innova Aviation completes integration with DHV Group Innova and InterVISTAS to merge U.S.-based Innova Aviation Consulting has joined the DHV Group and Delcan Corporation, strengthening the group’s position in the North American market. NACO (Netherlands Airport Consultants) and the InterVISTAS Group, are now formally joined by Innova to provide integrated services to the aviation sector.

Gerry Bruno President & CEO

Innova’s aviation consultancy activities will be merged into the InterVISTAS Group, which joined the DHV Group and Delcan Corporation in October 2008. The combined skills of Innova, InterVISTAS, Delcan and NACO create an integrated mix of expertise that, to this point, has not been available in the aviation sector. Innova’s entry into the DHV Group expands DHV’s Aviation business unit to 300 highly-skilled and richly-experienced aviation consultants throughout the world. Jim Miller of Innova said, “Becoming a full part of the DHV Group offers us increased opportunities to expand on our strong record of success with renewed energy and vision. Working in closer cooperation with NACO, Delcan and DHV marks the beginning of a new and exciting era in our evolution as an organization and in the breadth and depth of our support to airports, airlines as well as the aviation industry.” “We are pleased and excited to join forces with Innova”, commented Gerry Bruno, CEO of InterVISTAS. “The combination of both companies unites two market leaders. Together, we are uniquely positioned to provide our clients with the most comprehensive set of airport and aviation solutions, particularly with Innova’s expertise in airport privatization, finance and commercial development. The depth of our resources and the breadth of our reach are now stronger than ever.” “This combination of forces is one of the best in our 60 years of existence,” according to Roel Overakker, Director of Aviation at DHV Group. “The aviation projects that Innova and NACO have carried out clearly show the strength of our combined skills and form a solid and inspiring basis for our joint future. This will allow us to provide the strategic assistance our clients will need to get through these tough economic times. Added to the activities of InterVISTAS, which recently joined the Group, I expect turnover to double.” Jim Kerr at Delcan added: “This alliance will create synergies for all members concerned. Delcan sees considerable opportunities for expanding its activities in information technology, intelligent transportation systems, project management and quality management. We are pleased with the added value which is created by this relationship for our clients, industry and the travelers that will benefit from future successes.” More details will follow soon on the merger. I hope you enjoy this month’s publication.

Page 1 March 2009

FUEL PRICE UPDATE April 2009

Crude oil prices at under $50 a barrel… Crude oil prices for near term delivery are currently at $49 per barrel, however, this is up from a low of $39 per barrel in February 2009. Through the past several weeks, crude oil prices have followed the financial markets in a rally during the month of March; however, investor’s are now fearing poor corporate earnings for the first quarter of 2009 and that the U.S. government support for the banking sector may not immediately yield favourable results. The U.S. Energy Information Administration reported that U.S. crude oil stockpiles increased by 1.7 million barrels, which is in the range as estimated by industry analysts. Industry analysts also estimate that crude oil prices will be trading within a tight trading band (prices have fluctuated between $48 and $54 per barrel over the past 3 weeks) until there is a clear change in demand.

…with futures prices at $81 per barrel in 2016 Currently, a futures contract for delivery of crude oil in December 2016 costs $81 per barrel (66% higher than current spot price). The price of this contract is down substantially (42%) compared to the price of the contract if purchased in May 2008, the market peak.

Crude Oil Futures Prices $160

May 2008

$140

$120 Sep 2008 Mar 2008

$100

Oct 2008 Apr 2009

$80

Jan 2009 Crude Oil Futures Prices

$60

Crude Oil Spot Prices

$40

$20

Jan-17

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

$0 Jan-03

Director Special Projects

US $ per Barrel

Doris Mak

Month of Delivery

Page 2 March 2009

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers February 2009 Air Carrier

Passenger Traffic Revenue Passenger Kilometres % Change % Change over 2008 from 2007

Capacity Available Seat Kilometres

Load Factor

% Change over 2008

% Change from 2007

Change over 2008

Change from 2007

Air Canada1

-9.8%

-4.7%

-11.1%

-5.6%

+1.2pts (to 80.7%)

+0.7pts (from 80.0%)

Domestic (Mainline)

-3.8%

+1.5%

-4.4%

+2.2%

+0.5pts

-0.6pts

Jazz

-17.7%

-11.1%

-9.7%

-3.4%

-6.8pts

-6.1pts

International & Charter

-11.9%

-7.0%

-13.4%

-8.3%

+1.4pts

+1.1pts

+5.5%

+25.6%

+5.7%

+25.0%

-0.2pts (to 82.6%)

+0.3pts (from 82.3%)

WestJet

Analysis: •

•

Air Canada Mainline’s domestic sector, which decreased 3.8% in February 2009 over February 2008, contributed to a system-wide decline in passenger traffic of 9.8% in the same period. Domestic capacity (-4.4%) decreased at a greater rate than domestic traffic, resulting in an increase in the carrier’s domestic load factor from 82.6% in February 2008 to 83.1% in February 2009. Air Canada Mainline’s international sector experienced declines in both traffic (-11.9%) and capacity (-13.4%) in February 2009 over February 2008. During the same period, Pacific-region traffic and capacity decreased by 20.7% and 27.1%, respectively, while growth in the “Latin America and Other” region showed signs of slowing down. Traffic and capacity in this region increased by 2.5% and 4.5%, respectively, in February 2009 over the same month last year. WestJet reported a slight decrease in its system-wide load factor of 0.2 percentage points to 82.6% in February 2009 over February 2008. The decreased load factor was due to capacity (+5.7%) growth outpacing passenger traffic (+5.5%) growth in February 2008 over February 2009.

Air Canada Domestic Mainline

10% 8% 6% 4% 2% 0% -2% -4% -6%

Dec- Jan07 08

Feb

Mar

Apr

May June July Aug

Dom RPK

Sep

Oct

Nov

Dom ASK

Dec Jan09

Jazz data is not included in this graph

Air Canada International 10% 5% 0% -5% -10% -15% Dec- Jan- Feb 07 08

Mar

Apr

May June July Aug

Sep

Oct

Nov

Dec Jan- Feb 09

Apr May June July Aug Sep

Oct

Nov

Dec Jan- Feb 09

Int'l RPK

Int'l ASK

WestJet 25% 20% 15% 10% 5% 0% Dec- Jan- Feb 07 08

Mar

RPK

ASK

Air Canada Mainline consists of all Air Canada operations with the exception of Jazz.

Page 3 March 2009

Feb

AIRLINE DATA – U.S. U.S. Airlines Release February 2009 Traffic Figures

Notes:

(RPMs – millions)

(ASMs – millions)

Capacity

Load Factor

1,862 ↓8.3%

2,497 ↓5.5%

74.5% ↓2.3 pts

522 ↓14.1%

800 ↓9.1%

65.20% ↓3.8 pts

5,104 ↓6.0%

7,391 ↓6.5%

69.1% ↑0.5 pts

5,877 ↓13.2%

8,111 ↓8.9%

72.5% ↓3.5 pts

7,659 ↓17.2

10,464 ↓14.0

73.2 ↓1.0 pts

8,626 ↓13.5%

11,669 ↓10.1%

73.9% ↓2.9 pts

7,693 ↓9.2%

10,606 ↓6.2%

72.5% ↓2.4 pts

5,140 ↓13.6%

6,655 ↓10.2%

77.2% ↓3.0 pts

4,043 ↓9.3%

5,238 ↓9.3%

77.2% ↑0.0 pts

1,228 ↓13.6%

1,655 ↓9.1%

74.2% ↓3.9 pts

596 ↓19.9%

810 ↓15.4%

73.6% ↓4.2 pts

Traffic

Airline

1. Mainline operations only. 2. Load factor includes scheduled service only.

Sources: Carrier traffic reports.

Page 4 March 2009

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

Vancouver

January

+4.8%

+9.2%

MontréalTrudeau +4.3%

February

+7.7%

+12.8%

March

+6.2%

Quarter

1st

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+4.9%

+7.6%

+6.4%

+4.4%

+2.2%

+6.1%

+4.5%

+9.2%

-0.3%

St. John’s -2.2%

+9.8%

+7.7%

+10.2%

+8.3%

+7.4%

+8.6%

+7.9%

+10.3%

+9.1%

+8.3%

+4.3%

+8.0%

+2.2%

+8.1%

+8.2%

+6.8%

+4.7%

+20.4%

+2.5%

+0.7%

+19.0%

+15.8%

+5.8%

+6.2%

+9.9%

+5.3%

+6.9%

+8.6%

+7.2%

+5.5%

+11.2%

+5.4%

+5.0%

+12.2%

+7.6%

+2.7%

April

+5.5%

+6.2%

+3.1%

+3.6%

+5.3%

+10.0%

+4.6%

+9.2%

+3.2%

+0.1%

+1.9%

+3.4%

+2.5%

2008

May

+5.1%

+6.7%

+1.4%

+3.1%

+5.9%

+7.6%

-2.1%

+12.1%

+3.3%

+1.0%

+3.5%

+5.3%

+5.2%

June

+6.4%

+5.1%

-2.7%

+2.4%

+5.2%

+8.5%

-1.4%

+6.6%

+7.6%

+0.5%

+6.1%

+2.2%

+6.4%

2nd Quarter

+5.7%

+6.0%

+0.5%

+3.0%

+5.5%

+8.7%

+0.2%

+9.3%

+4.7%

+0.5%

+3.9%

+3.6%

+4.8%

July

+3.0%

+0.7%

-2.1%

+1.9%

+7.2%

+9.1%

-1.4%

-3.9%

+5.6%

+2.7%

+8.8%

-1.5%

+0.3%

August

+3.0%

+0.3%

-0.9%

+1.2%

+4.1%

+9.9%

-4.8%

+2.0%

+6.7%

+4.8%

+8.1%

+6.9%

+3.0%

September

-1.6%

-6.0%

-5.1%

-5.7%

+4.9%

+6.9%

-2.4%

-4.1%

+3.5%

+2.0%

+14.9%

+4.7%

+2.5%

3rd

+1.6%

-1.4%

-2.6%

-0.7%

+5.4%

+8.6%

-2.9%

-1.8%

+5.4%

+3.2%

+10.5%

+3.2%

+1.9%

Quarter

2009

October

-4.8%

-3.2%

-4.0%

-3.2%

+6.1%

+1.0%

-3.7%

-1.0%

+3.5%

+2.4%

+12.3%

+10.3%

+2.7%

November

-3.2%

-5.9%

-4.6%

-0.1%

+2.7%

-5.6%

-1.3%

-8.5%

+3.2%

-1.1%

+7.4%

+0.6%

+4.3%

December

-1.1%

-6.7%

-3.3%

+0.8%

+6.8%

+3.5%

-0.9%

-4.9%

-7.1%

-3.1%

+15.1%

+5.3%

+3.8%

4th Quarter

-3.1%

-5.3%

-4.0%

-0.9%

+5.2%

-0.3%

-2.0%

-4.5%

-0.1%

-0.7%

+11.6%

+5.4%

+3.5%

Full Year

+2.6%

+2.0%

-0.1%

+2.0%

+6.1%

+0.1%

+3.2%

+3.8%

+2.1%

+9.6%

+5.0%

+3.2%

January

-4.0%

-9.6%

-2.7%

-3.8%

-1.7%

-0.9%

+2.4%

-7.5%

+1.1%

-8.8%

+10.5%

+5.9%

-0.6%

Source: Transport Canada and individual airports’ traffic reports. Note: Subject to revision.

Page 5 March 2009

NEWS AIR CANADA UPDATE AIRCRAFT TRANSACTION COMPLETED

On 13 March 2009, Air Canada (AC) completed the sale and leaseback transaction of a single Boeing 777-300ER with the GE Commercial Aviation Services division of the General Electric Capital Corporation (GECC). The 12 year sale and leaseback transaction resulted in funding of US$38 million and completes the full funding under previously announced agreements with GECC, providing AC with total financing of US$193 million. The completed transaction assists AC in securing long-term capital needed for general working capital.

ROVINESCU APPOINTED PRESIDENT & CEO Calin Rovinescu was appointed President and Chief Executive Officer at AC on 1 April 2009, replacing Montie Brewer. Mr. Rovinescu joins AC from Genuity Capital Markets, a Canadian investment bank, where he was a Senior Principal and served on the firm’s Executive and Investment Committees. Prior to co-founding Genuity in 2004, Mr. Rovinescu was Executive Vice President of Corporate Development & Strategy at AC. Mr. Rovinescu has served on the Boards of many public and private corporations, including Emergis, Bellus, Skyservice Business Aviation, among others.

Orlando will operate every Saturday, and both Vancouver-Cabo San Lucas and VancouverMazatlan non-stop services will operate on Saturday and Sunday, respectively. Other nonstop services, such as Edmonton-Puerto Vallarta, Toronto-Punta Cana, and Montréal-Fort Lauderdale, will each operate every Saturday throughout the summer season. All services are scheduled to begin 9 May 2009 and conclude 31 October 2009.

OTHER CANADIAN AIRLINES PORTER ADDS THUNDER BAY SERVICE Toronto-based Porter Airlines announced the introduction of service between Toronto City Centre Airport and Thunder Bay on 19 March 2009. The new service, scheduled to begin 26 June 2009, will operate three flights each weekday and two daily flights on Saturdays and Sundays.

SUNWING REVEALS SUMMER SCHEDULE Sunwing Airlines announced its summer 2009 domestic schedule on 25 February 2009. Services from Toronto include: Vancouver, Charlottetown, Sydney N.S., and Stephenville, Nfld. operating on Mondays and Thursdays; Halifax and Gander operating on Tuesdays and Fridays; Deer Lake, Nfld. operating weekly on Wednesdays; and St. John’s operating daily between Mondays and Fridays. All domestic services will operate between 15 June 2009 and 11 September 2009.

WESTJET UPDATE NEW SERVICES

WestJet announced numerous summer schedule enhancements on 26 February 2009, including non-stop service from major Canadian cities to destinations in Mexico, the Dominican Republic, and Florida. Non-stop service between Calgary and Cabo San Lucas, Puerto Vallarta, Mazatlan, and

Page 6 March 2009

NEWS – CON’T U.S. AIRLINES DELTA CUTS CAPACITY

On 10 March 2009, Delta Air Lines announced that, beginning September 2009, it will cut international capacity by 10%. The planned reductions are targeted in regions with weak revenues, particularly Atlantic and Pacific networks. Compared to 2008, transAtlantic and trans-Pacific capacity during the winter 2009 season will be reduced by 11 – 13% and 12 – 14%, respectively. The recently announced reductions are in addition to the December 2008 announcement to trim system wide capacity in 2009 by 6 – 8%. Delta also publicized that approximately 2,100 employees will voluntarily leave the airliner over the next several months. Specific route reductions and/or eliminations have yet to be announced.

DELTA AND MIDWEST EXPAND ALLIANCE, ENTER CODESHARE

Delta Air Lines and Midwest Airlines agreed to a multi-faceted alliance on 9 March 2009. The original marketing agreement between Midwest and Northwest Airlines, which existed prior to Delta’s acquisition of Northwest, will be expanded to include reciprocity between Delta’s and Midwest’s frequent flyer programs, as well as combined marketing efforts, increased access to airport lounges, and a new codeshare agreement. The new Delta-Midwest agreement is expected to take effect June 2009, replacing the existing Northwest-Midwest codeshare.

SOUTHWEST SETTLES WITH FAA

On 3 March 2009, Southwest Airlines agreed to pay a US$7.5 million fine to the Federal Aviation Administration (FAA) to settle a violation for operating noncompliant aircraft. The 46 Boeing 737 Classics operated

Page 7 March 2009

by Southwest in March 2007 failed to undergo a mandatory inspection for fuselage fatigue cracking. Under the settlement agreement, Southwest could pay an additional US$7.5 million penalty if 13 safety requirements related to personnel, procedures, company organization, and training are not performed.

CARGO AIR FREIGHT CONTINUES DECLINE On 26 February 2009, The International Air Transport Association (IATA) announced a continued collapse in air freight traffic for the first month of 2009. The 23.2% drop in year-on-year demand in January 2009 outpaced the year-onyear drop of 22.6% reported in December 2008 and was the eighth consecutive month of freight traffic contraction. Asia Pacific cargo carriers, which represent 43% of the cargo market, reported a 28.1% decline in January 2009 traffic compared to January 2008, while European and North American carriers reported year-on-year decreases in January 2009 of 23% and 19.3%, respectively. IATA stated that it is too soon to determine whether or not air freight traffic has hit bottom, as production cuts and inventory adjustments may lead to further declines in freight volume.

GROUNDED AIRCRAFT INCREASE AS GLOBAL DEMAND DECREASES

On 25 February 2009, Air Cargo World reported that 11% of the global aircraft fleet, or nearly 2,300 jet airliners, are no longer in operation due to withering global demand. Almost 1,170 of the 2,300 grounded planes were removed from operation in 2008 alone, the highest annual number since 2001. With the 1,000 new aircraft deliveries scheduled to replace older aircraft in 2009, the proportion of fleet grounded by the end of 2009 could reach 13% of the global aircraft fleet, or more than 3,000 idle aircraft.

NEWS – CON’T CARGO – CON’T

PEOPLE IN THE NEWS

EMIRATES SKYCARGO PLANS 2009 EXPANSION

GRIFFITH-JONES APPOINTED VP AT GTAA

On 24 February 2009, Emirates SkyCargo announced plans to expand its cargo services over the next 12 months. The cargo carrier will take delivery of two Boeing 777 freighters and 18 new widebody passenger aircraft that will permit increased bellyhold cargo capacity. The new aircraft, adding over 700 tonnes of cargo to the Emirates fleet, will support the carrier’s 2009 plans to increase the number of flights throughout its network by 14% and grow cargo capacity by 17%.

The Greater Toronto Airports Authority (GTAA) announced the appointment of Pamela Griffith-Jones as Vice President, Chief Marketing and Commercial Development Officer on 24 March 2009. Prior to accepting the position with the GTAA, Ms. Griffith-Jones held senior leadership positions at both the Canadian Tire Corporation and Sears Canada. Ms. Griffith-Jones is a member of the Board of Directors at the Sunnybrook Health Science Centre and has been a board member with Altruvest Charitable Services and the Richard Ivey Alumni Advisory Boards. The appointment is effective 30 March 2009.

AIRPORTS UPDATE TORONTO-DUBAI SERVICE UPGRADE

On 16 March 2009, the Greater Toronto Airports Authority (GTAA) announced that Emirates Airlines will operate the first scheduled A380 route in Canada, effective 1 June 2009. As a result of decreased demand on its service between Dubai and New York, Emirates will replace two of the A380s currently used with smaller Boeing 777s, redirecting one of the aircraft for its Toronto-Dubai route. Toronto Pearson has made investments to upgrade runways, taxiways, aprons, and gates to accommodate larger aircraft such as the Airbus A380.

Page 8 March 2009

JACKSON APPOINTED TO WESTJET BOARD OF DIRECTORS

WestJet announced the immediate appointment of Barry Jackson to its Board of Directors on 24 February 2009. Mr. Jackson is the sitting Chair of TransCanada Corporation, as well as a Director of Nexen Inc. and Laricina Energy Ltd, and the former President, Chief Executive Officer, and Director of Crestar Energy Inc.

JOHNSON NAMED VP AT US AIRWAYS On 10 March 2009, US Airways appointed Stephen L. Johnson as Executive Vice President, Corporate and General Counsel, where he will oversee legal matters, real estate, labour relations, and security functions. Mr. Johnson joined US Airways from Indigo Partners, LLC, a private equity firm that specializes in airline acquisitions and strategic investments. Prior to arriving at Indigo in 2003, Mr. Johnson held various positions at America West Holdings Corporation before its merger with the US Airways Group. The appointment is effective 16 March 2009.

NEWS – CON’T RYANAIR CUTS SERVICES

OTHER VUELING AND CLICKAIR PREPARE FOR MERGER In anticipation of its impending merger, Spanish carriers Vueling Airlines and Clickair began cross-selling domestic and international seats on 3 March 2009. The joint marketing initiative offers customers access to a combined network of over 10 million seats on 89 routes to 45 destinations. Although the European Union approved the merger in January 2009 and both boards signed merger covenants in February 2009, remaining legal and regulatory measures are necessary before the official merger is finalized in June or July of this year. Once complete, the combined Vueling-Clickair entity will have Iberia as its majority shareholder at 40-45%, as the stake of Vueling’s current controlling stakeholder, Inversiones Hemisferio, will be diluted from 28% to 15%.

Ryanair announced on 17 March 2009 that it will reduce operations at Dublin Airport as a result of increased passenger taxes and other price hikes by the Irish Aviation Authority. The Irish low-cost carrier plans to cancel service to Basel, Doncaster, Porto and Durham Tees Valley, and reduce capacity to Aberdeen, Biarritz, Billund, Bournemouth, Carcassonne, Nottingham East Midlands, Malaga and Rome Ciampino in anticipation of the Aviation Authority increasing charges by 12% in summer 2009. Ryanair claims that an earlier price hike contributed to a 12% decline in passengers at the Dublin Airport in February and expects to announce further cuts to its 2009 winter schedule.

LUFTHANSA AND BOMBARDIER INK PURCHASE AGREEMENT

Bombardier Aerospace announced the signing of a purchase agreement by Deutsche Lufthansa AG on 11 March 2009 worth approximately US$1.53 billion. The agreement promises delivery of 30 C-Series model CS100 single-aisle aircraft, with an option to buy an additional 30 aircraft. Lufthansa anticipates the new aircraft to be operated by subsidiary Swiss International Air Lines.

Page 9 March 2009

THE CARIBBEAN REPORT March 2009

USA3000 to resume seasonal Bermuda service USA3000 Airlines announced that the carrier will resume direct service between Bermuda and Baltimore, effective 11 June 2009. The twice-weekly service will extend through the summer to 16 August 2009. USA3000 operates a fleet of 11 A320 aircraft providing service from 13 Midwest and East Coast cities to destinations including Bermuda and other parts of the Caribbean.

Spirit discontinues Grand Cayman service

Jacqueline Clarke Manager, Strategic Development

Spirit Airlines announced that it will cease operations to Grand Cayman. Seasonal service between Fort Lauderdale and Grand Cayman was due to be reinstated in March but the carrier cited the US recession and reduced demand for travel to Caribbean destinations as the reasons for not returning the service. Spirit launched daily service between Fort Lauderdale and Grand Cayman in February 2006, but subsequently scaled back to two flights per week on a seasonal basis.

Runway expansion work complete Work on a 300-meter runway extension at Antigua’s VC Bird International Airport was completed earlier this month. The US$6.6 million project was initiated to comply with the International Civil Aviation Organisation’s (ICAO) requirement for a Runway End Safety Area (RESA).

Winair to cut routes Windward Islands Airways International (Winair) announced that several of its Eastern Caribbean routes will be cut in response to reduced demand for travel. Effective 29 March 2009, Winair will cease service to Dominica, Tortola, St. Kitts and Nevis, and reduce the St. Maarten-Antigua route to a weekly flight. The carrier is in negotiations with several governments in an attempt to secure financial assistance for the affected routes.

Page 10 March 2009

THE EUROPE REPORT March 2009

BAA Ordered to Sell Three UK Airports On 19 March 2009, the UK Competition Commission released its final report on the competitive position of BAA, the UK’s dominant airport operator. In particular, the report considered whether BAA’s ownership of seven UK airports has had an “adverse effect on competition”. BAA, which is owned by Spain’s Grupo Ferrovial, has ownership of London’s three largest airports - Heathrow, Gatwick and Stansted - as well as Glasgow, Edinburgh and Southampton. The report, which is based on a two year study, comes to the none-too-startling conclusion that having the same company own the three major airports serving London may be harmful to competition. This is compounded by the fact that there is little effective airport competition around London and the Southeast of England (Luton and London City provide some limited competition). The report also concludes that having BAA own the two largest airports in Scotland is a hindrance to competition.

Ian Kincaid Director, Economic Analysis InterVISTAS – EU UK Office

In regards to the London airports, the Competition Commission report also concludes that their common ownership may have contributed to a shortage of capacity, due to management attention being divided between the three airports and to the incentive to avoid or defer capacity expansion since any lost traffic would likely be absorbed by one of BAA’s other London airports. The Competition Commission’s final recommendation is to force BAA to sell Gatwick and Stansted airport (to different parties) as well as either Edinburgh or Glasgow (BAA will be allowed to decide which Scottish airport it sells). BAA is required to sell these assets within the next two years. The extent to which these measures will open up competition is a matter of some debate. The Commission’s own report acknowledges that the scope for competition between the three London airports will be limited in the short term by the capacity constraints at all three airports (although there may be some competition for off-peak traffic, particularly between Gatwick and Stansted).2 The report suggests that longer term, there will be greater potential for competition as each airport develops it own approach to capacity expansion. The situation in Scotland is arguably more promising as neither airport suffers from significant capacity constraints. The Commission also recommended changes to the economic regulation of the airports, supporting a licence-based regime allowing flexibility to intervene on issues of performance and financing. It also recommends that the regulation is refocused on promoting effective competition and consumer interests, rather than airport financial performance. While the Commission does not rule out price cap regulation (used currently), it suggests that price cap would only be used as a last resort. It also suggests that consideration be given to the separate operation and development of terminal and airfield facilities (i.e., potential competition between terminals). The UK department for Transport is due to make a decision on airport economic regulation in 2009.

The Commission report also points out that breaking up of the BAA airports could also benefit the economic regulation of the airports (which the Commission recommends continues, albeit with some reforms) since the regulator (the CAA) would be to compare the performance of the separately managed airports.

Page 11 March 2009

THE EUROPE REPORT – CON’T March 2009

The decision by the Commission is considered one of the toughest divestitures ever demanded by the UK government. Analysts estimate the combined value of the three airport sales could total between £3.5 billon and £4 billion. BAA has pre-empted the Commission’s decision by offering up Gatwick for sale (a preliminary Commission report last year indicated that BAA would be forced to sell some of its London airports). BAA has indicated that it will likely not appeal the decision to sell the airports (historically, big companies have been very unsuccessful in overturning Commission decisions), however it may appeal the timing of the divestitures. BAA argues that in the current economic climate, selling three major airports will be impractical, if not impossible. The Commission’s decision has had a knock on effect on the preparations to build a second runway at Stansted. The opening of a public inquiry into BAA’s planning application was delayed recently by ministers because of the uncertainty surrounding the airport’s ownership. This application will likely now commence when the new owners are in place.

CAA Sets Price Controls and Performance Targets at London-Stansted On March 16th, the UK’s Civil Aviation Authority (CAA) announced the next five years of price caps at London Stansted and a new incentive program that identifies tougher operational performance targets at the airport. Following through on its December 2008 proposal, the CAA established a price cap at Stansted for passenger flights beginning in April 2009 and continuing through March 2014. The CAA set the price cap at £6.53 for the first two years of the five-year period, increasing to £6.63, £6.74, and £6.85 in the subsequent three years. Under the newly announced incentive scheme, up to 7% of charges from passengers flights at Stansted could be clawed back if performance standards associated with baggage systems, security queues, and terminal facilities are determined to be inadequate. BAA, Stansted’s owner, could pay up to £10 million per year if poor service is delivered to either passengers or airlines. A similar incentive program at Heathrow and Gatwick has already cost BAA nearly £9 million in the form of rebates to airlines in the fiscal 2008-09 year. CAA indicated that, going forward, it will ensure that its approach to economic regulation meets the challenges of the airport market and passes on to passengers the benefits of greater competition from the sale of Gatwick and Stansted.

EC Proposes Slot Freeze On 12 March 2009, the European Commission (EC) proposed suspending airport slot utilisation provisions for the existing economic crisis, a move that would permit troubled airlines to cut back on services without the risk of losing take-off and landing rights. Current slot allocations in the European Union (EU) are conducted on a season-by-season basis and renewed as long as the slots have been at least 80% filled (i.e., use it or lose it). Under this rule, if carriers are unable to achieve the 80% fill rate, competitive carriers can take over the slots for the following season. The measure proposed by the EC to suspend existing slot provisions would release carriers from maintaining capacity in order to simply keep their slots and instead allow them to adjust capacity as needed without a concern for slot retention. A similar freeze was granted following the terrorist attacks of September 11th, 2001 in the United States. The EC-backed amendment will be sent to the European Parliament and EU member states for what is expected to be urgent adoption.

Page 12 March 2009

THE OTTAWA REPORT March 2009

Government Launches Arrivals Duty Free Consultations On 6 March 2009, Finance Canada launched a consultation process to investigate the possibility of introducing Arrivals Duty Free (ADF) at Canadian international airports. ADF would permit internationally arriving passengers to purchase duty free goods upon their arrival. ADF, currently active in over 50 countries, could provide Canadian international airports with enhanced competitive capabilities and an additional source of non-aeronautical revenues. The current Canadian resident exemption limits (e.g., $750 after seven days outside the country) on duty and tax free goods would not be changed through this process.

Fred Gaspar Regional Vice President, InterVISTAS Ottawa Office

The Consultation process enables all interested parties the opportunity to voice their support and concerns surrounding the enablement of Arrivals Duty Free. At the conclusion of the 60-day consultation process, Finance Canada will review the submissions and announce its decision.

Budget Implementation Act Receives Royal Assent in 45 Days On 12 March 2009, The Budget Implementation Act (Bill C-10) received an accelerated assent through both the House of Commons and the Senate. Prime Minister Harper decided to accelerate the passage of the bill through Senate to activate available funding for 1 April 2009. Harper cited that any delays would cost unemployed workers Employment Insurance payments. Included within Bill C10 are changes to increase the current foreign ownership restrictions in Canadian air carriers from 25% to 49%.

Air Canada Calls on Federal Government for Pension Reform Air Canada, among a group of other organisations including Bell Canada, NavCanada and CN, is calling on the Federal Government to recalibrate how pension payments are made and how deficits are defined. The Federally Regulated Employers - Transportation and Communication (FETCO) organization has already submitted a consultation paper earlier this month to express its concerns. Air Canada, currently burdened by being $3.2 billion below pension solvency, argues this places them at a competitive disadvantage to other carriers such as WestJet (no pension program) and American flag carriers which are subject to more lenient requirements. Current pension requirements could force Air Canada to spend over $800 million in pension payments for 2009 â&#x20AC;&#x201C; up from $456 million last year. Air Canada believes that pension reform will enable companies to focus on capital projects and thus generate economic stimulus.

Bill S-2: Amendments to the Customs Act Update Bill S-2, as reported last month, was introduced before the Senate to amend the Customs Act and has been referred to the Standing Committee on National Security and Defence for study. The referral to the standing committee indicates the positive progress the Bill has received through First and Second readings before the Senate. Bill S-2 proposes changes to the Customs Act that will help to enable many passenger processing innovations related to traffic flows as well as air service and ancillary economic development tools such as transfer departure facilities and a possible Arrivals Duty Free regime, on which the Government of Canada committed to launching consultations in the Budget presented in the House of Commons last month.

Page 13 March 2009

THE WASHINGTON REPORT March 2009

Obama Administration Raises Possibility of User Fee Funding President Obama’s budget proposal for fiscal year 2010 includes some indication that the administration may propose user fees as part of its FAA funding mechanism. President Obama’s proposal indicates that it would replace some aviation taxes with user fees. The Administration is also proposing an increase in passenger security fees. Details regarding both fees have not been clarified. The budget included a surprise in its fine print, noting that the administration “proposes repealing some aviation excise taxes and replacing [them] with direct user charges.” No other details were included. This raises the same user-fee issue that embroiled House and Senate authorizers during the last Congress.

Steve Martin Senior Vice President, InterVISTAS – ga2 Consulting Inc. Washington, D.C.

In the budget for the Department of Homeland Security, the administration said it will increase the passenger security fee from 2012. The White House budget office noted that the current fee captures less than 40 percent of the cost of aviation security. The new budget does not indicate what the total amount of the increase would be, but notes that raising the fees would cover a majority of the estimated costs of passenger and baggage screening.

Stimulus Bill The American Recovery and Reinvestment Act, commonly known as the Stimulus bill, provides a significant amount of funding for transportation projects, but mostly for highways and transit rather than aviation. The law provides $1.1 billion for the Airport Improvement Program and $200 million for FAA activities related to NextGen. The bill also provides $1 billion for DHS to speed up the installation of in-line baggage screening machines at airports. TSA later announced that 17 airports would get the new machines.

Slot Auction Proposal Removed from Public Agenda The proposal to auction slots at the major New York City-area airports as a means to address congestion seems to have come to a close, as the FAA asked a U.S. Court of Appeals to suspend the legal proceeding on the process. The Bush Administration’s FAA had proposed slot auctions at Newark, New York JFK and LaGuardia, but the initiative was blocked by federal courts in December, 2008. A number of organizations – notably the Air Transport Association and the Port Authority of New York and New Jersey -- had protested against it, in and out of court. The congressional audit agency, the Government Accountability Office, had also opined that the FAA did not have the right to auction the slots. The Port Authority of New York and New Jersey said they would block any flights that were operating with auctioned slots. FAA asked the Court to suspend proceedings, saying "it is inappropriate to put the court and the parties to the burden of briefing the complex issues in the case until a decision on whether to withdraw the rules is made."

Page 14 March 2009

THE WASHINGTON REPORT – CON’T March 2009

EPA Hints at Emissions Registry On 10 March 2009, the U.S. Environmental Protection Agency (EPA) proposed a national reporting system for carbon dioxide and other greenhouse gas emissions. Originally proposed in a 2007 energy bill, the registry is funded in President Obama’s 2010 Budget and would lay the groundwork for regulating greenhouse gas emissions of major emitters. Under the proposed registry, new reporting requirements would affect suppliers of fossil fuels and industrial chemicals, motor vehicle and engine manufacturers, and large direct emitters of greenhouse gases with emissions greater than 25,000 metric tons per year. The EPA estimates that around 13,000 facilities that account for 85% to 90% of greenhouse gas emissions would be included in the national reporting system. Businesses would be required to report to the EPA in 2011 for 2010 calendar year emissions and are expected to pay approximately $160 million in the first year to comply with reporting requirements and about $127 million in subsequent years. Although numerous business groups oppose government regulation of greenhouse gas emissions, the EPA is prepared to issue an endangerment finding that would signal carbon dioxide as a danger to the public, as well as trigger regulation.

FAA Announces Changes to Safety Agency Lynne A. Osmus, Acting Administrator at the Federal Aviation Administration (FAA) announced the appointment of several personnel to the agency on 5 March 2009. Among the designees were former Deputy Assistant Administrator for Aviation Safety Peggy Gilligan, who was named Associate Administrator for Aviation Safety, and former FAA Director of Aircraft Certification Service John Hickey, who will replace Gilligan as Deputy Assistant Administrator for Aviation Safety. Other changes at the FAA include: Dorenda Baker, Deputy Director of Aircraft Certification Service; Kalene Yanamura, Deputy Director of Aircraft Certification Service; John Allen, Director of the Flight Standards Service; John McGraw, Deputy Director for Flight Standards Policy; Doug Dalbey, Deputy Director for Field Operations for the Flight Standards Service; Tina Amereihn, Director of the Office of Quality, Integration and Executive Services; and Hooper Harris, Acting Director of the Office of Accident Investigation.

LaHood Announces First Recipient of Infrastructure Funding On 12 March 2009, United States Secretary of Transportation Ray LaHood announced the first allocation of funds under the American Recovery and Reinvestment Act of 2009. Under the Act, the Federal Aviation Administration was apportioned US$1 billion to allocate among qualified airports that need infrastructure upgrades, additional airport safety and security, runway improvements, increased capacity initiatives, and environmental impact mitigation. The Pittsburgh International Airport will be the first recipient of FAA funding, to the tune of US$10 million, for runway repairs that include grading, paving, marking signs, and upgrading runway lighting. An additional $US2 million will be allocated to neighbouring general aviation airport Allegheny County for taxiway renovations and ramp relocation. Approximately 3,400 airports are eligible to receive funding from the FAA under the Recovery Act, which requires that half of the allocated funds be obligated within 120 days, or 17 June 2009. The Obama administration is confident that the capital airport upgrades will boost local economies by creating jobs in surrounding communities, while investing in long-term safety and economic vitality.

Page 15 March 2009

INTERVISTAS NEWS Roger Sellick Joins InterVISTAS InterVISTAS is pleased to announce that Roger Sellick has joined InterVISTAS as an Executive Consultant. Mr. Sellick has over 40 years experience with both the federal and municipal levels of government in Vancouver, Calgary and Kelowna, and recently served as Airport General Manager at the Kelowna International Airport for 28 years. Mr. Sellick currently serves on the Board of Directors of the North West Chapter of the American Association of Airport Executives, the International Association of Airport Executives, the Central Okanagan Economic Development Commission and Tourism Kelowna. Mr. Sellick was recently elected Vice President of Tourism Kelowna and is a past president of the Northwest Chapter of the American Association of Airport Executives. From 1998 to 2005, Mr. Sellick served on the Board of Directors of the Canadian Airports Council where he chaired the association’s Small Airports Committee and was appointed to a three year term in 2006 on the British Columbia Institute of Technology Airport Operations Program Advisory Committee.

Kevin Schorr Joins InterVISTAS’ Washington, D.C. Office InterVISTAS is pleased to announce that Kevin Schorr has joined InterVISTAS as Vice President, Air Service Development in the Washington, D.C. office. Mr. Schorr’s most recent role was as Associate & Assistant Vice President at TranSystems | Campbell-Hill Aviation. Prior to joining TranSystems | Campbell-Hill Aviation, Mr. Schorr was a Consultant with Ernst & Young LLP; Director of Domestic Strategies and Alliances at TWA, and Consultant with PA Consulting, Inc. Mr. Schorr has an Masters of Business Administration, a Masters of Science in Engineering and a Bachelors of Science Civil Engineering, all from Washington University in St. Louis.

Jacqueline Kuehnel joins InterVISTAS InterVISTAS is pleased to announce that Jacqueline Kuehnel has joined InterVISTAS as an Associate Consultant with the Environmental Services department. Ms. Kuehnel has been a travel industry executive for 25 years and has extensive experience with advising tour operators, airlines, destinations, hotels, resorts and environmental organizations in product development, business strategies and sustainability. Ms. Kuehnel is a regular lecturer at Ryerson University and the University of Waterloo on tourism, climate change and corporate social responsibility.

Gustavo Frigo Joins InterVISTAS’ Vancouver Office InterVISTAS is pleased to announce that Gustavo Frigo has joined InterVISTAS as a Project Analyst with the Market Information Services department in Vancouver. Mr. Frigo has a Bachelors of Science in Computing Science specializing in database technologies from Simon Fraser University (SFU) and will complete a Master’s degree in Computer Science in April 2009, also from SFU. Mr. Frigo has a wealth of experience developing software both as an employee and as a consultant and will be a key contributor in other areas of InterVISTAS.

Page 16 March 2009

INTERVISTAS NEWS – CON’T Dr. Mike Tretheway Reappointed Adjunct Professor at UBC The University of British Columbia (UBC) reappointed Dr. Mike Tretheway as Adjunct Professor in the Operations and Logistics Division of the Sauder School of Business. Dr. Tretheway served as a tenured professor at UBC’s Sauder School of Business from 1983-1996. The reappointment is through to 2011.

InterVISTAS Upcoming Speaking Engagements Dr. Mike Tretheway, Executive Vice President, Chief Economist • Canadian Airports Council Conference: Ottawa, ON – 30 April 2009. Dr. Tretheway will chair a session titled “The Future of the International Airline Sector”. Dr. Joe Kelly, Director, Environmental Services • International Association of Assembly Managers: Vancouver, BC – 24-27 April 2009. Dr. Kelly will be delivering a presentation titled “Sustainable Event Planning”. Nigel Brownlow, Vice President, Commercial Intelligence • Airline Information – Ancillary Revenue and Frequent Flier Programs: Los Angeles, CA – 22-23 October 2009. Mr. Brownlow will be delivering a presentation titled “Integrating Ancillary Revenue and Revenue Management” and will be participating in a panel discussion on the integration of Frequent Flyer Programs and Ancillary Revenue objectives. Karla Petri, Manager, Economic & Financial Analysis • Meeting Planner's International: National Industry Meeting's Day: Winnipeg, MB – 16 April 2009. Ms. Petri will be delivering a presentation titled “Carbon Foot Printing 101: What is it? Who is doing it?”

InterVISTAS’ Canadian Aviation Intelligence Report 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 materialise. To inquire about advertising opportunities or to provide comments/feedback on the InterVISTAS’ Canadian Aviation Intelligence Report, please contact Robert Andriulaitis at robert_andriulaitis@intervistas.com or 1-604-717-1807. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com

Page 17 March 2009