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IVC MARKET INTELLIGENCE REPORT

6


WHY THE HIGH COST OF FUEL? 14 April 2004

The price of crude oil rises close to $40/barrel in mid March… In recent months, oil prices have continued to increase to a high above $38/barrel on 17 March, before settling down to $36.68/barrel on 14 April. A year ago, oil prices spiked to similar levels due to the war in Iraq. The following factors have contributed to the current rise in oil prices: Recent OPEC Output Cuts In February of this year, OPEC announced that member countries were again reducing their output quotas by 1.5 million barrels per day (bpd). On 1 April, OPEC members agreed to cut a further 1 million bpd to reduce the effect of the seasonal downturn in demand during the second quarter. However, it is apparent that only Saudi Arabia has adhered to the reduced output quotas while other OPEC countries have continued to produce above the quota. Therefore, planned OPEC production cuts are not likely a contributing factor to the current high price of oil.

Increased Speculation from Energy Traders The recent oil price run-up may also be due in part to increased speculation by energy traders. The increased trading in oil could be due to poor investment options currently available, as interest rates are still at low levels and the stock market has not performed well of late. As more buyers enter the oil market, prices are destined to remain at high levels.

…Somewhat lower oil prices expected in the future, but futures prices are now higher than a few months ago The futures market shows that the price of crude oil will remain above the $30 per barrel range until late 2006 and then decrease to $28 per barrel thereafter. As of 14 April 2004, the a barrel of crude oil for delivery in November 2005 cost $31.21 compared to a futures price of $26.89 as quoted in the February Industry Review. In the span of two months, futures prices have risen 16%. Crude Oil Spot & Futures Prices As of April 14, 2004 40 35 30 25 20

Spot Prices

Futures Prices Decreasing

15 10

Dec-09

Dec-07

Jul-06

Sep-06

May-06

Jan-06

Mar-06

Nov-05

Jul-05

Sep-05

May-05

Jan-05

Mar-05

Nov-04

Jul-04

Sep-04

May-04

Jan-04

Mar-04

Nov-03

Jul-03

Sep-03

Jan-03

0

May-03

5

Mar-03

Senior Market Analyst

IEA Forecast Shows Rise in Oil Consumption The International Energy Agency (IEA) has forecasted that world oil consumption will rise faster than expected in 2004. Unexpectedly strong demand is likely what is driving the high price of oil. The IEA predicts that global gasoline consumption will rise by 1.7 million bpd to almost 80.3 million barrels daily, the largest increase since 1997. The two forces impacting the increase in oil consumption are the recovery of the U.S. economy and the increase in oil demand in China. In 2003, China surpassed Japan as the second-largest oil consumer, after the U.S., mainly due to rising automobile sales and the increased use of oil to power manufacturing plants. The IEA predicts that the Chinese demand will increase by 13% this year to 6.2 million bpd.

US$/Barrel

Doris Mak

Month of Delivery

Page 1 April 2004

InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.


CANADIAN CARRIERS’ SHARE OF DOMESTIC SEAT CAPACITY 14 April 2004

Air Canada In 2004, the Air Canada family (including Jazz and Zip) is offering 61% of Canada’s domestic seat capacity, with 25 million seats. Jazz and Zip have 18% and 5% of domestic seat capacity respectively. Combined, Jazz and Zip account for a total of 9 million seats, or 38% of Air Canada’s total domestic capacity offering.

Low Cost Carriers and Domestic Charter Services

Eugene Chu Project Analyst

Low cost carriers, which include WestJet, Jetsgo, and CanJet Airlines make up 26% of domestic seat capacity in 2004. Combined, the three carriers are providing 11 million seats. These carriers are continuing to expand their seat capacity. For example, Jetsgo has recently announced the launch of hourly weekday (7am-7pm) Toronto-Montreal shuttle services starting 19 April. Canadian charter operators such as Air Transat and Skyservice Airlines account for 1% of domestic seat capacity. Combined, low cost carriers and domestic charter services make up 27% of domestic seat capacity in Canada.

Other Airlines Other airlines, which are mainly small regional operations such as Air North, Hawkair, and Pacific Coastal Airlines, make up the remaining 12% of domestic seat capacity in Canada.

Share of Domestic Capacity 12% 1% 38% 26%

5%

Air Canada Jazz Zip LCCs Domestic Charter Other Airlines

18%

Source: OAG, April 2004

Page 2 April 2004

InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.


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

Air Carrier Air Canada1

OTHER CARRIERS: LOAD FACTORS Jetsgo:

76.2% (Mar)

Zip:

not reported

CanJet:

not reported

Revenue Passenger Kilometres

Capacity

% Change % Change % Change % Change % Change % Change over 2003 from 2002 over 2003 from 2002 over 2003 from 2002 +2.0 pts +6.6% -4.2% +3.8% -2.0% -1.8 pts (to 76.3%)

Domestic (Mainline)

+6.9%

-6.2%

+1.7%

-5.7%

Jazz

+8.3%

+9.1%

+5.4%

-2.9%

International & Charter

+6.4%

-3.4%

+4.7%

-0.3%

WestJet

+31.5%

+96.4%

+29.8%

+105.2%

Jetsgo

+169.8%

N/A

+160.8%

N/A

Analysis: §

§

Load Factor

Available Seat Kilometres

Air Canada's domestic and international traffic each recorded their second month of year over year growth. In large part this reflects recovery from the SARS crisis and Iraq war one year ago. However, the traffic recovery still has some ground to cover. While March 2004 traffic increased by roughly 9% relative to a year ago, March 2003 had dropped by just over 10% relative to 2002. For the sixth consecutive month, WestJet’s growth in traffic exceeded the increase in capacity. The carrier’s load factor increased slightly to 67.7%.

+3.7 pts (to 75.6%) +1.6 pts (to 61.8%) +1.3 pts (to 76.6%)

-0.4 pts +6.8 pts -2.4 pts

+0.9 pts (to 67.7%) +2.6 pts (to 76.2%)

-3.1 pts N/A

Air Canada Domestic Mainline 15% 10% 5% 0% -5% -10% -15% -20% -25%

Jazz data is not included in this graph

Mar- Apr May 03

Jun

Jul

Aug Sep

Dom RPK

Oct Nov

Dec

Dom ASK

Jan- Feb 04

Mar

Air Canada International 20% 10% 0% -10% -20% -30% -40%

Mar03

Apr May

Jun

Jul

Aug

Int'l RPK

Sep

Oct

Int'l ASK

Nov Dec Jan- Feb 04

Mar

Nov

Mar

WestJet 70% 60% 50% 40% 30% 20% 10% 0% Mar- Apr 03

May

Jun

Jul

Aug Sep

RPK

Oct

Dec Jan- Feb 04

ASK

Air Canada Mainline consists of all Air Canada with the exception of Jazz. Page 3 InterVISTAS Market Intelligence Report April 2004 ©InterVISTAS Consulting Inc. 1


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

Load Factor 75.1 %

11,072

14,734

á 3.6 pts

á 10.9%

á 5.6%

67.6%

504

743

á 5.6pts

á 31.0%

á 20.2%

73.9 %

1,348

1,952

â 2.6 pts

á 5.2%

á 3.8%

75.8%

5,438

7,174

á 4.2 pts

á 10.7%

á 4.5%

75.5%

9,058

11,992

á 3.2 pts

á 9.5%

á 4.7%

83.4%

1,239

1,485

á 1.1 pts

á 38.6%

á 36.6%

81.6%

6,307

7,734

á 6.1 pts

á 5.3%

â 2.6%

73.6%

4,676

6,352

á 6.3 pts

á 15.2%

á 5.4%

80.1%

9,697

12,099

á 6.4 pts

á 10.3%

á 1.5%

77.5%

3,475

4,485

á 4.1 pts

á 8.5%

á 2.7%

2

1

2

2

Notes:

Traffic Capacity (RPMs – millions) (ASMs – millions)

1.

Mainline

2.

Load factor includes scheduled service only

Sources: Carrier traffic reports.

Page 4 April 2004

InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.


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

+5.7% +4.6% +0.4% +3.4% -15.1% -17.3% -9.0% -13.7% -6.0% -7.6% -5.9% -6.6% -2.3% +0.1% +1.9% -0.1% -4.6% +1.6%

+2.8% -0.6% -1.4% +0.2% -13.6% -13.2% -9.8% -12.1% -4.5% -1.2% -3.0% -2.8% -3.1% +2.2% +2.8% -0.5% -3.7% +1.5%

February

+7.9%

+7.9%

+20.1%

2003 2004

Page 5 April 2004

Vancouver

Calgary +6.3% +5.6% +3.7% +5.2% +1.6% -1.4% +1.9% +0.7% +4.7% +1.4% -1.8% +1.6% -0.7% +8.0% +5.4% +3.9% +2.7% +4.2% +5.8%

Edmonton

Kelowna

Saskatoon

Regina

+2.9% +7.5% +0.2% +3.3% -0.9% +0.4% +0.6% +0.0% +11.9% +9.8% +10.8% +10.8% +15.4% +13.7% +16.1% +15.6% +7.3% +12.4%

+4.0% +2.0% +5.0% +3.7% -0.6% -1.0% -0.5% -0.7% +5.0% +0.5% -0.7% +1.7% +1.1% +9.6% +9.1% +6.6% +2.9% +5.9%

+6.8% +6.0% -3.7% +3.1% -3.9% -5.3% +1.4% -2.6% +1.2% -4.8% -2.4% -2.0% -1.7% -0.3% +0.8% -0.4% -0.5% -1.8%

-0.3% +8.8% -4.2% +1.3% -1.6% -1.6% +7.0% +1.3% +4.7% -2.2% -0.2% +0.7% -1.3% +19.8% +2.0% +6.33% +2.4% +8.3%

St. John’s -5.8% -2.0% -3.1% -3.7% -1.7% +4.5% +17.8% +7.1% +21.1% +22.5% +12.3% +19.0% +9.4% +9.4% +13.9% +10.8% +9.4% +12.8%

+11.4%

+11.6%

+7.8%

+2.8%

+19.8%

Ottawa

Winnipeg

Halifax

Victoria

+3.5% +3.0% -0.4% +2.0% +1.1% -5.3% -0.4% -1.6% +2.5% +0.3% +8.6% +3.4% +10.4% +7.2% +4.9% +7.4% +2.9% +8.1%

+6.2% +3.9% +2.2% +4.0% -7.6% -1.5% +2.5% -2.1% +3.0% -7.0% +1.6% -0.9% +1.4% +6.5% +6.0% +4.5% +1.3% +3.5%

+13.0% +12.7% +5.1% +10.1% +4.4% -0.5% +5.0% +3.0% +3.7% +0.4% +1.5% +1.8% +7.4% +5.8% +6.0% +6.4% +5.1% +6.5%

+4.5% +13.8 N/A +10.0% +6.1% -1.2% +4.1% +2.9% +5.7% +4.1% -0.6% +3.3% +2.5% -0.05% +2.9% +1.9% +4.2% +3.2%

+10.5%

+13.9%

+11.5%

+5.6%

CANADIAN A IRPORTS

January February March 1st Quarter April May June 2nd Quarter July August September 3rd Quarter October November December 4th Quarter Full Year January

MontréalTrudeau +6.0% +0.4% +0.1% +2.1% -+9.0% -7.4% -0.7% -5.5% +3.0% +2.0% +2.3% +2.4% +2.7% +9.0% +8.5% +6.4% +1.3% +10.7%

Toronto

InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.


NEWS ARTICLES AIR CANADA UPDATE AIR CANADA REPORTS $1.9 BILLION LOSS FOR 2003 FUEL PRICES 15 April 2004 SPOT OIL PRICES CONTINUE TO INCREASE FUTURES PRICES INCREASE Crude Oil Prices: Spot – US$37.57 (up 3.8% from March) Futures •

6 month - $36.24 (August 2004 delivery)

12 month -$33.39 (March 2005 delivery)

2 year - $30.74 (March 2006 delivery)

5 year - $28.44 (December 2009 delivery) Monthly Monthly Spot Prices Prices $40.00

US$ per Barrel

$35.00 $30.00

Air Canada reported a record net loss of $1.9 billion for the year ended 31 December 2003. This includes $1.1 billion in restructuring and reorganisation expenses. Passenger revenue decreased by 16% year over year to $6.8 billion. The carrier had a cash balance of $910 million as of 1 April 2004.

AIR CANADA TO PURSUE ALTERNATIVES TO TRINITY INVESTMENT

Air Canada’s equity investor, Trinity Time Investments, announced that it will not extend its investment agreement beyond 30 April 2004. As a result, the carrier has begun to pursue alternative equity financing arrangements. Trinity stated that investment in Air Canada is still possible if circumstances related to pensions change sufficiently.

COURT APPROVES EXTENSION OF AIR CANADA’S BANKRUPTCY PROTECTION

The Ontario Superior Court overseeing Air Canada’s bankruptcy protection has extended the carrier’s stay under creditor protection to 21 May. The original stay period expired on 1 April.

$25.00 $20.00 $15.00 Apr- May Jun Jul Aug Sep Oct Nov Dec Jan- Feb Mar Apr 03 04

CHIEF RESTRUCTURING OFFICER CALIN ROVINESCU RESIGNS

Air Canada announced that Calin Rovinescu, Executive Vice President and Chief Restructuring Officer, has resigned as of 7 April. Mr. Rovinescu’s responsibilities will be handled by CEO Robert Milton, Paul Brotto, Executive Vice President of Planning & Cost Management, and Ernst & Young, the court appointed monitor overseeing Air Canada’s restructuring.

Page 6 April 2004

AIR CANADA FILES CLAIM AGAINST WESTJET

Air Canada has filed a statement of claim against WestJet with the Ontario Superior Court of Justice. The carrier claims that WestJet and two of its employees illegally accessed confidential data about Air Canada through an employee website that contained information about the carrier’s passenger traffic, and routeby-route load factors.

GTAA IN DISPUTE WITH AIR CANADA OVER TERMINAL TWO GATES

The Greater Toronto Airports Authority (GTAA) has filed a motion against Air Canada to force the carrier to relinquish three gates in Terminal Two. The GTAA states that Air Canada had agreed to vacate all 22 gates in Terminal Two once it moved its operations to the new Terminal One. However, the carrier has informed the GTAA that it would only relinquish 19 gates. The filing states that 12 of the 22 gates are to be demolished when the second phase of the airport expansion begins, while the remaining 10 gates will be common use.

AIR CANADA CHANGES AIRBUS ORDERS

Air Canada has received court approval to purchase two ultra-long range A340-500s, while cancelling two Airbus A321 deliveries. The delivery of three A340-600s will be deferred to 2010.

AIR CANADA INCREASES FARES

Air Canada has increased fares for travel on Air Canada, Jazz, Zip and Air Canada codeshare flights, stating higher fuel prices as the cause. The carrier is increasing fares by $10 each way on short haul (up to 1286km) flights within North America, $15 each way on long haul flights within North America (1286km and over), and $20 each way on international flights to and from Canada. The fare increase on international flights is subject to regulatory approval from the Canadian Transportation Agency. Air Canada incorporated its fuel surcharge into its base fare in January 2004. InterVISTAS Market Intelligence Report ©InterVISTAS Consulting Inc.


NEWS ARTICLES AIR CANADA BOOSTS LATIN AMERICA SERVICE

Starting in June 2004, Air Canada will begin non-stop flights between Toronto and Caracas, Venezuela, and Bogotá, Colombia three times weekly. Service between Toronto and Lima, Peru will be launched in November 2004, three times per week. In addition, Air Canada will boost its non-stop service between Toronto and Havana, Cuba to daily services starting 1 July.

ZIP TO LAUNCH REGINA SERVICE

Zip will introduce daily nonstop services from Regina to Vancouver and Calgary starting 5 July.

AIR CANADA OFFERS OTTAWAMONTREAL-TORONTO PASS

Air Canada has launched a discount pass aimed at business travellers in the Toronto-MontrealOttawa triangle. The pass will allow users to purchase 10 or 20 one-way ticket vouchers at a discount of up to 25% on the Latitude air fare class. The pass also includes free upgrades to business class if space is available and up to 50,000 Aeroplan points for signing up by a certain date.

OTHER CANADIAN AIRLINES WESTJET PLANS STOCK SPLIT

WestJet Airlines will propose a three-for-two stock split to its shareholders at the company’s annual general meeting on 28 April. If approved, the carrier’s shares would begin trading on a split basis on 5 May. WestJet’s shares have risen five-fold since the carrier went public in 1999 and have been split twice: in February 2000 and February 2002.

FIDELITY INVESTS $25 MILLION IN JETSGO

Boston-based Fidelity Investments has invested C$25 million in Jetsgo, acquiring 2.5 million shares of the carrier at $10 per share. Page 7 April 2004

JETSGO TO LAUNCH QUEBEC CITY FLIGHTS

Starting 25 June, Jetsgo will introduce daily non-stop service between Toronto and Quebec City. A second weekday flight and weekend service will be introduced in the fall.

JETSGO TO ADD TORONTO-LAX, BOOST SERVICE Jetsgo will launch a three per week Toronto-Los Angeles year-round service on 30 July. The carrier will also boost service on their TorontoNew York (EWR) route, adding a Saturday flight on 26 June, and a Sunday flight on 1 Aug. The carrier currently operates three daily weekday flights on the route.

JETSGO LAUNCHES TORONTOMONTRÉAL SHUTTLE

Starting 19 April, Jetsgo will launch a discount shuttle service between Toronto and Montréal. The service will be operated weekdays every hour on the hour from 7a.m. to 7p.m, for a total of 12 daily flights each way. During July and August, the frequency will decrease to eight daily flights each way, with the full schedule reinstated on 7 September.

JETSGO INCREASES VANCOUVER SERVICE

On 3 May, Jetsgo will launch its third daily flight between Vancouver and Toronto. The new morning flight will connect with the carrier’s recently announced Toronto-Montréal shuttle service.

HMY TO LAUNCH HAWAII SERVICE

Starting 25 June, Vancouver-based HMY Airways will operate three weekly flights between Vancouver and Honolulu, and one flight per week between Vancouver and Maui. During the winter peak season, starting 12 December, the Honolulu service will be offered daily while the Maui flights will be operated three times weekly.

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NEWS ARTICLES CANJET TO LAUNCH ORLANDO SERVICE FROM HAMILTON

CanJet will launch weekly Saturday services between Hamilton International Airport and Orlando, Florida starting 19 June. The flights will be operated with Boeing 737 aircraft.

ZOOM AIRLINES TO LAUNCH PARIS SERVICE FROM TORONTO AND MONTRÉAL

Ottawa based Zoom Airlines will launch two weekly flights from both Toronto and Montréal to Paris Charles de Gaulle International Airport, starting in June 2004. The service will be operated with B767-300 aircraft.

TRANSAT COMPLETES JONVIEW ACQUISITION

Transat A.T., parent company of Air Transat, has completed the acquisition of the remaining 50% of the Jonview Corporation in partnership with Solidarity Fund QFL. Transat A.T. will invest $9.1 million for 80% ownership of the tour operator. Jonview designs Canadian vacation products sold to tour operators in Europe, South America, Australia, New Zealand, and Asia.

U.S. AND INTERNATIONAL AIRLINES SPIRIT ORDERS 35 AIRBUS AIRCRAFT

Spirit Airlines has placed a firm order for six A321s and 29 A319s, with options for an additional 60 Airbus aircraft. The carrier currently has a fleet of 32 MD-80s, which will be replaced when the Airbus deliveries begin in March 2005.

Page 8 April 2004

EMIRATES TO LAUNCH DUBAI-NEW YORK FLIGHTS

Emirates will launch daily non-stop service between Dubai and New York Kennedy International Airport on 1 June. The flight will be operated with A340-500s.

BANKRUPTCY COURT ISSUES JUDGEMENT ON UNITED AIRLINES SPECIAL FACILITIES LEASES

On 30 March 2004, the Bankruptcy Court for the Northern District of Illinois issued a decision regarding the dispute in the United Airlines bankruptcy process concerning the characterisation of bonds issued to finance construction of airport improvements to benefit United Airlines at SFO, JFK, LAX and DEN. The court ruled that as to the first three airports, the relationship could be characterised as a mortgage rather than as a lease. At Denver, the court concluded that the applicable agreements should be treated as a lease. The distinction is important because if United is treated as a mortgagor, according to the court it may retain the property by paying the mortgagee no more than the current value of the property; any additional amounts owing on the mortgage are treated as an unsecured claim.

CANADIAN AIRPORTS TORONTO PEARSON AIRPORT OPENS NEW TERMINAL ONE

The Toronto Pearson International Airport opened its new Terminal One for operations on 6 April. The new $3.6 billion terminal will replace the old Terminal One. The facility will eventually be expanded to double the airport’s capacity by 2015. In 2003, the Toronto airport handled 24.7 million passengers.

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NEWS ARTICLES REGULATORY/GOVERNMENT CANADA AND RUSSIA RESOLVE AIRSPACE RIGHTS, SIGN AGREEMENT

Canada and Russia have signed a new bilateral agreement allowing for more flexibility for airlines of both countries. The agreement defines permitted destination countries and overall frequency of overflights. A dispute involving overflight rights stalled talks late last year, with both countries restricting each other’s airlines from entering their respective airspace.

U.S. PENSION RELIEF BILL LEAVES OUT LOW-COST AIRLINES

The U.S. senate passed a pension relief act which will help legacy carriers with traditional, defined benefit plans save US$1.3 billion in pension payouts over two years. Small and lowcost airlines, who do not qualify for the pension relief, object to the payout, saying that the large airlines could use it to gain a competitive advantage. Other opponents to the bill are concerned that it only defers the pension shortfall the larger airlines are facing. The carriers eventually have to cover the shortfalls.

EUROPEAN COMMISSION APPROVES AIR FRANCE – ALITALIA ALLIANCE

After both airlines surrendered 42 daily takeoff and landing slots on 7 key routes, the European Commission approved the alliance between Air France and Alitalia. As part of the alliance, each airline will take a two percent stake in the other and create codesharing agreements on France - Italy routes. The alliance had been planned long before the Air France – KLM merger.

CARGO FEDEX POSTS A 3RD QUARTER PROFIT

FedEx’s Q3 profits increased 41% to US$207 million (68 cents a share) due to a strong performance in the company’s international Page 9 April 2004

priority service and improvements in its Express services. Revenue grew 9% to US$6 billion and operating profit jumped 38% to US$372 million.

THAI AIRWAYS TO LAUNCH SEPARATE CARGO AIRLINE

Thai Airways plans to launch a separate cargo airline pending approval by the Thai Airways Board. The new airline will begin operations with two B747Fs and an A300-600F, which will come from either Thai's fleet, be purchased on the market or leased. The carrier will have its own governing board and will be 49% owned by Thai. The carrier is seeking strategic partners to own the remaining 51%.

FIRST ALL-CARGO AIRLINE LAUNCHED IN INDIA

Crescent Air Cargo Services will be launched at the end of March, becoming the first all-cargo airline in India. The carrier will begin operations with three Fokker 70 turboprops, with the capacity to carry 6.9 tonnes. The Chennaibased airline will begin with daily operations to Colombo, Male, Bangalore, and Mumbai.

AEROFLOT ALLIANCE BID WELCOMED

Aeroflot’s bid to join the SkyTeam Cargo Alliance has been approved by the Alliance. The Russian carrier’s membership is pending the Russian government’s approval and the fulfilment of the Alliance’s quality and safety standards.

ALITALIA TO JOIN SKYTEAM CARGO USA ALLIANCE

Alitalia Cargo is expected to join the SkyTeam Cargo joint venture in the second quarter of 2004. This will give the Italian carrier more capacity on U.S.Italy routes and will give the joint venture better access to Alitalia’s strong position in southern Europe and India.

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NEWS ARTICLES NEW ZEALAND CARGO SECURITY TAX PROPOSED

The New Zealand government is proposing to introduce a tax on 1 July to recover $20 million in increased security costs related to air and sea cargo shipments. The tax will apply to import cargo, export cargo and to transhipments.

PEOPLE Sandy Morrison was appointed Chairman of the Board of Nav Canada on April 15, 2004. Morrison, ex-Air Canada VP Government relations, replaces Louis Comeau, who served as Chairman since November 1997. Air Canada announced that Calin Rovinescu, Executive Vice President and Chief Restructuring Officer, has resigned as of 7 April. Mr. Rovinescu’s responsibilities will be handled by CEO Robert Milton, Paul Brotto, Executive Vice President of Planning & Cost Management, and Ernst & Young, the court appointed monitor overseeing Air Canada’s restructuring. Peter Bouw, Chairman of the Board of Swiss International Air Lines will replace Andre Dosé as CEO. Dose had resigned following investigations by the Office of the Prosecutor General of the Swiss Confederation into the November 2001 Crossair crash. Arturo Barahona resigned as CEO of AeroMexico. He will be succeeded by Rogelio Gasca-Neri.

Page 10 April 2004

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U.S. REGISTERED TRAVELLER PROGRAM The U.S. Transportation Security Administration (TSA) is mandated in legislation to evaluate a “Registered Traveller Program”. The program marks an important shift from the 100% screening model that evolved in the late 1960’s to one with a reduced level of scrutiny for pre-approved frequent travellers. Key data is anticipated in Summer 2004, when the TSA will test its program on 5,00010,000 passengers at 3-5 airports.

Enrolment Requirements for the Passenger Similar to expedited solutions for border control, the registered traveller will be a voluntary participant who submits to a pre-approval process that includes biometric registration (iris and/or finger). Criminal and intelligence checks are anticipated in order to assess the ability for the individual to participate in the program. A schedule of user fees has not been outlined to date.

Solomon Wong Director, Security & Planning

Risk Management for Transportation Security At pre-board screening, the passenger will be biometrically authenticated to confirm their acceptance in the program. Confirmation of the registered traveller status would allow the passenger to access a faster screening process, which may include queue TSA’s Risk Management jumping, or a lower level of scrutiny. Approach The specifics of a reduced level of screening has yet to be CAPPS II Enhanced fully defined. Early tests by KLM in Chicago evaluated use Flagged Screening of lower referrals to secondary screening for both holdbaggage and pre-board screening. This would, for CAPPS II Regular example, exempt registered travellers from quotas of Cleared Screening Passengers random screening, but not additional measures required in the event of a metal detector alarm. "Lite" Registered

Screening Through this program, the TSA has outlined the framework Travellers Processes for integrating a risk management approach into security processes. A companion program Computer Assisted Passenger Pre-Screening System II (CAPPS II) will differentiate passengers between “enhanced” and “regular” screening. The Registered Traveller Program will funnel registered passengers to a reduced level of screening scrutiny.

Marketing Challenges and Opportunities The market size for the Registered Traveller Program is large. According to the NFO Plog Research’s American Traveller Survey, business travellers who fly more than 3 times annually account for 25% of all flights taken in the United States. To attract potential participants, the TSA has already identified partnerships with airports and airlines as critical to the success of the program. However, there is a degree of unpredictability in the Registered Traveller Program that may make its benefits unclear to participants. With the exception of queue jumping, passengers will find that sometimes the security process will be no different than other passengers. It will not be until a full year of travel that passengers will be able to realize a faster average processing time. The success of the Registered Traveller Program requires packaging with other travel benefits. At the minimum, this could involve integrating existing US/Canada Nexus programs. Furthermore, development of comparable programs in Canada with CATSA could result in a continent-wide adoption of transportation security management practices for low-risk travellers. Page 11 April 2004

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THE WASHINGTON REPORT 15 April 2004

U.S.-Visit Extended to Visa Waiver Countries On 2 April 2004 the Department of Homeland Security (DHS) and the Department of State had asked Congress to pass legislation to extend for two years, the 26 October 2004 deadline for Visa Waiver Program countries to issue machine readable passports containing biometric identifiers, and for DHS to have readers for these biometric passports at all ports of entry. In relation to this announcement, DHS will begin enrolling visa waiver travellers through the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) Program at all airports and seaports by 30 September 2004.

FAA Announces Air Traffic Oversight Group

Charles Chambers Senior Vice President GA2 AND Regional Vice President InterVISTAS Consulting Inc. Washington, D.C.

On 25 March 2004, U.S. Secretary of Transportation Norman Mineta announced the establishment of the Air Traffic Safety Oversight Service (ATSOS) to provide independent safety oversight of the FAA Air Traffic Organization. The primary role of the group is to ensure the safety of changes to air traffic standards and procedures. The establishment of the ATSOS follows a recommendation of the 1997 National Civil Aviation Review Committee. Dave Canoles, a FAA veteran in accident investigation and emergency operations, will head the ATSOS.

FAA Announces New Delay Reduction Procedures On 24 March 2004, U.S. Secretary of Transportation Norman Mineta announced new steps that the FAA will take to reduce gridlock and delays. These steps include the implementation of “express lanes” within U.S. airspace as well as providing improved weather information and procedures to reroute aircraft. Also, Mineta announced the combination of Canadian and FAA weather radars to provide more accurate and timely information allowing for faster aircraft re-routing.

Congress Introduces MANPADS Bill On 30 March 2004, three members of Congress introduced The Commerical Aviation MANPADS Defense Act of 2004. The bill will provide interim protections for commerical aircraft from shoulderfired missiles or Man Portable Air Defense Systems (MANPADS) and to speed up certification of new protective technology. The bill has four features: §

It encourages the President to pursue strong international diplomatic and cooperative efforts to limit the proliferation of MANPADS.

§

It requires the FAA to expedite certification of missile defense systems.

§

It encourages the President to continue programs to reduce the number of MANPADS worldwide.

§

It requires DHS to report to Congress on vulnerability assessments it is conducting at U.S. airports.

U.S.-EU Discussions The U.S. has completed the most recent round of air bilateral talks with the European Union (EU). The next round of discussions is slated for the week of May 10 in Washington, D.C. Although both sides had reported progress on security, safety and environment issues, they were still in disagreement on the topic of cabotage. The EU continues to insist on cabotage, while the U.S. maintains that it is not prepared at the moment to support cabotage.

Page 12 April 2004

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THE OTTAWA SCENE 15 April 2004

Federal Budget Gives Some Relief to Air Travellers, But Not to VIA Rail Those disappointed in the minimal transportation focus in the Speech from the Throne will find that the Federal Budget of March 2004 contains modest suggestions that the link between economic development and transportation has been made in this government. Pursued relentlessly by the aviation industry, this budget announces a modest reduction in the Air Travel Security Charge (ATSC). It proposes to reduce the ATSC for travel within Canada to $6 for one-way travel and to $12 for round-trip travel. For transborder air travel, the charge will be reduced to $10 (roundtrip) and, for other international air travel, the charge will be reduced to $20 (roundtrip). While the reduction will not likely result in stimulating much new airline travel demand, it is a signal that the government may reduce the charge further in the future, once the new air transport security initiatives are implemented and paid for.

Sam Barone Regional Vice President Ottawa

One high-profile item that was axed was the last government’s eleventh hour $680 million allocation to VIA Rail. In a nod to fiscal prudence, and the vocal discontent of Caucus, Budget 2004 forgoes VIA’s capital expansion.

Zoom Airlines Designated to Operate Between Canada and France On 24 March 2004, Zoom Airlines Inc., an Ottawa based airline offering both scheduled and charter services, was designated by Transport Minister Tony Valeri to provide scheduled international air service between Canada and France, one of Canada's largest air travel markets. Zoom plans to begin operating a Toronto-Montréal-Paris scheduled service in June 2004.

Projects Announced for Airports Capital Assistance Program New projects to enhance safety at Canadian airports under the 2004-2005 Airports Capital Assistance Program (ACAP) were announced March 12 by Transport Minister Tony Valeri. Established in 1995, ACAP assists eligible airports by financing capital projects related to safety, asset protection and operating cost reduction. In order to be eligible for funding consideration, an airport must have year-round regularly scheduled passenger service, meet airport certification requirements and not be owned by the Government of Canada. ACAP is an integral part of the National Airports Policy, which provides Canadians with a comprehensive framework that clearly defines the Government of Canada's role regarding airports. "This program embodies the Government of Canada's commitment to strong social foundations while investing in a vibrant economy for the 21st century," said Mr. Valeri. "These investments will help direct infrastructure resources to where they are most needed and enhance the safety and economic potential of these facilities." There were 38 projects selected for funding this year. The total proposed ACAP delegation for new projects starting in 2004-2005 is over $32 million.

Transport Minister Issues Statement on Recent Air Canada Developments On April 2 Transport Minister Tony Valeri said the following, in response to the statement from Trinity Time Investments Limited about the possibility of walking away from its investment in Air Canada: "Today's developments underscore the need for the unions, the company and the investors to reexamine their positions and redouble their efforts…They all have a vested interest in seeing Air Canada succeed… We continue to have confidence that Air Canada will be able to serve Canadians now and find a long-term private sector solution." Page 13 April 2004

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A TALE OF TWO LIQUIDATIONS 16 April 2004

As concerns about Air Canada’s future swirl about in the media, it is useful to look at other cases of ‘severe restructuring.’ Ansett Australia. On 12 September 2001, Ansett Airlines filed for bankruptcy and was liquidated. The timing of the Ansett bankruptcy was unrelated to the tragic events of 9/11, and was widely anticipated in the week prior to filing. Ansett simply was not able to find a viable business plan in the face of competition from Qantas and low cost carrier Virgin Blue. By the 14th, all flights were suspended. While attempts were made to find a new investor, these failed and the carrier was liquidated. There are some interesting elements of Ansett’s liquidation, however.

Michael Tretheway Vice President & Chief Economist

Early on, it was recognised that Ansett’s regional carriers could have a financially viable life on their own. By 23 September 2001, only 11 days after filing, Ansett’s regionals were being put back into service. They obtained new funding and survive to this day, operating under the brand Regional Express (REX). Thus, not all of Ansett’s capacity was lost. Regional services survive, and in fact seem to be thriving. Swissair. On 1 October 2001, Swissair filed for bankruptcy and all flights ended the next day. However, 3 days prior, on 29 September, its 70% owned regional subsidiary, Crossair, was sold to a group of bank investors. Thus when Swissair entered bankruptcy, regional services continued, largely uninterrupted. But Crossair had a larger destiny. Three weeks after Swissair stopped flying, a plan was unveiled whereby Crossair would acquire 52 of the 75 aircraft Swissair had operated, including long haul A340 aircraft. It began to hire former Swissair pilots and other employees, received additional funds from its investors and changed its name to Swiss International. Some refer to this as a reverse take-over, whereby a subsidiary acquires a parent. This was not quite a reverse take-over in that Crossair was no longer a subsidiary of Swissair, and it did not acquire Swissair, only some of its assets. Swiss International is not out of the woods yet. It is still struggling financially, but it is hoping to complete an alliance with, and investment from British Airways which will provide a platform for a stronger future. Life after bankruptcy. In both cases, the lesson is that regional airlines can survive the bankruptcy of the parent, and there is even scope for the regional carrier to be the vehicle for how the assets of a bankrupt carrier can be redeployed.

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 the Airport. Prepared by InterVISTAS Consulting Inc. Page 14 April 2004

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CAIR Issue No. 16 - April 2004