CAIR Issue No. 46 - November 2006 by Leah Dupuis

CANADIAN AVIATION INDUSTRY REVIEW

In this issue… Features Columns: • Air Canada’s Domestic Seat Capacity Fall/Winter 2006/2007 (p.1) • Crude Oil Prices Drop to Below $60 (p.3) • Cargo Capers (p.11)

Regular Reports: • Airline Data - Canada (p.4) • Airline Data – U.S. (p.5) • Selected Canadian Airport Data (p.6) • Industry News (p.7) • The Ottawa Report (p.12) • The Washington Report (p.13) • InterVISTAS News (p.14)

AIR CANADA’S DOMESTIC SEAT CAPACITY FALL/WINTER 2006/2007 November 2006

Air Canada’s Total Domestic Seat Capacity Air Canada’s total domestic seat capacity, including both Air Canada mainline and Jazz, for the three months that will end January 2007 has been increased by 12% to 743,500 compared to the same period last year. The greatest number of seats were added to the Ontario market (+170,800) with the largest percentage increase occurred in Newfoundland and Labrador (+20%). Air Canada’s Total Domestic Seat Capacity Three Months Ending January

Amy Yeung Senior Analyst

Market Segment

2007

Change 2007 vs. 2006

2006

Absolute

Percentage

British Columbia

1,372,847

1,203,467

+169,380

+14%

Alberta

1,047,535

885,935

+161,600

+18%

Saskatchewan

157,480

142,423

+15,057

+11%

Manitoba

234,600

209,504

+25,096

+12%

Ontario

2,301,673

2,130,853

+170,820

+8%

Québec

973,360

846,232

+127,128

+15%

Newfoundland & Labrador

158,332

131,824

+26,508

+20%

New Brunswick

104,972

104,467

+505

+0.5%

Nova Scotia

335,708

295,996

+39,712

+13%

Prince Edward Island

19,412

19,402

+10

+0.1%

Northwest Territories

9,200

+9,200

N/A

Yukon Territory

9,200

10,750

-1,550

-14%

6,724,319

5,980,853

+743,466

+12.4%

Grand Total

Source: OAG Max. Notes: Includes Air Canada mainline and Jazz.

Changes in Inter-provincial and Intra-provincial Seat Capacity Of the total domestic seat capacity for November 2006-January 2007, Air Canada has allocated 70% for the inter-provincial market and 30% for the intra-provincial market. Inter-provincial seat capacity has increased by 15% compared to last year. The Ontario inter-provincial market experienced a 139,700 increase in seat capacity, the highest increase in absolute seats among all provinces and territories. Meanwhile, the Newfoundland and Labrador market experienced the greatest percentage increase (+26%). In contrast, Air Canada reduced Yukon’s seat capacity by 14%. Air Canada’s Inter-provincial Seat Capacity Three Months Ending January Market Segment

2007

2006

Change 2007 vs. 2006 Absolute

Percentage

British Columbia

794,208

671,149

+123,059

+18%

Alberta

773,191

644,919

+128,272

+20%

Saskatchewan

157,480

142,373

+15,107

+11%

Page 1 November 2006

AIR CANADA’S DOMESTIC SEAT CAPACITY FALL/WINTER 2006/2007 – CON’T Three Months Ending January Market Segment Manitoba

2007

Change 2007 vs. 2006

2006

Absolute

Percentage

234,600

209,494

+25,106

+12%

Ontario

1,439,040

1,299,329

+139,711

+11%

Québec

703,892

608,646

+95,246

+16%

Newfoundland & Labrador

139,196

110,872

+28,324

+26%

New Brunswick

104,972

104,467

+505

+0.5%

Nova Scotia

302,956

266,692

+36,264

+14%

Prince Edward Island

19,412

19,427

-15

-0.1%

Northwest Territories

9,200

+9,200

N/A

Yukon

9,200

10,750

-1,550

-14%

4,687,347

4,088,118

+599,229

+15%

Grand Total

Source: OAG Max. Notes: Includes Air Canada mainline and Jazz.

Air Canada offers intra-provincial services in British Columbia, Alberta, Ontario, Québec, Newfoundland and Labrador, and Nova Scotia. Overall, intra-provincial seat capacity has risen 8% compared to the same period last year. Air Canada has added the largest number of seats to the B.C. intra-provincial market (+41,600). In contrast, Alberta’s 37,400 increase in intra-provincial seat capacity translates to a 16% percentage increase, the highest among the six provinces. Air Canada’s Intra-provincial Seat Capacity Three Months Ending January Market Segment

2007

2006

Change 2007 vs. 2006 Absolute

Percentage

British Columbia

574,448

532,827

+41,621

+8%

Alberta

274,896

237,468

+37,428

+16%

Ontario

864,432

834,439

+29,993

+4%

Québec

271,308

237,882

+33,426

+14%

Newfoundland & Labrador

20,976

20,596

+380

+2%

Nova Scotia

30,912

29,523

+1,389

+5%

Grand Total

2,036,972

1,892,735

+144,237

+8%

Source: OAG Max. Notes: Includes Air Canada mainline and Jazz.

Page 2 November 2006

CRUDE OIL PRICES DROP BELOW $60 November 2006

Crude oil prices have settled currently to $58… Since hitting a price peak of $77 in mid July 2006, the price of crude oil has dropped to 25% below the peak, at $58 per barrel (a price level not seen since August 2005). During the month of October, prices averaged $59 per barrel compared to an average price of $74 per barrel in July. However, a review of futures prices indicate that crude oil prices are expected to rise to the $60-$70 price range during the next twelve month time period.

... Crude oil futures prices up above $65 in the long term Futures prices in November 2006 are higher relative to futures prices established in January 2006. A futures contract in November 2006 for delivery of crude oil in December 2011 is priced currently at $65; this is an 8% increase over the same contract if purchased at the beginning of the year. Although oil prices are well below $60, the futures market is calling for prices to escalate to the $65 range. Crude Oil Futures Prices $80

Crude Oil Futures Prices -----

Crude Oil Spot Prices $70

Nov 2006 Jan 2006 $60

Sep 2005 Dec 2005

$50 Apr 2005

$40

Sep 2004 $30 May 2003 Jul-12

Oct-12

Apr-12

Jan-12

Jul-11

Oct-11

Apr-11

Jan-11

Jul-10

Oct-10

Apr-10

Jan-10

Jul-09

Apr-09

Oct-09

Jan-09

Jul-08

Apr-08

Oct-08

Jul-07

Jan-08

Apr-07

Oct-07

Jul-06

Jan-07

Apr-06

Oct-06

Jul-05

Jan-06

Apr-05

Oct-05

Jul-04

Oct-04

Jan-05

Apr-04

Jul-03

Oct-03

Jan-04

$20 Apr-03

Oil prices drop 25% to $58 from summer peak, but futures prices above $65 in 2011.

Further OPEC Oil Production Cuts Unlikely OPEC is slated to meet again in December to discuss whether oil production should be cut. At its October meeting, OPEC member countries (OPEC countries control 40% of the world’s oil) agreed to cut production by 1.2 million barrels per day in an effort to hold world prices steady in the $60 range.

Jan-03

Manager, Special Projects

US$ Per Barrel

Doris Mak

Seasonal Demands for Oil Recent indications in the U.S. call for a warmer than normal winter season in the U.S. northeast. The region is responsible for over 80% of the country’s total heating oil consumption. Forecasters estimate that consumption will decline by 20% relative to an average year. Unless the U.S. northeast is hit by a major winter storm, the weather is unlikely to drive higher crude oil prices.

Month of Delivery

Page 3 November 2006

AIRLINE DATA – CANADA Traffic and Load Factors on Canada’s Major Air Carriers October 2006 Passenger Traffic Air Carrier

Capacity

Revenue Passenger Kilometres

Load Factor

Available Seat Kilometres

% Change over 2005

% Change from 2004

% Change over 2005

% Change from 2004

Change over 2005

Change from 2004

Air Canada1

+1.8%

+6.8%

+0.3%

+5.0%

+1.1pts (to 79.0%)

+1.3pts (from 77.7%)

Domestic (Mainline)

-0.8%

-4.3%

-0.3%

-5.6%

-0.3pts

+1.2pts

Jazz

+39.1%

+147.2%

+37.2%

+146.7%

+1.0pts

+0.1pts

International & Charter

+2.9%

+12.2%

+0.6%

+9.9%

+1.7pts

+1.5pts

WestJet

+24.1%

+44.6%

+21.8%

+32.5%

+1.4pts (to 74.9%)

+6.2pts (from 68.7%)

Analysis: •

•

Although Air Canada Mainline’s domestic traffic and capacity was down by 0.8% and 0.3% respectively, the decline has lessened in October compared to previous months. Jazz, however, continues to experience growth in traffic and capacity by 39.1% and 37.2% respectively, with the continual transfer of seat capacity from Air Canada Mainline to Jazz. Air Canada’s international and charter service load factors increased by 1.7 points over October 2005, despite the rise in capacity levels by 0.6%. This is balanced by the expansion of international passenger traffic by 2.9%, mainly caused by the rise in U.S. transborder traffic. WestJet continues to handle passenger traffic growth by 24% for the month of October. As a consequence, a rise in load factor by 1.4 points allows WestJet to reach a six-year high of 74.9%, on capacity expansion of 22% over 2005.

Air Canada Domestic Mainline 5%

Jazz data is not included in this graph

0% -5% -10%

Aug- Sep Oct Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct 05 06

Dom RPK Dom ASK

Air Canada International 15% 10% 5% 0% -5% Aug- Sep Oct Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct 05 06

Int'l RPK

Int'l ASK

WestJet 35% 30% 25% 20% 15% 10% 5% 0% Aug- Sep Oct Nov Dec Jan- Feb Mar Apr May Jun July Aug Sept Oct 05 06

RPK

1Air

ASK

Canada Mainline consists of all Air Canada operations with the exception of Jazz. InterVISTAS’ Canadian Aviation Intelligence Report Page 4 November 2006 Copyright ©2005 InterVISTAS Consulting Inc., all rights reserved.

AIRLINE DATA – U.S. U.S. Airlines Release October 2006 Traffic Figures Traffic Data - October 2006 Airline

Traffic (RPMs – millions)

(ASMs – millions)

1,858

2,359

78.8%

Ç16.3%

Ç15.7%

Ç0.4 pts

769

1,037

74.1%

Ç6.7%

Ç4.3%

Ç1.6 pts

5,699

8,134

70.1%

Ç10.7%

È0.3 pts

7,261

9,161

79.3%

Ç9.5%

Ç6.8%

Ç2.0 pts

9,665

11,986

80.6%

Ç2.3 %

Ç2.3%

0.0 pts

11,123

14,340

77.5%

Ç2.3 %

Ç1.8 %

Ç0.4 pts

9,561

12,404

77.1%

Ç1.7 %

È4.5%

Ç4.7 pts

6,486

7,829

82.8%

Ç0.2%

È0.7%

Ç0.7 pts

5,155

6,723

76.7%

È1.0%

È3.2%

Ç1.8 pts

326

409

79.6%

È35.4%

È40.6%

Ç6.4 pts

Notes:

Capacity

Load Factor

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

Sources: Carrier traffic reports.

Page 5 November 2006

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

2005

Calgary

Edmonton

Ottawa

Winnipeg

Halifax

Victoria

Kelowna

Saskatoon

Regina

+2.6%

MontréalTrudeau +7.4%

+7.9%

+13.5%

+7.1%

+6.6%

+0.3%

+2.9%

+16.1%

+12.9%

+13.9%

St. John’s +8.9%

+2.2%

+2.9%

+4.1%

+10.7%

+11.2%

+5.4%

+5.1%

-5.6%

+3.1%

+19.6%

+9.3%

+8.8%

+8.0%

October

-0.1%

+4.3%

+3.7%

+7.1%

+16.7%

-0.7%

+6.4%

-0.7%

+3.1%

+16.1%

+11.8%

+12.8%

-0.9%

November

+0.6%

+5.2%

+4.1%

+12.1%

+10.7%

-2.5%

+6.2%

+3.0%

+8.5%

+24.0%

+18.0%

+15.6%

+5.0%

December

-0.6%

+0.5%

+4.3%

+10.3%

+4.9%

-3.5%

+5.4%

+5.6%

+3.8%

+19.1%

+12.2%

+9.5%

+7.9%

4th

+0.0%

+3.2%

+4.0%

+9.8%

+10.4%

-2.2%

+6.0%

+2.4%

+4.9%

+19.6%

+13.9%

+12.5%

+3.6%

Full Year

+4.6%

+4.4%

+5.4%

+10.6%

+10.5%

+3.6%

+6.5%

-0.4%

+5.5%

+19.3%

+12.3%

+10.6%

+8.2%

January

+1.1%

-1.7%

+1.4%

+9.1%

+10.7%

+1.0%

+2.8%

+5.4%

+6.2%

+20.3%

+10.1%

+4.4%

+9.7%

February

-0.5%

+1.5%

+2.1%

+8.7%

+10.9%

+0.2%

-0.6%

+1.2%

+1.4%

+11.0%

+3.0%

-2.8%

+7.0%

March

+3.1%

+3.5%

+6.6%

+9.0%

+13.0%

+3.9%

+2.0%

+4.8%

-3.5%

+15.4%

+0.1%

-3.8%

-7.8%

Quarter

+1.3%

+3.6%

+8.7%

+11.6%

+1.8%

+1.4%

+3.8%

+0.9%

+15.5%

+4.4%

-0.8%

+2.0%

April

+1.2%

+4.3%

+6.2%

+19.5%

+20.7%

+3.8%

+0.7%

+6.1%

+4.2%

+17.9%

+9.5%

+13.9%

+13.1%

May

+4.8%

+3.2%

+7.6%

+16.3%

+20.6%

+0.3%

+6.4%

+8.4%

+10.3%

+13.2%

+7.7%

+23.3%

+15.2%

Toronto

Vancouver

September

+4.5%

3rd

1st

Quarter

2006

June

+2.8%

+2.7%

+4.5%

+9.7%

+13.2%

+1.8%

+4.1%

+0.7%

+8.6%

+13.4%

+5.3%

+12.5%

+3.7%

2nd Quarter

+4.5%

+3.3%

+6.3%

+14.6%

+18.1%

+1.9%

+3.8%

+5.2%

+7.8%

+14.7%

+7.4%

+16.3%

+10.3%

July

+2.2%

+4.8%

+2.2%

+7.0%

+13.8%

-2.1%

+4.9%

+8.5%

+7.4%

+14.4%

+5.9%

+7.1%

+13.2%

August

+6.8%

+3.9%

+3.4%

+10.0%

+18.2%

+2.2%

+8.5%

+7.1%

+11.3%

+12.2%

+5.8%

+15.9%

+11.5%

September

+2.2%

+2.1%

+2.2%

+9.9%

+13.1%

0.0%

+8.8%

+4.9%

+6.9%

+16.6%

+6.9%

+10.4%

-0.5%

3rd

+3.8%

+3.7%

+2.5%

+9.2%

+15.1%

+0.1%

+7.3%

+6.9%

+8.6%

+14.3%

+7.1%

+11.1%

+8.6%

Quarter

Source: Transport Canada and individual airports’ traffic reports.

Page 6 November 2006

NEWS ARTICLES AIR CANADA UPDATE AIR CANADA LAUNCHES CALGARYFORT LAUDERDALE

On 29 October, Air Canada launched non-stop seasonal flights between Calgary and Fort Lauderdale, Florida. The service is currently offered weekly on Sunday, but will increase to three times weekly effective 17 December. All flights are operated using 120seat Airbus A319 aircraft.

AIR CANADA’S “A LA CARTE” OPTIONS ALLOW FLYERS TO BUILD THEIR OWN TICKETS Air Canada has introduced “A la carte options” on its web site that allow passengers to pay for or void specific services to save money. Examples of “A la carte” options include car rental, advance seat selection, inflight meal voucher and baggage check-in. The options are available to Tango, Tango Plus, Latitude and Executive passengers.

AIR CANADA INTRODUCES UNLIMITED FLIGHT PASSES On 18 October 2006, Air Canada introduced new “Unlimited Passes” for travellers to fly limitless among nine geographic zones within Canada and the continental U.S. that Air Canada, Jazz and their regional partners operate. An additional benefit of the Unlimited Pass is that travellers can avoid up-front costs and pay in fixed monthly instalments. The Unlimited Passes are available in Tango Plus and Latitude fares and in 3-month or 6-month packages. The prices range from $1999 to $6500 per month depending on the travel zone.

AIR CANADA TO RECEIVE $200 MILLION FROM IPO

Air Canada will receive $200 million from its parent company, ACE Aviation Holdings Inc., as a result of ACE’s initial public offering of Air Canada which is expected to take place by the end of 2006. Air Canada will use the money mainly toward renewing its fleet. Air Canada will be valued at C$2.2 billion following the IPO. At Page 7 November 2006

C$2.2 billion, Air Canada would be worth nearly a third more than WestJet Airlines.

AIR CANADA RAISES PILOT WAGES BY 2%

The 3,100 pilots that belong to the Air Canada Pilots Association (ACPA) have been awarded a 2% wage increase retroactive 1 July 2006. The pilots will also receive a 1.75% increase effective July 2007 and a further 1.75% increase effective July 2008. However, no change has been made to the pilots’ pension plans.

AIR CANADA JAZZ RAISES FLIGHT ATTENDANT WAGES BY 1% The 740 Air Canada Jazz flight attendants have been awarded a 1% wage increase retroactive 1 June 2006. The flight attendants will also receive a 1.75% increase in each of the next two years. In addition to the wage increase, the flight attendants are now eligible to receive profit-sharing payments.

WESTJET UPDATE WESTJET INTRODUCES SERVICES TO TAMPA FROM MONTRÉAL AND OTTAWA

On 29 October, WestJet launched non-stop services to Tampa from Montréal and Ottawa. The MontréalTampa services are offered three times weekly and the Ottawa-Tampa services are offered four times weekly.

WESTJET LAUNCHES SERVICES TO ORLANDO WestJet has introduced non-stop flights to Orlando from Montréal and Ottawa four times weekly. The Montréal-Orlando service began on 30 October and the Ottawa-Orlando service started on 3 November.

NEWS ARTICLES WESTJET UPDATE – CON’T WESTJET ADDS EDMONTON-PALM SPRINGS AND EDMONTON-PHOENIX

WestJet has launched non-stop flights from Edmonton to Palm Springs three times weekly starting 29 October and from Edmonton to Phoenix four times a week starting 30 October.

WESTJET ADDS TORONTO TO WEST PALM BEACH FLIGHTS

On 30 October, WestJet introduced non-stop flights between Toronto and West Palm Beach three times weekly.

WESTJET LAUNCHES HALIFAX-TAMPA WestJet will offer non-stop flights between Halifax and Tampa from 13 March 2007 to 1 May 2007. The seasonal services will be offered weekly.

WESTJET ORDERS FIVE 737S

On 30 October, WestJet announced that it has finalised its agreement with Singapore Aircraft Leasing Enterprise for five Boeing Next Generation 737 aircraft. Of this total, the four 700-series aircraft will be delivered in January, May, June and October 2009 and the remaining 800-series aircraft will be delivered in May 2009. WestJet currently has a registered fleet of 62 aircraft and the total will reach 81 aircraft by the end of 2009.

WESTJET TO SHARE AIRCRAFT ENGINES WITH AMERICAN AND SOUTHWEST

airlines will station their spare engines throughout North America to avoid delay and cancellation rates. If suitable engines are not available in the pool, Willis Lease will be the preferred provider for the members.

OTHER CANADIAN AIRLINE NEWS PORTER BEGINS TORONTO-OTTAWA SCHEDULED SERVICES

On 23 October, Porter Airlines launched its first service from the Toronto City Centre Airport to Ottawa. Porter Airlines offers a total of 10 round trip weekday flights and two round trip weekend flights between Toronto City Centre and Ottawa. Services between the Toronto and Montréal are scheduled to begin in December. All TorontoOttawa flights are operated using Bombardier Q400s aircraft.

CARGO NEWS DHL BUYS 49% OF POLAR AIR DHL is buying 49% of Polar Air Cargo from its parent company Atlas Air Worldwide Holdings (AAWH). The US$150 million deal is currently subject to government approval and will be completed no later than early 2007. The deal will guarantee DHL block space in Polar’s transpacific routes between the U.S. and Asia for the next 20 years. AAWH claims that there will be no change in Polar’s network as a result of the deal.

WestJet has signed an engine-sharing agreement with Willis Lease Finance Corp to share the use of CFM56-7B engines with American and Southwest Airlines. The cooperative agreement allows the three airlines to pool their engines they have together and lease from the pool for serving the 450 aircraft they have altogether. As a result, engines can be available to airlines more quickly and airlines can better manage their capital assets by improving spare engine productivity. The three Page 8 November 2006

NEWS ARTICLES CARGO NEWS

PEOPLE IN THE NEWS

POLAR TO FLY TO BEIJING

TRANSPORT MINISTER APPOINTS HOWARD BRUCE TO TRANSPORTATION APPEAL TRIBUNAL

Polar Air Cargo launched twiceweekly air cargo services to Beijing starting 11 November. Currently, Polar is allowed to operate up to 12 weekly flights between the U.S. and China and also serves Hong Kong and Shanghai. The U.S. DOT has granted clearance to Polar to operate four more weekly flights to China starting March 2007, bringing the total number of operations to 16 flights per week.

FEDEX CANCELS A380 ORDER After Airbus made its third delay announcement in 16 months for its A380 aircraft, FedEx has cancelled its A380 freighter order because the postponed deliveries could hinder FedEx’s expansion plans. When FedEx placed its order in 2002, it intended to take delivery of the first 10 A380-800Fs in 2008. FedEx has now decided to operate 15 Boeing 777 freighters, which it expects to be in operation by 2009, instead of 10 A380 freighters. FedEx’s number one airport hub, the Memphis Airport, had plans to invest over $48 million on runway upgrades to accommodate FedEx’s A380 aircraft.

VOLGA-DNEPR REPORTS HIGHEST REVENUE GROWTH IN 16 YEARS

Volga-Dnepr reported carrying 95,000 metric tons of air cargo traffic during the first nine months in 2006, making it the largest all cargo carrier in Russia. The 95,000 metric tons in traffic translated into $462 million in revenues for the airline, the highest nine-month revenue for the company in 16 years. Volga-Dnepr expects to reach $600 million in revenue by the end of 2006.

Page 9 November 2006

On 2 November, the Minister of Transport, Infrastructure and Communities announced the appointment of Mr. Howard Bruce to the Transportation Appeal Tribunal. The Transportation Appeal Tribunal provides an independent review process for transportation legislations. Mr. Bruce has a Bachelor in Political Science coupled with experiences in civil, corporate, criminal, transportation and real estate law practice.

OTHER AIRBUS A380 WORLDWIDE TECHNICAL RUNS BEGIN ON 13 NOVEMBER

The much-anticipated Airbus A380 widebody aircraft will begin its worldwide technical runs on 13 November from Toulouse, stopping at 10 different airports. The aircraft will stop at Singapore and Seoul on 13-14 November, Hong Kong and Narita on 18-19 November, Guangzhou on 22 November, Beijing and Shanghai on 23 November. The final global trip will start from Toulouse and arrive a Johannesburg on 26 November. The aircraft will then fly over the South Pole and arrive at Sydney on 29 November from Johannesburg. The aircraft will fly over the Pacific Ocean from Sydney and reach Vancouver on 29 November before returning to Toulouse via the North Pole.

NEWS ARTICLES OTHER – CON’T QANTAS FIRMS ORDER FOR EIGHT MORE A380 AIRCRAFT On 31 October, Qantas announced that it has firmed its order for eight additional A380 aircraft. Qantas has committed to a total of 20 A380 aircraft with Airbus. Deliveries are expected to begin in August 2008 and continue through to 2015. Qantas has negotiated a package with Airbus to take delivery of four A300-200s between December 2007 and December 2008 to mitigate the effect of the A380 delay.

Page 10 November 2006

CARGO CAPERS November 2006

The Future of Freighters. In the past few months, FedEx made two announcements that could shake up the freighter world. The first was the announcement of its intent to replace its 727200Fs with 757-200s. The second was the decision to abandon the A380F in favour of the 777F.

Robert Andriulaitis Vice President, Transportation & Logistics Studies

The Boeing 757-200F. There has been a lot of discussion regarding the successor to the extremely popular 65,000 lb capacity 727-200F. The 727-200F is an old design with a crew of three and relatively high fuel consumption that makes it due for replacement. Possible successors include the 737-200 or -300, which like the 727-200 is considered a small freighter. The 737, however, has a significantly lower payload (under 40,000 lbs) that limits its attractiveness. Furthermore, the 200 is getting long in the tooth as well – as replacements, its life would be limited. Among the U.S. built medium narrowbody freighters, which include antiquarians such as the DC-8 and 707, only the 757200 is newer than the 727s they would replace. The 757, however, is considerably larger, with a payload of almost 88,000 lbs. The TU-204, with a payload a little under 60,000 lbs is an intriguing possibility and has been considered by European carriers such as TNT (which has operated this aircraft on a leased basis), but its low numbers and Russian build make it an unlikely choice for North American service. FedEx has cast its vote (actually about 90 of them) and it is the 757-200F that is the winner in FedEx’s opinion. (UPS has already registered its vote, as it currently operates 75 of these aircraft.) The 757 is getting to the age when conversion from passenger to freighter configuration becomes attractive. The issue is that while a relatively large number were built (slightly over 1,000), relatively few are currently on the market. Speednews lists 27 available aircraft, though 21 of these are listed for lease or wet-lease. FedEx, searching for 90 aircraft, are going to make it difficult for other operators of aging 727 aircraft to acquire 757 replacements. This has implications for Canada, and Canadian airports, as both Cargojet and Kelowna Flightcraft (which flies for Purolator) operate 727 freighters that need replacement in the short to medium term. The 757 just became a more problematic, and likely more costly, option.

The Airbus A380F. The other item of note was FedEx losing patience with on-going Airbus A380 production delays and cancelling its order for 10 freighters and the 10 options it also held. Instead, it will order 15 Boeing 777 freighters, with options for 15 more. While Airbus is maintaining a brave front and saying it will continue with the program, this setback leaves Airbus with fewer that 150 firm orders for the A380 – a number that leaves them well short of break-even. If UPS were to follow the FedEx lead and cancel its order for 10 aircraft (and 10 options), that would leave only five firm orders for the freighter (by International Lease Finance Corp.). If Airbus abandons the A380 program, or even the A380F program, that would leave the large widebody freighter market to Boeing’s 747s and 777s. While Canadian airports were unlikely to see regular service by A380Fs, its demise would have potential ramifications for Canadian airports. We will be competing for services by Boeing freighters coming on stream with the major international air cargo hubs that otherwise would have seen A380F service. What remains to be seen is how quickly Boeing will be able to fill the demand for large freighters to satisfy all needs. If there is a shortage, the challenge will be to position Canadian airports as the logical gateways to serve the North American market, rather than being relegated to being served via U.S. gateways. Page 11 November 2006

THE OTTAWA REPORT November 2006

Transport Canada Asks for Stakeholder Input on International Air Transport Policy Paper

Martin Copeland Senior Vice President, Aviation

On 25 October 2006, Transport Canada released a consultation document in support of a new international air transportation policy. The Minister of Transport, Infrastructure and Communities is seeking stakeholder input on the proposed policy. The focus of the proposed new policy is to pursue the negotiation of Open Skies type agreements when it is in Canada’s overall interest. Transport Canada also welcomes stakeholder input on longer-term issues that are not part of the proposed policy document, such as a comprehensive Canada-EU air agreement, foreign ownership rules, North American aviation market integration and multi-lateral air transportation negotiations. The consultation phase for the proposed policy document will end on 8 November 2006. Transport Canada expects to release a statement on the new international air transportation policy document after reviewing all the stakeholder comments. Stakeholders have until the end of December 2006 to submit their comments on longer-term issues.

CAC Wants Regulatory Changes to Increase Airport Competitiveness The Canadian Airports Council (CAC) argued that current federal airport policies are hindering the competitiveness of Canadian airports. The CAC is proposing to eliminate airport rent, increase customs services funding at airports, amend regulations on program funding levels, and more liberalised air service agreements. The CAC commented that airport rent implement creates a disadvantage to Canadian airports since it is a tax and it prevents airports from raising money on the capital market to pay for capital programs. The CAC also commented that more money is needed for the Airports Capital Assistance Program because smaller airports depend on adequate and predictable funding to cover airside equipment costs.

Transport Canada Amends Official Language Legislation On 18 October 2006, the Minister of Transport, Infrastructure and Communities announced that the Federal Government will amend the Air Canada Public Participation Act to ensure that the official language provisions continue to apply to Air Canada’s affiliates to protect the language rights of Canadians. The Air Canada Public Participation Act requires Air Canada to be subject to the Official Languages Act. However, post-restructuring entities such as Air Canada Jazz, Cargo, Technical Services and Ground Handling are not captured under the Air Canada Public Participation Act and therefore not subject to the provisions of the Official Languages Act. The amendment also extends to ACE Aviation Holdings, parent company of Air Canada.

Transport Canada Announces Details of Passenger Protect Program On 27 October 2006, Transport Canada announced details and draft regulations of the Passenger Protect Program. Under the new program, the federal government will establish a list of specified persons who may pose a threat to aviation security and air carriers will contact Transport Canada prior to allowing the individuals to board commercial aircraft.

Canadian Air Travellers To the U.S. Rush to Get a Passport Effective 8 January 2007, Canadians travelling to, from or via the U.S. by air will be required to present a passport at U.S. Customs. Currently, Canadians are only required to present a driver’s license and birth certificate when travelling between Canada and the U.S. Similar requirements will be imposed on Canadian visitors travelling by land or by sea by 1 June 2009 or earlier. Passport applications typically take between 10 and 20 working days excluding mailing time.

Page 12 November 2006

THE WASHINGTON REPORT November 2006

Haneda Airport Needs U.S. Airspace for Expansion Tokyo’s Haneda Airport is the busiest airport in Japan. The airport has plans to expand and increase the number of operations by 40,000 flights per year by 2009. To assist Haneda in realising this plan, the U.S. will return 40% of the airspace it controls over a U.S. air base located adjacent to the airport to accommodate more slots per annum.

FAA Deploys URET Allowing the Aviation Industry Over $600 Million in Savings

Jon Ash President InterVISTAS-ga2 Consulting Inc. Washington, D.C.

The FAA has deployed a mission-essential system, known as the User Request Evaluation Tool (URET), at all 20 FAA Air Route Traffic Control Centers as part its air traffic control system modernization. URET detects and notifies the controllers of possible conflicts between two aircraft within the National Airspace System (NAS). The strategic planning tool of the system allows the controllers to change routings efficiently because it identifies conflicts in the immediate area as well as adjoining airspace. Also, the controllers are more likely to assign direct routings, more fuel-efficient altitudes and wind-optimal routes to pilots using URET, resulting in flight time reduction and fuel cost savings. Since the launch of URET in 1999, the system has reduced routes by 89.5 million nautical miles and generated approximately $626.5 million in savings for the aviation industry.

United and American Objects JetBlue O’Hare Slots The Federal Aviation Administration (FAA) has approved four slots to JetBlue to operate at Chicago O’Hare airport. JetBlue is obligated to begin operations by 27 January 2007. United and American objected to the FAA’s decision. The two major U.S. carriers have decreased their operations to help reduce O’Hare’s congestion level but the FAA’s decision counteracts the benefits the two carriers have created for the O’Hare airport system including themselves.

JetBlue Conducts Pilot Fatigue Test Without FAA Permission JetBlue had 29 pilots fly up to 11 hours per day on more than 50 flights in May 2005 for a pilot fatigue test. Currently, the FAA does not allow pilots to operate more than 8 hours a day. A third pilot was aboard during the study in case of emergency but passengers were not informed that the study was taking place and that the pilots could be operating in fatigue. The FAA did not issue any fines to JetBlue even though the study was conducted without FAA permission.

U.S. Airline September On-Time Performance Worse Compared to 2005 According to the Air Travel Consumer Report, the 20 major U.S. carriers’ on-time performance for September 2006 increased by 0.4 point compared to August 2006 but has decreased by 6.5 points compared to September 2005. The top 3 most frequently delayed flights for September 2006 were all operated by Comair from New York JFK. However, Comair ranked behind Atlantic Southeast Airlines as the second lowest on-time arrival rates carrier.

Future Chairs of Senate and House Committees The series of leadership elections for the 110th Congress is taking place in the House and Senate. The Democrats have named Harry Reid as Senate Democratic Leader and the Republicans have named Trent Lott as Senate Republican Leader. Daniel Inouye (Democrat) is the majority leader for the Commerce, Science and Transportation Senate Committee while Ted Stevens (Republican) is the minority leader. John D. Rockefeller will likely be the new Chairman of the Senate Subcommittee on Aviation and Trent Lott will likely be the minority leader for the subcommittee. Senate Committee leaders are unlikely to be finalized prior to Thanksgiving. Page 13 November 2006

INTERVISTAS NEWS November 2006

Gene Morales Joins InterVISTAS’ Winnipeg Office InterVISTAS is pleased to announce that Gene Morales has joined InterVISTAS’ Winnipeg office as a Project Analyst. Gene graduated from the University of Manitoba where he earned his Bachelor of Commerce (Hons.) degree with a major in Finance. Gene is responsible for providing research support for economic, regulatory and logistics projects. His previous experiences include analysis of Canadian International trade, financial analysis as well as datamining and interpretation.

InterVISTAS’ Expands to London, U.K. InterVISTAS is pleased to announce that it has expanded its network and opened a branch office of InterVISTAS-EU Consulting Inc. in London, U.K. The contact and address of the new London office are: Mr. John Weatherill, Director, Airline Planning 24 Carillon Court Oxford Road London, UK W5 3SX Telephone: +44 (0) 207-871-1809 Fax: +44 (0) 208-840-5778 “Our London office can support clients with their European air service development needs. We can work with targeted European air carriers in the same time zones, giving a North American airport a competitive edge in soliciting new air service,” said Weatherill. InterVISTAS-EU also provides support on government policy, market research and market intelligence.

New Presentations on the InterVISTAS Web Site Governance Policy and Financing Airports, presented by Mike Tretheway at Financing Airport Infrastructure Conference in Toronto, ON, 17 October 2006. Building Security and Prosperity, presented by Solomon Wong at Pacific Northwest Economic Region Annual General Meeting in Edmonton, AB, 17 July 2006. Managing U.S. International Civil Aviation Relations, presented by Jon Ash and Mark Haneke to the National Foreign Affairs Training Center Department of State, 10 July 2006. Overcoming Turbulence: The Recovery of the Aviation Industry, presented by Mike Tretheway at Airline Finance Conference in Toronto, ON, 6 June 2006.

Page 14 November 2006

INTERVISTAS NEWS – CON’T InterVISTAS Upcoming Speaking Engagements Mr. Paul Ouimet, Executive Vice President ACC Annual General Meeting, Fort Lauderdale, FL – 13 November 2006 Mr. Ouimet will be delivering a presentation titled, “Airport Capital Funding.” Association of Canadian Port Authorities Annual Meeting, Vancouver, BC – 19 November 2006 Mr. Ouimet will be delivering a presentation titled, “Lower Mainland Port Integration.” Mr. Solomon Wong, Vice President, Security & Planning Passenger Terminal EXPO 2006 USA Conference, Fort Lauderdale, FL – 6-8 December 2006 Mr. Wong will be delivering a presentation titled, “Open and Secure Skies.” Mr. John Weatherill, Director, Airline Planning Africa Airports 2007: Johannesburg, South Africa – 27-28 February 2007 Mr. Weatherill will be delivering a presentation titled, “Effectively Marketing Africa’s Airports.” World Regional Airports Congress: London, United Kingdom – 16-17 April 2007 Mr. Weatherill will be delivering a presentation titled, “Understanding and Applying E.U. Guidelines on Start-up Aid for Airlines at Regional Airports.” Dr. Mike Tretheway, Executive Vice President CAC 2007 Conference: Ottawa, ON – 25 April 2007 Dr. Tretheway will participate in a panel on, “The Quest for New Services.”

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 Rob Beynon at rob_beynon@InterVISTAS.com or 1-604-717-1864. To subscribe, please send an email to subscribe@InterVISTAS.com To unsubscribe, please send an email to unsubscribe@InterVISTAS.com

Page 15 November 2006