CAIR Issue No. 50 - March 2007

CANADIAN AVIATION INDUSTRY REVIEW

In this issue…

Features Columns: Regular Reports: • Travel Between Canada and Other

Countries (p. 1) • Economic Outlook – China (p. 4) • 2006 Airline Market Capitalisation

(p. 5) • Winnipeg Airport Terminal

Construction (p. 6)

• Airline Data – Canada (p. 7) • Airline Data – U.S. (p. 8) • Selected Canadian Airport

Data (p. 9) • Industry News (p. 10) • Ottawa Report (p.13) • Washington Report (p.14) • InterVISTAS News (p. 15)

InterVISTAS’ Canadian Aviation Intelligence Report March 2007 Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved. Page 1

Angelica Sparolin Senior Research Specialist,

Economics & Transportation

TRAVEL BETWEEN CANADA AND OTHER COUNTRIES March 2007

Overall Market Summary Based on Statistics Canada’s recently released 2006 international travel data, total outbound trips by Canadians to US and overseas destinations increased 6.5% in 2006 to nearly 47 million trips, up from 44 million trips in 2005.

Inbound travel from the US and overseas countries to Canada showed the opposite trend in 2006, declining by 7.7% to 33 million trips, down from 36 million trips in 2005.

Canadian Trips Abroad Canadian trips to the United States increased by 6.3% in 2006, while overseas trips increased by 8.0%. Table 1 indicates the number of international trips by residents of Canada over the past five years. With the exception of 2003, outbound travel by Canadians over the past five years has been increasing steadily to both US and overseas destinations, growing from 39 million outbound trips in 2002 to 47 million outbound trips presently.

Annual spending by Canadians travelling to the US increased in 2006, up 6.3% to $13.2 billion. Likewise, spending by Canadians on overseas trips increased 6.2% to $10.4 billion.

Table 1: Annual International Trips by Canadians (Same-Day & Overnight)

2002 2003 2004 2005 2006 % Change 05 vs. 06

United States 34,558,900 34,151,200 36,047,300 37,794,000 40,173,400 +6.3%

Overseas 4,680,300 5,073,600 5,739,000 6,236,900 6,738,900 +8.0%

Total 39,239,200 39,224,800 41,786,300 44,030,900 46,912,300 +6.5% Source: Statistics Canada, International Travel, Advance Information.

-7.7%

+6.5%

0

10

20

30

40

50

60

2005 2005 2005 2006

Num

ber o

f Trip

s (m

illio

ns)

United States Overseas

Canadians Travelling Abroad

Visitors to Canada

-7.7%

+6.5%

0

10

20

30

40

50

60

2005 2005 2005 2006

Num

ber o

f Trip

s (m

illio

ns)

United States Overseas

Canadians Travelling Abroad

Visitors to Canada


TRAVEL BETWEEN CANADA AND OTHER COUNTRIES – CON’T Non-Resident Trips to Canada In 2006, visits to Canada by US residents experienced a decline of 8.8% to approximately 29 million trips. In contrast, visits by overseas travellers to Canada increased marginally (+0.3%) to 4.5 million trips in 2006. Spending by US visitors decreased 2.9% to $8.7 billion in 2006, while spending by overseas visitors increased 3.2% to $7.7 billion.

Table 2 shows the number of same-day and overnight trips to Canada by U.S. and overseas visitors for the past five years. Visits from U.S. residents have been steadily declining over the period, decreasing from approximately 41 million visits in 2002 to 29 million visits in 2006. In contrast, visits from overseas residents have generally been increasing over the past five years, with the exception of 2003, when declines were observed.

Table 2: Annual Trips to Canada by Non-Residents (Same-Day & Overnight)

2002 2003 2004 2005 2006 % Change 05 vs. 06

United States 40,878,200 35,509,400 34,626,100 31,655,000 28,872,700 -8.8%

Overseas 4,018,100 3,393,200 4,218,600 4,505,100 4,517,500 0.3%

Total 44,896,300 38,902,600 38,844,700 36,160,100 33,390,200 -7.7% Source: Statistics Canada, International Travel, Advance Information.

Table 3 provides additional detail on visitors from Canada’s top overseas markets. Travel from the United Kingdom, Canada largest overseas market, decreased of 4.3% to 882,000 trips. Additionally, visitors from Japan, Germany, Australia and Hong Kong all decreased from 2005 levels. The CTC attributes some of the declines in key markets to the increased cost of trips to Canada, as well as low levels of awareness, competition from new/previously inaccessible destinations, the rapid growth of the online travel market around the world and the availability of air access.1 In contrast, positive growth was observed in visitors from Mexico (+10.1%), India, (+9.7%) South Korea (+5.5%) and France (+3.2%). China registered the largest annual increase in 2006, up 22.9% to 148,000 visits.

1 “Winter Ushers in Cooling Trend,” CTC Tourism Intelligence Bulletin, Issue 36, November 2006.


TRAVEL BETWEEN CANADA AND OTHER COUNTRIES – CON’T Table 3: Top Overseas Markets Non-Resident Visitors (Same-Day & Overnight)

2005 2006 % Change

United Kingdom 921,200 881,700 -4.3% Japan 441,800 401,100 -9.2%

France 362,000 373,600 3.2%

Germany 336,600 313,000 -7.0% Mexico 194,300 213,900 10.1%

Australia 209,200 206,500 -1.3%

South Korea 191,300 201,800 5.5%

China 120,300 147,900 22.9% Netherlands 122,200 121,800 -0.3%

Hong Kong 113,800 111,900 -1.7%

India 82,000 90,000 +9.7% Other overseas countries 1,410,300 1,454,300 +3.1%

Total Overseas 4,505,000 4,517,500 0.3% Source: Statistics Canada, International Travel, Advance Information.


Josh Drury Senior Analyst

ECONOMIC OUTLOOK - CHINA 13 March 2007

China’s economy – a slowdown? In late February, global investors took notice of a sharp decline in mainland China’s largest stock market. Shares traded on the Shanghai Stock Exchange (SSE) dropped 9% in one day – the largest single-day drop in 10 years. This drop had a ripple effect in markets in Asia, Europe and North America which saw subsequent but less pronounced drops. The SSE is still a small exchange in terms of volume but nonetheless the news of the drop had significant influence on markets worldwide. After all, China is an increasingly important player globally with one of the fastest growing economies and becoming one of the largest trading partners for many other countires, including the U.S. and Canada. If this drop was indicative of a slowdown in China’s economy, the rest of the world would feel its effect. So, does this indicate trouble for China’s economy?

The short answer is no. The SSE had experienced a rapid run-up in the year and a half leading to the recent drop (approximately tripling in value in that period), and the decline is widely considered to be a correction to this recent growth. It may also reflect speculation that the Chinese government may impose stricter restrictions on trading, though this has not been substantiated. Either way, there does not apear to be cause for concern outside of investors in mainland China itself. The Chinese economy is continuing in its recent growth trends, with 2006 year-over-year GDP gorwth at an estimated 10.5%, its highest rate of growth since 1995. It is expected that growth should ease somewhat, but remain strong over the next several years. The government has targeted a growth rate of 8% annually over the period 2006-2010, and current projections show that it will exceed that over the first few years of this period.

The Chinese government is cognicent of some of the drawbacks of excessively high growth, including inflationary pressures and the growing wealth gap between its urban and rural areas. As a result, it is considering measures to cool the economy, including raising interest rates and allowing more flexibility for the yuan to move against other currencies. The latter would be welcome news to the U.S., as the yuan had previously been fixed against the dollar at what many considered a highly unfavourable rate contributing to the growing trade imbalance between the two countries. Since 2005, the Chinese government has allowed limited movement in the currency.

Overall, if the recent stock market concerns revealed anything about China’s economy, it is its growing importance in the global market. It may be increasingly true that when China sneezes, the rest of the world gets a cold, but currently, there is little reason to worry about China’s economic health.

Forecast Historical

Data

Sources: National Bureau of Statistics of China for historical data and preliminary 2006 growth; The Economist for forecast growth.

Real Chinese GDP (Annual % Growth)

4%

5%

6%

7%

8%

9%

10%

11%

12%

1996

1998

2000

2002

2004

2006

2008

2010


Geneva Tretheway Project Analyst

2006 AIRLINE MARKET CAPITALISATIONS 19 March 2007

Airline Group Analysis Airline year-end market capitalisation performance took a number of turns in 2006. As Figure 1 illustrates, U.S. full-service carriers (FSC) experienced large gains in their market capitalisations versus 2005. Low-cost carriers (LCC) were a mixed bag, with Frontier and JetBlue showing increases that were less dramatic than their full-service competitors, while AirTran and Southwest each showed decreases. U.S. Airways and Alaska, which some consider to be not quite low-cost, and not quite full-service, also saw large increases in their market caps of 100% and 79% respectively.

Figure 1: Percent Change in Market Capitalisation (2006 over 2005)

0

2

4

6

8

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14

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Air

Can

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Wes

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Am

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Mar

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Valu

e ($

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20052006

Canada US Full Service US Low-Cost US Other International

-19%

17%

73%

165%

-28%

11%

21%

100%

-7%

79%

79%50%

Sources: Canadian Carriers: Air Canada and WestJet 2005 Annual Reports and Yahoo Finance. U.S. & International Carriers: Aviation Daily Stock Performance, December 2006. Notes: Air Canada and WestJet prices in Canadian dollars. U.S. & International carriers in US dollars. Northwest, United and Delta Chapter 11 bankruptcy protection prevents inclusion in this analysis. In Canada, however, LCC WestJet was the stronger performer with a 17% increase in market cap value while Air Canada declined 19% in 2006. Market capitalisation for the two airlines is relatively close, at C$2.4 billion (US$2.1 billion) for Air Canada and C$1.8 billion (US$1.5 billion) for WestJet.

Actual market cap values tell a different story than the year-over-year changes. Despite Southwest’s drop in market cap, the total value of the airline’s market cap is highest among the North American airlines, at US$12 billion. This compares to American and Continental with market caps in the US$3 to US$6 billion range and showed large year-over-year increases.

By comparison in Europe British Airways and Ryanair have market caps of similar value at US$11.8 billion and $12.6 billion respectively and have both shown strong growth 79% and 50%.


Josh Drury Senior Analyst

WINNIPEG AIRPORT TERMINAL CONSTRUCTION March 2007

Winnipeg Airport Authority (WAA) announced in February 2007 that construction of the new air terminal building at Winnipeg James Armstrong Richardson International Airport will commence this spring. The terminal construction is the latest and largest component of the airport’s site redevelopment plan, which commenced in 2005 and has already seen the completion of a new parkade and much of the new groundside and roadway infrastructure. In addition to the terminal, remaining components include the completion of roadways and improvements to the airside infrastructure, also scheduled to start this year.

The new terminal is an integral component of preparing the airport for future growth and meeting the evolving needs of its users. Redevelopment of the existing terminal building had been considered but rejected as more expensive than new construction and as it would cause considerable disruption to passengers. The existing terminal was opened in 1964 and originally served 500,000 passengers annually; since then passenger volumes at the airport have grown more than six-fold, with the airport serving nearly 3.4 million passengers in 2006. The new terminal will provide ample capacity to serve current and projected passenger volumes for decades to come, including the ability to expand the new terminal in as-yet unscheduled “Phase II” development in the future.

In addition to improved capacity, the terminal will include a number of design features to accommodate current and future needs and provide passenger comforts, including:

Common-use passenger processing, to improve convenience for passengers and reduce carrier costs.

Central pre-board screening for all domestic and transborder flights.

Expanded security and customs processing facilities, to minimise processing time and accommodate evolving security and regulatory requirements.

Improved concessions including restaurants and retail shopping.

Design to emphasise use of light, space and transparency, to improve passenger comfort and improve wayfinding and mobility.

Universal design to accommodate passengers of all abilities. In addition to the ongoing benefits of the new terminal and related site improvements, the construction itself is producing economic benefits for Winnipeg and the surrounding region. In the past year, airport redevelopment was responsible for over 375,000 person-hours of onsite work . Overall direct economic impacts of the full site redevelopment plan, as estimated in a 2006 study by InterVISTAS Consulting, include over 3,700 person-years of employment, $180 million in GDP, and $570 million in economic output. Site redevelopment is being paid for entirely through Airport Improvement Fees (AIFs) paid by users of the airport.

Construction of the new terminal building is expected to be complete by late 2009.


AIRLINE DATA – CANADA

Traffic and Load Factors on Canada’s Major Air Carriers February 2007

Passenger Traffic Revenue Passenger Kilometres

Capacity Available Seat Kilometres Load Factor

Air Carrier % Change over 2006

% Change from 2005

% Change over 2006

% Change from 2005

Change over 2006

Change from 2005

Air Canada1 +4.5% +6.1% +2.8% +3.3% +1.3pts (to 80.0%)

+2.1pts (from 77.9%)

Domestic (Mainline) +5.1% +0.0% +0.0% -7.3% +4.1pts +6.1pts

Jazz +18.5% +118.1% +13.4% +105.4% +3.3pts +4.4pts International & Charter +4.2% +8.5% +3.8% +7.4% +0.3pts +0.7pts

WestJet +22.2% +48.7% +16.7% +28.0% +1.5pts (to 82.3%)

+9.4pts (from 72.9%)

Analysis:

Air Canada Mainline’s domestic passenger traffic for February increased by 5.1% over 2006, while domestic capacity remained the same as the previous year. This results in the fourth consecutive month where traffic growth outpaced capacity increases, shown by the increase in load factor by 4.1 points. Air Canada continues to transfer seat capacity to Jazz, resulting in a 13.4% increase in Jazz’s seat capacity in February over 2006. Over a two-year span, both traffic and seat capacity for Jazz more than doubled for the month of February.

Air Canada’s international load factor increased by 0.4 percentage points over February 2006, despite the expansion in international capacity by 3.8%. This is largely due to increases in February’s passenger traffic, particularly in the Pacific region, by a total of 4.2% over 2006.

For the month of February, WestJet’s traffic and capacity levels increased by 22.2% and 16.7% respectively over 2006. This resulted in growth in the load factor by 1.5 percentage points to 82.3% over 2006.

______________________

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

-5%

0%

5%

10%

15%

Dec-05

Jan-06

Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan-07

Feb

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

-5%

0%

5%

10%

15%

Dec-05

Jan-06


Feb

Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

0%5%

10%15%20%25%30%35%

Dec-05

Jan-06


Feb

RPK ASK

WestJetWestJet

0%5%

10%15%20%25%30%35%

Dec-05

Jan-06


Feb

RPK ASK

WestJetWestJet

Air Canada Domestic Mainline Air Canada Domestic Mainline

-10%-5%0%

5%10%

Dec-05

Jan-06


Feb

Dom RPK Dom ASK

Jazz data is not included in this graph

Air Canada Domestic Mainline Air Canada Domestic Mainline

-10%-5%0%

5%10%

Dec-05

Jan-06


Feb

Dom RPK Dom ASK

Jazz data is not included in this graph


AIRLINE DATA – U.S. U.S. Airlines Release February 2007 Traffic Figures

Airline Traffic (RPMs – millions)

Capacity (ASMs – millions) Load Factor

1,739

↑3.2%

2,175

↑7.6%

80.0%

↓3.4 pts

622

↓2.3% 897

↓1.5% 69.4%

↓0.6 pts

4,845

↑3.3% 7,257

↑6.0% 66.88%

↓1.7 pts

1 6,477

↑7.6%

8,415

↑6.2%

77.0%

↑1.0 pts

2 8,191

↓0.6% 10,564

↓1.5% 77.5%

↑0.6 pts

9,732

↓1.3% 12,720

↓3.2% 76.5%

↑1.5 pts

7,940

↑2.6%

10,700

↑2.8%

74.1%

↓0.2 pts

5,644

↑2.8%

7,062

↑3.9%

79.9%

↓0.9 pts

2 4,514

↑1.9% 5,9159

↑0.9% 76.3%

↑0.7 pts

264

↓0.5% 350

↓6.6% 75.5%

↑4.6 pts Notes: 1. Mainline operations only. 2. Load factor includes scheduled service only. Sources: Carrier traffic reports.

InterVISTAS’ Canadian Aviation Intelligence Report March 2007 Copyright ©2007 InterVISTAS Consulting Inc., all rights reserved.

Page 9

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

Trudeau Calgary Edmonton Ottawa Winnipeg Halifax Victoria Kelowna Saskatoon Regina St. John’s

January +1.0% -1.1% +0.9% +9.2% +10.7% +1.0% +2.8% +5.4% +6.2% +20.3% +10.1% +4.4% +9.3% February -0.2% +1.5% +1.9% +8.1% +10.9% +0.2% -0.6% +1.2% +1.4% +11.0% +3.0% -2.8% +6.7%

March +3.2% +3.5% +7.2% +9.4% +13.0% +3.9% +2.0% +4.8% -3.5% +15.4% +0.1% -3.8% -5.8% 1st Quarter +1.4% +1.3% +3.4% +8.9% +11.6% +1.8% +1.4% +3.8% +0.9% +15.5% +4.4% -0.8% +2.6%

April +6.2% +4.3% +6.5% +19.6% +20.7% +3.8% +0.6% +6.8% +4.2% +17.9% +9.5% +13.9% +13.1% May +4.8% +2.7% +8.3% +16.0% +20.6% +0.3% +6.4% +8.4% +10.3% +13.2% +7.7% +23.3% +15.1% June +2.9% +2.6% +4.5% +9.5% +13.2% +1.8% +4.1% +0.7% +8.6% +13.4% +5.3% +12.5% +3.9%

2nd Quarter +4.6% +3.2% +6.4% +14.8% +18.1% +1.9% +3.8% +5.2% +7.8% +14.7% +7.4% +16.3% +10.3% July +2.2% +4.8% +1.9% +7.4% +13.8% -2.1% +4.9% +8.5% +7.4% +14.4% +5.9% +7.1% +13.2%

August +6.8% +3.9% +3.5% +10.2% +18.2% +2.2% +8.5% +7.1% +11.3% +12.2% +5.8% +15.9% +11.7% September +2.2% +2.1% +2.6% +10.0% +13.1% 0.0% +8.8% +4.9% +6.9% +16.6% +6.9% +10.4% -0.5%

3rd Quarter +3.8% +3.7% +2.7% +9.2% +15.1% +0.1% +7.3% +6.9% +8.6% +14.3% +6.2% +11.1% +8.7% October +2.6% +2.3% +3.9% +9.9% +18.4% +2.3% +7.7% +6.2% +8.9% +13.7% +7.1% +6.2% +1.7%

November +3.9% +3.7% +8.6% +14.1% +15.4% +3.0% +8.3% +0.6% +2.7% +14.5% +2.7% +3.7% +0.2% December +6.4% +6.2% +8.7% +11.4 +18.2% +3.8% +3.4% -2.4% -0.1% +14.5% +3.7% +10.2% -1.1%

4th Quarter +4.3% +4.1% +7.0% +11.7 +17.4% +3.0% +6.4% +1.7% +3.9% +14.3% +4.5% +6.7% +0.3%

2006

Full Year +3.5% +3.1% +4.7% +11.1 +15.5% +1.7% +4.8% +4.6% +5.4% +14.7% +5.6% +8.0% +6.0%

2007 January +3.0% +5.5% +10.3% +10.8% +18.3% +5.9% +3.2% +2.3% +4.7% +15.2% n/a +18.8% -4.6%

Source: Transport Canada and individual airports’ traffic reports. Note: n/a refers to statistics that are not available at press time.


NEWS ARTICLESAIR CANADA UPDATE AIR CANADA ANNOUNCES NEW NON-STOP SUMMER SERVICES AT VANCOUVER, CALGARY AND EDMONTON Air Canada Jazz will be operating 3 new, non-stop, summer services: Vancouver-Sacramento, Calgary-Seattle and Calgary-Prince George, using 50-seat Bombardier CRJ aircraft. Air Canada will also be increasing flight frequencies for the following non-stop routes: Calgary to Montreal, Saskatoon, Halifax, Comox, Yellowknife and New York; Vancouver to Los Angeles, San Francisco Seattle and Beijing; and Edmonton to London Heathrow, Montreal, Yellowknife and Winnipeg. Air Canada will also be introducing daily, non-stop Edmonton-Halifax service.

AIR CANADA ANNOUNCES NEW 777 ROUTES Air Canada announced the first route for its new Boeing 777 aircraft. The first service will be Toronto-London Heathrow in April. Toronto-Frankfurt and Toronto-Tokyo begin in June and Toronto-Hong Kong in August.

AIR CANADA RE-ANNOUNCES NONSTOP CANADA-AUSTRALIA SERVICE Effective 14 Dec 2007, Air Canada will again offer non-stop service between Canada and Australia. This daily service between Vancouver and Sydney will be operated using their new Boeing 777 aircraft.

AIR CANADA INTRODUCES U.S. SAMPLE PASS Available for sale between 23 February to 31 March, Air Canada is offering the U.S. Sample Flight Pass, which allows for four one-way trips on selected days of the week before 15 May 2007. Priced at $636 before tax or $159 per trip, the ‘North America East’ version of the pass allows for travel from Atlantic Canada, Quebec, Ontario and Manitoba to Eastern U.S. (East

Coast and Midwest, excluding Florida and Texas) and the ‘North America West’ version allows for travel from B.C., Alberta and Saskatchewan to Western U.S. (California, Las Vegas, Phoenix, Houston, Seattle and Portland).

AIR CANADA OFFERS UNLIMITED TRAVEL TO CANADA Offered for the first time to the United States, Air Canada is introducing “subscription flight passes” that allow for unlimited travel to Canada for a fixed monthly rate. These passes offer the choice of Tango Plus or Latitude fare options, three-month or six-month travel periods and travel within any one of eight geographic zones served by Air Canada and Air Canada Jazz. Depending on the travel options selected, prices vary from CAD$1,999 to $6,500.

WESTJET UPDATE WESTJET’S TRAVEL PASS RETURNS

WestJet Airlines announces the

return of its Travel Pass – a pass that offers ten transferable, one-way flights for the routes Toronto-Ontario and Toronto-Montreal, valid for a twelve month period. Priced at $1,700, including all taxes, fees and surcharges, the Travel Pass also includes a $150 travel credit redeemable for any WestJet flight and three free tickets to WestJet’s Lounge in Ottawa.

WESTJET OFFERS ONLINE BOOKING TO PEOPLE WITH VISION LOSS WestJet Airlines, in conjunction with CNIB, will be offering a new online service that will allow people with vision loss to book flights online using JAWS, a screen reading software. Upcoming software demonstrations are to be announced.


NEWS ARTICLESWESTJET UPDATE – CON’T WESTJET PREDICTS FLEET EXPANSION OF 21 AIRCRAFT BY 2009 In agreement with Singapore Aircraft Leasing Enterprises, WestJet has finalized a term sheet for the delivery of two Boeing 737 Next-Generation aircraft by 2009, including one 700 series and one 800 series. With the delivery of six aircraft in 2007, six aircraft committed for 2008 and nine scheduled for 2009, its current registered fleet of 64 aircraft is expected to expand to 85 aircraft by 2009.

OTHER CANADIAN AIRLINE NEWS PORTER LAUNCHES NEW MULTI-TRIP PASSES Canada’s newest air carrier, Porter Airlines, now offers multi-trip passes available in three different pricing categories – $1,050, $2,290 and $2,840. These prepaid, transferable passes provide travellers with access to 10 one-way trips between Toronto, Ottawa and Montreal.

PORTER ANNOUNCES SUMMER ROUTE TO HALIFAX Porter Airlines will be offering service from Toronto City Centre Airport to Halifax from 29 June until 4 September. There will be a total of four daily return trips for the Toronto-Halifax route, with two flights via Ottawa and two flights via Montreal. Alterations to current routes include a reduction of Ottawa-Toronto and Montreal-Toronto service by 3 daily return trips per route to seven daily return trips and six daily return trips, respectively. Porter uses 70-seat Bombardier Q400 turboprop aircraft.

U.S. AIRLINES NEWS HORIZON AIR BEGINS SANTA ROSA SERVICE Horizon Air’s new service operating from Seattle to the Sonoma County Airport begins 20 March. To celebrate the new service, Horizon Air will be offering microbrew and wines from Sonoma County in all of its in-flight services through April.

ATLANTIC SOUTHEAST AIRLINES CONTRACTS FOR JET MODIFICATIONS ExelTech Aerospace Inc. has been retained by Atlantic Southeast Airlines for airframe and avionics modification and structural upgrades on its 44 Bombardier CRJ-200 aircraft. This contract work will last 14 months and will be performed at the Montreal Regional Jet Maintenance Facility at Pierre Elliott Trudeau International Airport.

CARGO UPS LAST TO WITHDRAW A380 ORDERS On 2 March, UPS announced its order cancellation for 10 A380 freighters a week after the restructuring of their purchase agreement with Airbus. UPS was prompted to withdraw from the program due to a further delayed delivery date beyond 2012 that was caused by Airbus’ switch in focus and resources from the freighter project to the 555-seat passenger version. With UPS being the last cargo carrier of the program, Airbus will now focus on program development for the passenger versions of the A380 to be delivered later this year.


NEWS ARTICLES CARGO – CON’T VOLGA-DNEPR AIRLINES ORDERS FIVE 747-8 FREIGHTERS

On 12 March, Volga-Dnepr Airlines announced its order for

five Boeing 747-8 freighters list priced at $1.4 billion, along with options to purchase an additional five aircraft. The new aircraft will be operated by Air Bridge Cargo, a subsidiary of the Volga-Dnepr Group. Volga-Dnepr is the seventh customer to announce its purchase of this new aircraft.

OTHER LOWER FUEL PRICES IMPACT CANADA’S AIR TRANSPORTATION INDUSTRY According to the Conference Board’s Canadian Industrial Outlook: Canada’s Air Transportation Industry-Winter 2007, profits for Canada’s air transportation industry are to recover in 2007 due to lower fuel costs. In 2006, profits declined by more than 30 percent to $372 million over 2005 due to increased labour costs. With the strong growth in domestic demand, it is anticipated that profits will grow to $482 million in 2007.

31 MILLION PASSENGERS AT GREATER TORONTO AIRPORT IN 2006 According to the Greater Toronto Airport Authority, 2006 financial and operational results indicate that the airport handled 31 million passengers in 2006 – an increase in passenger traffic by 3.5% over 2005. GTAA generated $1.1 billion in total revenues, while incurring $560 million of total operating expenses in the fiscal year.

AIRPORT IMPROVEMENT FEE INCREASES AT CALGARY AIRPORT The Calgary Airport Authority announces a rise in airport improvement fee at Calgary International Airport by five dollars for every originating and departing, non-connecting passenger, effective 1 June. This fee has increased to $15 for all flights destined to Edmonton, Lethbridge, Medicine Hat and Lloydminster and to $20 for all other flights. The reason for this increase is primarily due to the rise in passenger traffic in recent years and necessary construction costs.

CAE SELLS AIRCRAFT SIMULATORS CAE, service provider of modelling technologies and civil aviation training, has sold

two Boeing 787 full-flight simulators to Qantas, one B787 full-flight simulator to China Eastern Airlines and one B737 full-flight simulator to KLM Royal Dutch Airlines. The value for these aircraft simulator orders total C$67 million, resulting in the current count of 33 full-flight simulators sold in this fiscal year.

DELTA AIR LINES TERMINATES MAINTENANCE CONTRACT WITH ACTS Delta Airlines has decided to terminate their airframe maintenance contract on Boeing 767s with ACTS, a subsidiary of ACE Aviation Holdings Inc. that offers maintenance, repair and overhaul aircraft services. This early termination, due to differing cost expectations, will result in a reduction of 700 workers out of 1,000 at its Vancouver location.

326 BOMBARDIER AIRCRAFT DELIVERIES IN 2006/2007

Bombardier delivered 326 aircraft in total for the fiscal year ended January 2007, including

212 business jets, 112 regional airliners and two amphibious aircraft. Total aircraft deliveries declined by 3% compared to the previous fiscal year.


Martin Copeland Senior Vice President, Aviation

OTTAWA REPORT March 2007

Canada-US Open Skies Signed Transport Minister Lawrence Cannon and US Secretary of Transportation Mary Peters finally signed the Canada-US open skies agreement on 12 March 2007. The new agreement goes beyond the 1995 open transborder agreement by including unlimited 5th freedom rights for passenger carriers, plus 5th, 7th and co-terminalisation rights for cargo carriers. A full description is available in the December 2005 issue of Canadian Aviation Intelligence Report.

Children Exempted from Passport Requirements The U.S. Department of Homeland Security announced that children under the age of 16 will not be required to show a passport under the new passport rules for the Western Hemisphere Travel Initiative (WHTI). Children under the age of 16 will need to provide parental consent and a certified copy of their birth certificate when crossing the border. Children between the ages of 16 to 18 will also be exempted from showing their passports when traveling in selected adult-supervised groups, including school groups, sports teams and social, cultural or religious organisations. However, passports are required for children of all ages for air travel purposes. WHTI is a “U.S. law that requires all travellers, including Canadians, to carry a valid passport or other appropriate secure document when travelling to the United States from within the western hemisphere.” 1

North Atlantic Air Traffic Now Tracked by New Canadian Technology A new design in Canadian technology now allows Canada to track more than 1,000 flights a day across the entire North Atlantic airspace spanning from North America to European shores. This oceanic air traffic management device, known as the Shanwick Automated Air Traffic System (SAATS), was created by NAV Canada, in partnership with UK’s NATS (formerly National Air Traffic Services), and is now operational in Prestwick, Scotland. SAATS allow direct satellite communication between air traffic controllers and pilots through a text-based data link such that air traffic can be viewed as a “moving picture”.

Study says Cancellation of GST Visitors’ Rebate will hurt Canada According to a new study, “Economic Impact of Abolishing Canada’s Visitors’ Rebate Program, released in January 2007 by CRA International as commissioned by Global Refund Canada, the abolishment of the GST Visitors’ Rebate Program by the federal government will have negative impacts on Canadian tourism and its economy. Tourism spending is expected to decline by $213 million per year as the first-round impact due to the cancelling of this program. In addition, the study shows that nation-wide GDP will decrease by approximately $1.4 million per year and 1,900 jobs will be lost as a result of this federal government decision.

Canadian Airports Council Suggests Arrivals Duty Free in Canada Recent statistics from Statistics Canada show that the international travel deficit is at an all-time high. The Canadian Airports Council claims that changes in tax rules to allow arrivals duty free in Canada could generate an additional $50 million in revenues for Canadian airports and duty free operators. In addition, this could also lead to the creation of 340 jobs and $3.2 million in additional federal tax revenues. It is believed that by allowing international travellers to purchase duty free Canadian goods upon their arrival, travellers will be more likely to purchase goods in Canada rather than abroad.

1 According to the Canada Border Services Agency website


WASHINGTON REPORT March 2007

Senate Passes Act on Cargo Screening Following similar legislation adopted by the U.S. House of Representatives in January, the U.S. Senate approved the Improving America's Security Act of 2007 which provides for changes to the Aviation Security Improvement Act. Key components of the Act require the Transportation Security Administration (TSA) to develop and implement a system within three years to provide for the screening of all cargo being carried on passenger aircraft. Additionally, the Act requires the TSA to provide specialized training to Transportation Security Officers (TSOs) for the development of advanced security skills including behavior observation and explosives detection. The measure now proceeds to a House-Senate conference where a committee will resolve the differences between the House and Senate-passed versions of the legislation.

FAA proposes user charges to fund Air Traffic The FAA has proposed replacing the current Air Traffic Organisation funding (by ticket, cargo and fuel taxes as well as general fund contribution) with a new 'hybrid structure' combining user fees, fuel taxes and much reduced general fund contributions. FAA has proposed a governance structure which creates an Air Transport System Advisory Board to advise on fee changes, but ultimately the Administrator will set fees and taxes. Neither Congress nor the Judiciary will have approval or appeal roles. The only appeal would be to the Secretary of Transport, confining all powers within the Executive branch of government. The proposed legislation will require that fees and taxes be based on a cost allocation study conducted by the FAA. The Agency released a study with the legislation, which essentially assumes that all 'high performance' aircraft flights drive the same ATO costs. All turboprop or turbofan aircraft are considered to be high performance, ranging from 5 seat single engine turboprops to 747-400 aircraft. Both the House and Senate have begun to hold hearings on the FAA bill. Both promise a rough ride for the bill, due both to the removal of Congress from the FAA rate and tax setting process, the lack of judicial appeal, and the simplistic cost allocation approach.

FAA Proposes Change in Pilot Retirement Age The Federal Aviation Administration (FAA) has proposed for the mandatory retirement age for pilots to be changed from 60 to 65. Similar to standards of the International Civil Aviation Organization (ICAO), this proposal gives a pilot over the age of 60 the right to operate an aircraft, under the condition that the other pilot is less than 60 years old.

ICAO Proposes Aviation Emissions to be Included into National ETS ICAO’s Committee on Aviation Environmental Protection (CAEP) has reached international consensus, after a two-week-long meeting, on guidance for states expecting to include international aviation into emissions trading schemes (ETS). Components of the proposed guidelines include the accountability of aircraft operators for total emissions of all covered flights included in the ETS. According to Giovanni Bisignani, IATA’s Director General and CEO, the proposed guidelines will provide “a global approach that provides a level playing field for airlines and avoids competitive distortions” that may result from unilateral action by states.1 The primary motive behind the ETS is “to reduce emissions in a cost-effective manner” by placing rights to releasing emissions on member states.2

1 According to IATA’s press release: “UN Guidelines on Emissions Trading Welcomed”, 17 February 2007

2 According to IATA’s “Principles of Emissions Trading” publication

Jon Ash

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


INTERVISTAS NEWS March 2007

Brian Kelly Joins InterVISTAS’ Ottawa Office InterVISTAS is pleased to announce that Brian Kelly has joined our office in Ottawa as Executive Consultant. Brian has been an independent consultant since 1998 in public policy and government relations serving private sector clients, industry associations and other organizations. Some of the clients he has worked for include: the Vancouver Port Authority, the Canadian Electricity Association, Newbridge Networks, AT&T Corporation, Canadian Wireless Telecommunications Association, and Cogeco Inc. Prior to starting his own consulting business, he held a number of management positions for various private sector firms. David Berrington Joins InterVISTAS’ InterVISTAS is pleased to announce the appointment of David Berrington as Director, Human Resources and Corporate Services for the InterVISTAS Group. David joins the Vancouver office. Prior to joining InterVISTAS, David was Director, Human Resources for an engineering consulting practice of over 1000 employees, where he was responsible for recruitment, performance management and employee relations. Mr. Berrington holds a Bachelor of Arts Degree and has a Certified Human Resources Professional (CHRP) designation. He has extensive experience as a meeting facilitator.

Paulus Mau Joins InterVISTAS’ Vancouver Office InterVISTAS is pleased to announce that Paulus Mau will join InterVISTAS as Project Manager, Market Research, effective 19 March 2007. Mr. Mau has a multidisciplinary background in consumer and market research, data modeling, policy analysis and web programming and has served public, private, and academic clients in Europe and North America. Prior to joining InterVISTAS, he designed and managed web-based research and data instruments for the tourism, transportation, and natural resource industries. Mr. Mau holds a Masters degree in Resource and Environmental Management, and has a Bachelor of Science (Honors) degree in Environmental Biology. He is a co-author of a paper on greenhouse gas emissions recently published in The Energy Journal.

New Publications Available at www.intervistas.com InterVISTAS recently prepared a briefing note regarding the recently announced European Commission’s Airport package. This is available at www.intervistas.com.


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.

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INTERVISTAS NEWS – CON’T March 2007

InterVISTAS Upcoming Speaking Engagements Mr. Martin Copeland, Senior Vice President, Aviation • Airline Fleet Planning Conference: Bellingham, Washington – 22-23 March

2007 Mr. Copeland will be delivering a presentation titled, “Airline Fleet Planning and Airport Perspective.” Mr. John Weatherill, Director, Airline Planning • 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 and Chief Economist • Canadian Airports Council’s Airports Canada 2007 Conference and

Exhibition: Ottawa-Gatineau, QC – 25-26 April 2007 Dr. Tretheway will participate in a panel on, “The Quest for New Services.”

• BCAC Airports Conference: Vancouver, BC – 10 May 2007 Dr. Tretheway will be delivering a presentation titled, “State of the Aviation Industry.”

• University of British Columbia International Conference on Gateways and Corridors: Vancouver, BC – May 2-4

Dr. Tretheway will be delivering a presentation titled “Gateway and Corridor Performance: What is Important?”

Mr. Gerry Bruno, President and Chief Executive Officer • ATAC Spring Symposium: Ottawa, Ontario – 16 May 2007

Mr. Bruno will be delivering a presentation titled, “Seamless Border Strategies for Gateway Competitiveness.”

Documents

CAIR Issue No. 50 - March 2007