Improved Performance

2002 2001(millions) Q2 Q2 Change

Oper. Revenue $2,552 $2,564 $ (12)

Oper. Expense 2,490 2,636 (146)

Oper. Income (Loss) 62 (72) 134

Non-oper. Expense (46) (71) 25

Income (Loss) Before FX & Tax $ 16 $ (143) $ 159

FX on L/T Monetary Items 19 161 (142)

Income (Loss) Before Tax $ 35 $ 18 $ 17

Best Operating Results* of any Major International Carrier in North America

* Pre-government assistance - US = 6 majors

% OPERATING MARGIN

2001 2002

Air Canada Revenue Recovering Faster

Q2 2002/2001 % CHANGE

Air Canada’s 2nd Quarter RASM Outperforms Industry

* Mainline** Source ATA

YEAR/YEAR % CHANGE

2001 2002

July/August Traffic* Stable

2002

* Mainline

YEAR/YEAR % CHANGE

Air Canada Unit Cost** Performance Outpaces US Industry

YEAR/YEAR % CHANGE

* Mainline* * Adjusted for one-timers; US = 6 majors

2001 2002

All Expense Categories Down Except Ownership, User Fees, Mtce. and Insurance

Q2 2002/2001

Mainline

Higher Fleet ProductivityY-T-D Aug ASM’s* 2%, Block Hrs* 10%

2002

* Mainline

YEAR/YEAR % CHANGE

ASMs

Block Hours

Positioned For The Future

1. Multi-brand strategy

2. Increasing employee productivity

3. Falling distribution costs

4. Fleet simplification and commonality

5. Six Sigma

6. Low cap-ex and moderate debt repayment

Air Canada’s Products

Air Canada’s Products - Tango

• Low fare/leisure

• Simplified product

• Supplemental flying in key markets

• Medium, long haul

• Domestic, transcontinental, sun

• Point to point

• No interlining

• Low product cost

• Mainline labour cost

• Low fare/business/ leisure

• Simplified product

• Domestic/transborder

• Point-to-point, short haul

• Full interlining

• Low product cost

• Low labour cost

Air Canada’s Products - Zip

Underlying Tango Profitability

• Revenue certainty– no overbooking, no denied boardings

• No refunds• Single class seating• Low distribution costs

– 80% to 90% internet bookings– Global Distribution Systems (GDS) by-pass– all e-ticket

• “All frills extra” onboard service• No interlining, no baggage transfer• Fast turnaround, higher aircraft utilization• Low overhead

Employee Productivity Continues To Improve

Air Canada Pre-merger

Air Canada + CAIL as of June 30/00

ASM = Available Seat Mile* YTD + estimate for balance of year** Mainline

*Combined

ASM per EMPLOYEE**

Agency Commissions Cut By More Than Half Since 1998

9.3%

7.6%6.6%

5.9%

4.4%

COMMISSIONS AS % OF PASSENGER REVENUE

* YTD + estimate for balance of year

*

Narrow Body FleetMoving to all Airbus

2000 2002

167 Aircraft 157 Aircraft

DC-910%Airbus

49%B-73726%

Airbus67%

B-73717%

CRJ15%

CRJ16%

To be replaced with Airbus aircraft when leases expire - some initially going to Zip.

Implementing Six Sigma

MBB = Master Black Belt, BB = Black Belt, GB= Green Belt

Trained Personnel

Target Areas

• Operations

– Airports, Air Canada Technical Services, System Operations Control, Flight Ops, Inflight Services, Call Centres, Air Canada Jazz, Aeroplan, Air Canada Vacations

• Staff

– Marketing, Sales, Network Planning, Human Resources, Law, IT, Purchasing, Destina.ca

2002 2003

8 MBB 15 MBB30 BB 120 BB320 GB 1,380 GB

Low Cap-Ex & Moderate Debt Repayment

• Cap-Ex

– Annual steady state cap-ex = $200 million

– 2003 & 2004 aircraft deliveries fully financed

• ten A319/320/321s• two A340-500s• three A340-600s

• Debt Repayment

– $375 million second half of 2002 (mostly behind us)

– $220 million in 2003

Good Liquidity

• $0.9 billion in cash at June 30, 2002.

• Generating positive cash flow from operations.

• Approximately $2.8 billion of unencumbered assets

– aircraft

– engines and spares

– inventory

– real estate

– lease deposit receivables

– accounts receivable

Significant Value In Air Canada’s Business Units