cair issue no. 46 - november 2006

CANADIAN AVIATIONINDUSTRY REVIEW

In this issue…

Features Columns: Regular Reports:• 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)

• 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)

InterVISTAS’ Canadian Aviation Intelligence ReportNovember 2006 Copyright ©2005 InterVISTAS Consulting Inc., all rights reserved.Page 1

Amy Yeung

Senior Analyst

AIR CANADA’S DOMESTIC SEAT CAPACITYFALL/WINTER 2006/2007November 2006

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

Air Canada’s Total Domestic Seat CapacityThree Months Ending January Change 2007 vs. 2006

Market Segment 2007 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%

Grand Total 6,724,319 5,980,853 +743,466 +12.4%Source: OAG Max. Notes: Includes Air Canada mainline and Jazz.

Changes in Inter-provincial and Intra-provincial Seat CapacityOf 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 capacityhas increased by 15% compared to last year. The Ontario inter-provincial market experienced a139,700 increase in seat capacity, the highest increase in absolute seats among all provinces andterritories. Meanwhile, the Newfoundland and Labrador market experienced the greatest percentageincrease (+26%). In contrast, Air Canada reduced Yukon’s seat capacity by 14%.

Air Canada’s Inter-provincial Seat CapacityThree Months Ending January Change 2007 vs. 2006


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%


AIR CANADA’S DOMESTIC SEAT CAPACITYFALL/WINTER 2006/2007 – CON’T

Three Months Ending January Change 2007 vs. 2006


Manitoba 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%

Grand Total 4,687,347 4,088,118 +599,229 +15%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 theB.C. intra-provincial market (+41,600). In contrast, Alberta’s 37,400 increase in intra-provincial seatcapacity translates to a 16% percentage increase, the highest among the six provinces.

Air Canada’s Intra-provincial Seat CapacityThree Months Ending January Change 2007 vs. 2006


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.


Doris Mak

Manager, Special Projects

CRUDE OIL PRICES DROP BELOW$60November 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 thepeak, 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, areview of futures prices indicate that crude oil prices are expected to rise to the $60-$70 price rangeduring the next twelve month time period.

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

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

... Crude oil futures prices up above $65 in the long termFutures prices in November 2006 are higher relative to futures prices established in January 2006. Afutures 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 $65range.

Crude Oil Futures Prices

$20

$30

$40

$50

$60

$70

$80

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Month of Delivery

US$

Per

Bar

rel

Crude OilFutures Prices

- - - - -

May 2003

Sep 2004

Apr 2005

Nov 2006

Dec 2005

Sep 2005

Crude Oil Spot Prices

Jan 2006

Oil prices drop 25% to $58from summer peak, but futures

prices above $65 in 2011.


AIRLINE DATA – CANADATraffic and Load Factors on Canada’s Major Air CarriersOctober 2006

Passenger TrafficRevenue Passenger

Kilometres

CapacityAvailable Seat Kilometres Load Factor

Air Carrier% Changeover 2005

% Changefrom 2004

% Changeover 2005

% Changefrom 2004

Changeover 2005

Changefrom 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 downby 0.8% and 0.3% respectively, thedecline has lessened in Octobercompared to previous months. Jazz,however, continues to experiencegrowth in traffic and capacity by 39.1%and 37.2% respectively, with thecontinual transfer of seat capacity fromAir Canada Mainline to Jazz.

• Air Canada’s international and charterservice load factors increased by 1.7points over October 2005, despite the risein capacity levels by 0.6%. This isbalanced by the expansion ofinternational passenger traffic by 2.9%,mainly caused by the rise in U.S.transborder traffic.

• WestJet continues to handle passengertraffic growth by 24% for the month ofOctober. As a consequence, a rise inload factor by 1.4 points allows WestJetto reach a six-year high of 74.9%, oncapacity expansion of 22% over 2005.

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

Air Canada Domestic MainlineAir Canada Domestic Mainline

-10%

-5%

0%

5%

Aug-05

Sep Oct Nov Dec Jan-06

Feb Mar Apr May Jun July Aug Sept Oct

Dom RPK Dom ASK

Jazz data is not includedin this graph

Air Canada Domestic MainlineAir Canada Domestic Mainline

-10%

-5%

0%

5%

Aug-05



Dom RPK Dom ASK

Jazz data is not includedin this graph

0%5%

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

Aug-05



RPK ASK

WestJetWestJet

0%5%

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

Aug-05



RPK ASK

WestJetWestJet

-5%

0%

5%

10%

15%

Aug-05



Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International

-5%

0%

5%

10%

15%

Aug-05



Int'l RPK Int'l ASK

Air Canada InternationalAir Canada International


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

Traffic Data - October 2006

Airline Traffic(RPMs – millions)

Capacity(ASMs – millions) Load Factor

1,858

16.3%2,359

15.7%78.8%

0.4 pts

769

6.7%1,037

4.3%74.1%

1.6 pts

5,699

10.7%8,134

10.7%70.1%

0.3 pts

17,261

9.5%9,161

6.8%79.3%

2.0 pts

29,665

2.3 %11,986

2.3%80.6%

0.0 pts

11,123

2.3 %14,340

1.8 %77.5%

0.4 pts

9,561

1.7 %12,404

4.5%77.1%

4.7 pts

6,486

0.2%7,829

0.7%82.8%

0.7 pts

25,155

1.0%6,723

3.2%76.7%

1.8 pts

326

35.4%409

40.6%79.6%

6.4 pts

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

Sources: Carrier traffic reports.


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

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

September +4.5% +2.6% +7.4% +7.9% +13.5% +7.1% +6.6% +0.3% +2.9% +16.1% +12.9% +13.9% +8.9%3rd Quarter +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 Quarter +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%

2005

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%1st Quarter +1.3% +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%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%

2006

3rd Quarter +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%Source: Transport Canada and individual airports’ traffic reports.


NEWS ARTICLESAIR CANADA UPDATEAIR CANADA LAUNCHES CALGARY-FORT LAUDERDALE

On 29 October, AirCanada launched

non-stop seasonal flights between Calgary andFort Lauderdale, Florida. The service iscurrently offered weekly on Sunday, but willincrease to three times weekly effective 17December. All flights are operated using 120-seat Airbus A319 aircraft.

AIR CANADA’S “A LA CARTE” OPTIONSALLOW FLYERS TO BUILD THEIR OWNTICKETSAir Canada has introduced “A la carte options”on its web site that allow passengers to pay foror void specific services to save money.Examples of “A la carte” options include carrental, advance seat selection, inflight mealvoucher and baggage check-in. The options areavailable to Tango, Tango Plus, Latitude andExecutive passengers.

AIR CANADA INTRODUCES UNLIMITEDFLIGHT PASSESOn 18 October 2006, Air Canada introducednew “Unlimited Passes” for travellers to flylimitless among nine geographic zones withinCanada and the continental U.S. that AirCanada, Jazz and their regional partnersoperate. An additional benefit of the UnlimitedPass is that travellers can avoid up-front costsand pay in fixed monthly instalments. TheUnlimited Passes are available in Tango Plusand Latitude fares and in 3-month or 6-monthpackages. The prices range from $1999 to$6500 per month depending on the travel zone.

AIR CANADA TO RECEIVE $200 MILLIONFROM IPOAir Canada will receive $200 million from itsparent company, ACE Aviation Holdings Inc., asa result of ACE’s initial public offering of AirCanada which is expected to take place by theend of 2006. Air Canada will use the moneymainly toward renewing its fleet. Air Canada willbe valued at C$2.2 billion following the IPO. At

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

AIR CANADA RAISES PILOT WAGESBY 2%The 3,100 pilots that belong to the Air CanadaPilots Association (ACPA) have been awardeda 2% wage increase retroactive 1 July 2006.The pilots will also receive a 1.75% increaseeffective July 2007 and a further 1.75% increaseeffective July 2008. However, no change hasbeen made to the pilots’ pension plans.

AIR CANADA JAZZ RAISES FLIGHTATTENDANT WAGES BY 1%

The 740 Air Canada Jazzflight attendants havebeen awarded a 1% wageincrease retroactive 1

June 2006. The flight attendants will alsoreceive a 1.75% increase in each of the next twoyears. In addition to the wage increase, theflight attendants are now eligible to receiveprofit-sharing payments.

WESTJET UPDATEWESTJET INTRODUCES SERVICES TOTAMPA FROM MONTRÉAL ANDOTTAWA

On 29October,

WestJet launched non-stop services to Tampafrom Montréal and Ottawa. The Montréal-Tampa services are offered three times weeklyand the Ottawa-Tampa services are offered fourtimes weekly.

WESTJET LAUNCHES SERVICES TOORLANDOWestJet has introduced non-stop flights toOrlando from Montréal and Ottawa four timesweekly. The Montréal-Orlando service beganon 30 October and the Ottawa-Orlando servicestarted on 3 November.


NEWS ARTICLESWESTJET UPDATE – CON’TWESTJET ADDS EDMONTON-PALMSPRINGS AND EDMONTON-PHOENIX

WestJethas

launched non-stop flights from Edmonton toPalm Springs three times weekly starting 29October and from Edmonton to Phoenix fourtimes a week starting 30 October.

WESTJET ADDS TORONTO TO WESTPALM BEACH FLIGHTSOn 30 October, WestJet introduced non-stopflights between Toronto and West Palm Beachthree times weekly.

WESTJET LAUNCHES HALIFAX-TAMPAWestJet will offer non-stop flights betweenHalifax and Tampa from 13 March 2007 to 1May 2007. The seasonal services will beoffered weekly.

WESTJET ORDERS FIVE 737SOn 30 October, WestJet announced that it hasfinalised its agreement with Singapore AircraftLeasing Enterprise for five Boeing NextGeneration 737 aircraft. Of this total, the four700-series aircraft will be delivered in January,May, June and October 2009 and the remaining800-series aircraft will be delivered in May 2009.WestJet currently has a registered fleet of 62aircraft and the total will reach 81 aircraft by theend of 2009.

WESTJET TO SHARE AIRCRAFTENGINES WITH AMERICAN ANDSOUTHWESTWestJet has signed an engine-sharingagreement with Willis Lease Finance Corp toshare the use of CFM56-7B engines withAmerican and Southwest Airlines. Thecooperative agreement allows the three airlinesto pool their engines they have together andlease from the pool for serving the 450 aircraftthey have altogether. As a result, engines canbe available to airlines more quickly and airlinescan better manage their capital assets byimproving spare engine productivity. The three

airlines will station their spare enginesthroughout North America to avoid delay andcancellation rates. If suitable engines are notavailable in the pool, Willis Lease will be thepreferred provider for the members.

OTHER CANADIAN AIRLINENEWSPORTER BEGINS TORONTO-OTTAWASCHEDULED SERVICES

On 23 October, PorterAirlines launched itsfirst service from the

Toronto City Centre Airport to Ottawa. PorterAirlines offers a total of 10 round trip weekdayflights and two round trip weekend flightsbetween Toronto City Centre and Ottawa.Services between the Toronto and Montréal arescheduled to begin in December. All Toronto-Ottawa flights are operated using BombardierQ400s aircraft.

CARGO NEWSDHL BUYS 49% OF POLAR AIR

DHL is buying49% of Polar Air

Cargo from its parent company Atlas AirWorldwide Holdings (AAWH). The US$150million deal is currently subject to governmentapproval and will be completed no later thanearly 2007. The deal will guarantee DHL blockspace in Polar’s transpacific routes between theU.S. and Asia for the next 20 years. AAWHclaims that there will be no change in Polar’snetwork as a result of the deal.


NEWS ARTICLESCARGO NEWSPOLAR TO FLY TO BEIJING

Polar Air Cargolaunched twice-weekly air cargoservices to Beijing

starting 11 November. Currently, Polar isallowed to operate up to 12 weekly flightsbetween the U.S. and China and also servesHong Kong and Shanghai. The U.S. DOT hasgranted clearance to Polar to operate four moreweekly flights to China starting March 2007,bringing the total number of operations to 16flights per week.

FEDEX CANCELS A380 ORDERAfter Airbus made its thirddelay announcement in16 months for its A380

aircraft, FedEx has cancelled its A380 freighterorder because the postponed deliveries couldhinder FedEx’s expansion plans. When FedExplaced its order in 2002, it intended to takedelivery of the first 10 A380-800Fs in 2008.FedEx has now decided to operate 15 Boeing777 freighters, which it expects to be inoperation by 2009, instead of 10 A380freighters. FedEx’s number one airport hub, theMemphis Airport, had plans to invest over $48million on runway upgrades to accommodateFedEx’s A380 aircraft.

VOLGA-DNEPR REPORTS HIGHESTREVENUE GROWTH IN 16 YEARS

Volga-Dneprreported carrying95,000 metric tonsof air cargo traffic

during the first nine months in 2006, making itthe largest all cargo carrier in Russia. The95,000 metric tons in traffic translated into $462million in revenues for the airline, the highestnine-month revenue for the company in 16years. Volga-Dnepr expects to reach $600million in revenue by the end of 2006.

PEOPLE IN THE NEWSTRANSPORT MINISTER APPOINTSHOWARD BRUCE TO TRANSPORTATIONAPPEAL TRIBUNAL

On 2 November,the Minister ofTransport,Infrastructure and

Communities announced the appointment of Mr.Howard Bruce to the Transportation AppealTribunal. The Transportation Appeal Tribunalprovides an independent review process fortransportation legislations. Mr. Bruce has aBachelor in Political Science coupled withexperiences in civil, corporate, criminal,transportation and real estate law practice.

OTHERAIRBUS A380 WORLDWIDE TECHNICALRUNS BEGIN ON 13 NOVEMBER

The much-anticipated Airbus A380widebody aircraft will begin its

worldwide technical runs on 13November from Toulouse,

stopping at 10 different airports. The aircraft willstop at Singapore and Seoul on 13-14November, Hong Kong and Narita on 18-19November, Guangzhou on 22 November,Beijing and Shanghai on 23 November. Thefinal global trip will start from Toulouse andarrive a Johannesburg on 26 November. Theaircraft will then fly over the South Pole andarrive at Sydney on 29 November fromJohannesburg. The aircraft will fly over thePacific Ocean from Sydney and reachVancouver on 29 November before returning toToulouse via the North Pole.


NEWS ARTICLESOTHER – CON’TQANTAS FIRMS ORDER FOR EIGHTMORE A380 AIRCRAFT

On 31 October,Qantas announcedthat it has firmed itsorder for eight

additional A380 aircraft. Qantas has committedto a total of 20 A380 aircraft with Airbus.Deliveries are expected to begin in August 2008and continue through to 2015. Qantas hasnegotiated a package with Airbus to takedelivery of four A300-200s between December2007 and December 2008 to mitigate the effectof the A380 delay.


Robert Andriulaitis

Vice President, Transportation& Logistics Studies

CARGO CAPERSNovember 2006

The Future of Freighters. In the past few months, FedEx made two announcements thatcould shake up the freighter world. The first was the announcement of its intent to replace its 727-200Fs with 757-200s. The second was the decision to abandon the A380F in favour of the 777F.

The Boeing 757-200F. There has been a lot of discussion regarding the successor to theextremely popular 65,000 lb capacity 727-200F. The 727-200F is an old design with a crew of threeand relatively high fuel consumption that makes it due for replacement. Possible successors includethe 737-200 or -300, which like the 727-200 is considered a small freighter. The 737, however, has asignificantly lower payload (under 40,000 lbs) that limits its attractiveness. Furthermore, the 200 isgetting long in the tooth as well – as replacements, its life would be limited. Among the U.S. builtmedium narrowbody freighters, which include antiquarians such as the DC-8 and 707, only the 757-200 is newer than the 727s they would replace. The 757, however, is considerably larger, with apayload of almost 88,000 lbs. The TU-204, with a payload a little under 60,000 lbs is an intriguingpossibility and has been considered by European carriers such as TNT (which has operated thisaircraft on a leased basis), but its low numbers and Russian build make it an unlikely choice for NorthAmerican service.

FedEx has cast its vote (actually about 90 of them) and it isthe 757-200F that is the winner in FedEx’s opinion. (UPS hasalready registered its vote, as it currently operates 75 of theseaircraft.) The 757 is getting to the age when conversion frompassenger to freighter configuration becomes attractive. Theissue is that while a relatively large number were built (slightlyover 1,000), relatively few are currently on the market. Speednews lists 27 available aircraft, though21 of these are listed for lease or wet-lease. FedEx, searching for 90 aircraft, are going to make itdifficult for other operators of aging 727 aircraft to acquire 757 replacements. This has implicationsfor Canada, and Canadian airports, as both Cargojet and Kelowna Flightcraft (which flies forPurolator) operate 727 freighters that need replacement in the short to medium term. The 757 justbecame a more problematic, and likely more costly, option.

The Airbus A380F. The other item of note wasFedEx losing patience with on-going Airbus A380 productiondelays and cancelling its order for 10 freighters and the 10options it also held. Instead, it will order 15 Boeing 777freighters, with options for 15 more. While Airbus ismaintaining a brave front and saying it will continue with theprogram, this setback leaves Airbus with fewer that 150 firmorders for the A380 – a number that leaves them well shortof break-even. If UPS were to follow the FedEx lead and cancel its order for 10 aircraft (and 10options), 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 largewidebody freighter market to Boeing’s 747s and 777s. While Canadian airports were unlikely to seeregular service by A380Fs, its demise would have potential ramifications for Canadian airports. Wewill be competing for services by Boeing freighters coming on stream with the major international aircargo hubs that otherwise would have seen A380F service. What remains to be seen is how quicklyBoeing will be able to fill the demand for large freighters to satisfy all needs. If there is a shortage, thechallenge will be to position Canadian airports as the logical gateways to serve the North Americanmarket, rather than being relegated to being served via U.S. gateways.


Martin Copeland

Senior Vice President,Aviation

THE OTTAWA REPORTNovember 2006

Transport Canada Asks for Stakeholder Input on International AirTransport Policy PaperOn 25 October 2006, Transport Canada released a consultation document in support of a newinternational air transportation policy. The Minister of Transport, Infrastructure and Communities isseeking stakeholder input on the proposed policy. The focus of the proposed new policy is to pursuethe negotiation of Open Skies type agreements when it is in Canada’s overall interest. TransportCanada also welcomes stakeholder input on longer-term issues that are not part of the proposedpolicy document, such as a comprehensive Canada-EU air agreement, foreign ownership rules, NorthAmerican aviation market integration and multi-lateral air transportation negotiations. Theconsultation phase for the proposed policy document will end on 8 November 2006. TransportCanada expects to release a statement on the new international air transportation policy documentafter reviewing all the stakeholder comments. Stakeholders have until the end of December 2006 tosubmit their comments on longer-term issues.

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

Transport Canada Amends Official Language LegislationOn 18 October 2006, the Minister of Transport, Infrastructure and Communities announced that theFederal Government will amend the Air Canada Public Participation Act to ensure that the officiallanguage provisions continue to apply to Air Canada’s affiliates to protect the language rights ofCanadians. The Air Canada Public Participation Act requires Air Canada to be subject to the OfficialLanguages Act. However, post-restructuring entities such as Air Canada Jazz, Cargo, TechnicalServices and Ground Handling are not captured under the Air Canada Public Participation Act andtherefore not subject to the provisions of the Official Languages Act. The amendment also extends toACE Aviation Holdings, parent company of Air Canada.

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

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


THE WASHINGTON REPORTNovember 2006

Haneda Airport Needs U.S. Airspace for ExpansionTokyo’s Haneda Airport is the busiest airport in Japan. The airport has plans to expand and increasethe 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 airportto accommodate more slots per annum.

FAA Deploys URET Allowing the Aviation Industry Over $600 Million inSavingsThe 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 systemmodernization. URET detects and notifies the controllers of possible conflicts between two aircraftwithin the National Airspace System (NAS). The strategic planning tool of the system allows thecontrollers to change routings efficiently because it identifies conflicts in the immediate area as well asadjoining airspace. Also, the controllers are more likely to assign direct routings, more fuel-efficientaltitudes and wind-optimal routes to pilots using URET, resulting in flight time reduction and fuel costsavings. Since the launch of URET in 1999, the system has reduced routes by 89.5 million nauticalmiles and generated approximately $626.5 million in savings for the aviation industry.

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

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

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

Future Chairs of Senate and House CommitteesThe 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 havenamed Trent Lott as Senate Republican Leader. Daniel Inouye (Democrat) is the majority leader forthe Commerce, Science and Transportation Senate Committee while Ted Stevens (Republican) is theminority leader. John D. Rockefeller will likely be the new Chairman of the Senate Subcommittee onAviation and Trent Lott will likely be the minority leader for the subcommittee. Senate Committeeleaders are unlikely to be finalized prior to Thanksgiving.

Jon Ash

PresidentInterVISTAS-ga2 Consulting Inc.

Washington, D.C.


INTERVISTAS NEWSNovember 2006

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

InterVISTAS’ Expands to London, U.K.InterVISTAS is pleased to announce that it has expanded its network and opened a branch office ofInterVISTAS-EU Consulting Inc. in London, U.K. The contact and address of the new London officeare:

Mr. John Weatherill, Director, Airline Planning24 Carillon CourtOxford RoadLondon, UK W5 3SXTelephone: +44 (0) 207-871-1809Fax: +44 (0) 208-840-5778

“Our London office can support clients with their European air service development needs. We canwork with targeted European air carriers in the same time zones, giving a North American airport acompetitive edge in soliciting new air service,” said Weatherill. InterVISTAS-EU also provides supporton government policy, market research and market intelligence.

New Presentations on the InterVISTAS Web SiteGovernance 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.


InterVISTAS’ Canadian Aviation Intelligence Report is a collection of information gathered from publicsources, such as press releases, media articles, etc., information from confidential sources, and itemsheard 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 [email protected] 1-604-717-1864.

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INTERVISTAS NEWS – CON’TInterVISTAS Upcoming Speaking EngagementsMr. Paul Ouimet, Executive Vice President

ACC Annual General Meeting, Fort Lauderdale, FL – 13 November 2006Mr. Ouimet will be delivering a presentation titled, “Airport Capital Funding.”Association of Canadian Port Authorities Annual Meeting, Vancouver, BC –19 November 2006Mr. Ouimet will be delivering a presentation titled, “Lower Mainland Port Integration.”

Mr. Solomon Wong, Vice President, Security & PlanningPassenger Terminal EXPO 2006 USA Conference, Fort Lauderdale, FL –6-8 December 2006Mr. Wong will be delivering a presentation titled, “Open and Secure Skies.”

Mr. John Weatherill, Director, Airline PlanningAfrica Airports 2007: Johannesburg, South Africa – 27-28 February 2007Mr. Weatherill will be delivering a presentation titled, “Effectively MarketingAfrica’s Airports.”World Regional Airports Congress: London, United Kingdom – 16-17 April2007Mr. Weatherill will be delivering a presentation titled, “Understanding andApplying E.U. Guidelines on Start-up Aid for Airlines at Regional Airports.”

Dr. Mike Tretheway, Executive Vice PresidentCAC 2007 Conference: Ottawa, ON – 25 April 2007Dr. Tretheway will participate in a panel on, “The Quest for New Services.”

cair issue no. 46 - november 2006

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