#1AIR CANADA at the ALTA CORP CAPITAL 5th Annual Institutional Investor Conference Michael Rousseau Executive Vice President and Chief Financial Officer Kathleen Murphy Director, Investor Relations and Corporate Reporting Toronto January 12, 2017 A STAR ALLIANCE MEMBER MEMBRE DU RÉSEAU STAR ALLIANCE#2CAUTION REGARDING FORWARD-LOOKING INFORMATION Air Canada's public communications may include written or oral forward-looking statements within the meaning of applicable securities laws. Such statements are included in this presentation and may be included in other communications, including filings with regulatory authorities and securities regulators. Forward- looking statements may be based on forecasts of future results and estimates of amounts not yet determinable. These statements may involve, but are not limited to, comments relating to strategies, expectations, planned operations or future actions. Forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Pension funding obligations under normal funding rules are generally dependent on a number of factors, including the assumptions used in the most recently filed actuarial valuation reports for current service (including the applicable discount rate used or assumed in the actuarial valuation), the plan demographics at the valuation date, the existing plan provisions, existing pension legislation and changes in economic conditions (mainly the return on fund assets and changes in interest rates). Actual contributions that are determined on the basis of future valuation reports filed annually may vary significantly from projections. In addition to changes in plan demographics and experience, actuarial assumptions and methods may be changed from one valuation to the next, including due to changes in plan experience, financial markets, economic conditions, future expectations, changes in legislation, regulatory requirements and other factors. Forward-looking statements, by their nature, are based on assumptions, including those described herein and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including without limitation, our ability to successfully achieve or sustain positive net profitability or to realize our initiatives and objectives, our ability to pay our indebtedness, reduce operating costs and secure financing, currency exchange, industry, market, credit, economic and geopolitical conditions, energy prices, competition, our ability to successfully implement strategic initiatives and our dependence on technology, war, terrorist acts, epidemic diseases, casualty losses, employee and labour relations, pension issues, environmental factors (including weather systems and other natural phenomena and factors arising from man-made sources), limitations due to restrictive covenants, insurance issues and costs, changes in demand due to the seasonal nature of the business, dependence on suppliers and third parties, including regional carriers, Aeroplan and the Star Alliance, changes in laws, regulatory developments or proceedings, pending and future litigation and actions by third parties and the ability to attract and retain required personnel, as well as the factors identified throughout Air Canada's public disclosure file available at www.sedar.com, including those identified in the "Risk Factors" sections of Air Canada's 2015 Management's Discussion and Analysis of Results of Operations and Financial Condition dated February 17, 2016 and Air Canada's Third Quarter 2016 Management's Discussion and Analysis of Results of Operations and Financial Condition dated November 7, 2016. Any forward-looking statements contained in this presentation represent Air Canada's expectations as of the date of this presentation (or as of the date they are otherwise stated to be made), and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations. 2#3101 AIR CANADA 1 TRANSFORMING INTO A GLOBAL CHAMPION AIR CANADA MAPLE LEAF LOUNGE SALON LE D'ERABLE ARCANADA AIR NADA#4BUSINESS PLAN ON TARGET Record EBITDAR(1) of $1,248M and record operating income of $896M in Q3 2016, and on a 12-month trailing basis to September 30, 2016, EBITDAR(1) margin was 19.0% and ROIC(1) was 15.5% Fleet initiatives and capital programs on target 21 B787s in operating fleet - - B787s meeting financial and operational expectations Delivering a permanently lower cost structure on track to realizing CASM savings of 21% (excluding impact of FX and fuel prices) by the end of 2018 when compared to 2012 baseline Enterprise and financial risk reduced Route diversification Balance sheet leverage Fleet flexibility As reported on November 7, 2016 Pension - Long-term labour contracts Business Plan (1) These measures are non-GAAP financial measures used by Air Canada in an effort to provide additional information on Air Canada's financial and operating performance. Such measures however are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for or superior to GAAP results. Reconciliations of these measures to comparable GAAP measures for the relevant periods can be found in Air Canada's MD&A reports, available at aircanada.com. 4#5GLOBAL CHAMPION STRATEGY Safe & Reliable Operation Toronto Pearson Fleet & Network ■ Star Alliance ■ A++ Joint Venture ■ Modern fleet / Seat density ■ Extensive route rights ■ Favourable slot times at busy airports Swing capacity Brand Operational Excellence ■ Award winning products/ services Only airline among Canada's Top 50 brands ■ Iconic Canadian brand ■ Rouge Commercial Strategy ■ Toronto global hub a true ■ 6th freedom connection traffic Improving premium value proposition Competitive leisure offering Geography ■ AC hubs are en route to Europe & Asia ■ Logical connection for U.S. origins and destinations ■ Easy transfer/ transit process LOWER RISK PROFILE People & Experience $30,000+ dedicated employees - 4th Top 100 Employers in Canada consecutive year ■ One of Canada's Best Diversity Employers for 2016 ■Long-term labour stability with all major unions 5#6OUR FOUR PRIORITIES EV P 1 International expansion 2 Cost reduction and revenue growth 3 Customer engagement 4 Culture change 6 19#71 International expansion 2 Cost reduction and revenue growth Customer engagement 3 4 Culture change#8TRANSFORMATION PLAN Accelerated, balanced transformation of Air Canada towards sustained profitability Network Optimization Strategic international growth ■ Increase diversification of route portfolio Leverage Rouge model ■ Sixth freedom focus Leverage strategic Toronto geography Team culture Aircraft Growth and Reconfiguration Delivery of B787s Densification and optimization of fleet configurations Replacement of narrowbody fleet with B737 MAX Leverage best in class products and services Customer centricity Flexibility to Adjust to Shifting Market Conditions Swing capacity Leverage 10-year agreements • • Long-term labour stability with most major unions Regional lift with Chorus (Jazz) Delivering brand promise 8#9- 90% OF PROJECTED CAPACITY GROWTH AIMED AT INTERNATIONAL MARKETS Focused on selective expansion of network and developing synergies offered by alliances with other carriers Historically, margins have been the highest on international routes Leveraging strengths internationally: - extensive and expanding global network geographically well-positioned hubs competitive products and services Capacity growth of 13.9% in the first nine months or 2016, of which 87.7% was to international destinations Launched more than 20 international and U.S. Transborder routes in the summer of 2016 - most intensive period of expansion in Air Canada's history - all fully meeting expectations Natural consequence - anticipated negative yield impact due to increased average stage lengths and a greater mix of leisure revenues vs business revenues However, incremental traffic is being flown at a significantly lower-cost (B787s, increased seats on B777s, and Air Canada Rouge) resulting in margin expansion Diversified network lowers risk profile 9#10WIDEBODY FLEET Boeing 787-8 Boeing 787-9 Boeing 777-300ER Boeing 777-300ER (higher-density) Boeing 777-200LR Boeing 767-300ER AIR CANADA Actual 2015 Planned 2016 2017 822760% 13 12 12 12 7 17 15 10 8 832968 8 4256700 Airbus A330-300 NARROWBODY Boeing 737 MAX-8 2 Airbus A319, A320, A321 74 75 75 Embraer 190 37 25 25 TOTAL MAINLINE Boeing 767-300ER Airbus A319, A321 171 169 175 15 19 24 24 25 25 TOTAL AIR CANADA ROUGE 39 44 49 TOTAL WIDEBODY AIRCRAFT 75 88 97 TOTAL NARROWBODY AIRCRAFT 135 125 127 TOTAL MAINLINE AND AIR CANADA ROUGE 210 213 224 10#11FLEET FLEXIBILITY ■ Air Canada has positioned itself to adjust to any economic environment with fully unencumbered, older aircraft (both widebody and narrowbody), and with a sizeable amount of staggered leased aircraft expiries Staggered Airbus narrowbody lease expiries give Air Canada the opportunity to manage capacity, either up or down, as transitions to B737 MAX aircraft Longer-term flexibility exists in Air Canada's ability to defer a portion of B737 MAX aircraft deliveries 48 aircraft owned and unencumbered by year-end 2017 (57 aircraft by Dec 31, 2018) 58 aircraft with leases expiring in the next five years 11#12LEVERAGING OUR GEOGRAPHY TO MAXIMIZE 6TH FREEDOM TRAFFIC POTENTIAL Best-in-class connections process at Toronto Pearson ■ International-to-U.S. & international-to-international connections process is simple and allows for seamless connections - - - Competitive elapsed time No need to pick up and/or re-check bags No need to change terminals - U.S. CBP pre-clearance facilities - Passengers arrive in U.S. with other domestic flights VANDOUVER CALGARY MONTREAL TORONTO Agreement with GTAA reduces CASM for incremental traffic growth at Toronto Pearson 12 12#131 International expansion Ev 2 Cost reduction and revenue growth Customer engagement 3 4 Culture change 13#14BENEFITS OF AIR CANADA ROUGE rouge ■ Air Canada Rouge is enhancing margins in existing leisure markets and pursuing new opportunities in international leisure markets made viable by its competitive cost structure ■ Air Canada Rouge fleet (comprised of Airbus A319s, A321s and B767s) is estimated to generate 25% lower CASM when compared to the same aircraft in the mainline fleet ■ Air Canada Rouge leverages the strengths of Air Canada including - Its extensive network - Its enhanced connection options - Its operational expertise - Its frequent flyer program 14#15IMPROVING COMPETITIVENESS IN REGIONAL MARKETS express AIR CANADA express Diversification strategy being implemented - Sky Regional & Air Georgian have very competitive cost structures Air Canada will continue to add scale to Sky Regional and Air Georgian Significant enhancements to Jazz CPA driven by fleet changes and pilot mobility agreement - - - CPA extended to 2025 Estimated $550M in incremental value 2015-2020 Competitive cost structure post-2020 Incremental aircraft at competitive rates As reported on February 17, 2016 AIR CANADA express 15#16OTHER OPPORTUNITIES FOR MARGIN EXPANSION B737 MAX program - estimated 10% CASM reduction vs Airbus narrowbody fleet. Concluded agreement with Bombardier for acquisition of 45 firm Bombardier CS300 aircraft starting in late 2019 - 25 Bombardier CS300s to replace Embraer 190 aircraft - estimated CASM reduction of 10% Buy-up through additions of Premium Economy cabin on widebody aircraft Growing ancillary revenues through various passenger-related fees, including baggage, paid upgrades, on-board offerings, preferred seats and seat selection seats and seat sele ■ Implemented new Revenue Management System Pricing and inventory determined by origin and destination rather than by individual flight legs Applying best sourcing practices - In 2015, Strategic Procurement team executed 156 agreements totaling $1.2B in spend with savings of 9.9% over the term of the agreements The renegotiation of our commercial agreement with Aeroplan which terminates in June 2020 16#17осу 1 2 International expansion Cost reduction and revenue growth 3 Customer engagement 4 Culture change 17#18ENGAGING OUR CUSTOMERS 4 STAR AIRLINE SKYTRAX The only Four-Star international network carrier in North America Products and services, such as the Dreamliner with newly designed cabins and next generation IFE Air Canada Altitude TM which recognizes and rewards frequent flyers, and Altitude Skyriders our newly launched onboard program for children Dedicated check-in areas and premium agent services aimed at higher-yielding customers A customer relationship management system to gain valuable customer insights Improved on-time performance and reliability - improved boarding process and streamlined in- transit processes through major hubs for connecting passengers Improved on-board offerings and consistency of service - multiple new products added to the Café menu New Maple Leaf Lounge at New York-Newark Liberty International Airport - 3rd one in the U.S. and the 22nd one world wide - complete makeover of International Maple Leaf Lounge at Montreal- Trudeau airport First-of-its-kind multicurrency prepaid card - the CIBC Air Canada Conversion Visa Prepaid Card is reloadable and can store up to 10 currencies on one card giving travellers flexibility and security while away from home 18#19CUSTOMER ENGAGEMENT AWARDS 4 STAR AIRLINE SKYTRAX The only Four-Star international network carrier in North America ■ 2015 Skytrax Awards - Four-Star ranking ■ 2016 Business Traveler Magazine Awards named Air Canada - Best North American Airline for International Travel 2016 Global Traveler Magazine Awards named Air Canada - Best Airline in North American 19#20123 International expansion Cost reduction and revenue growth Customer engagement 4 Culture change OC 20#21CULTURE CHANGE EMPLOYEE ENGAGEMENT Employees understand vision and strategy 9% of total issued shares held on employees' accounts Employee surveys and multiple awards demonstrate significant improvements in employee culture and engagement 2016 Canada's 3rd Most Attractive Employer 2016 One of Canada's 15 Top Employers for Canadians Over 40 2016 One of Canada's 10 Most Admired Corporate Cultures of 2016 2016 One of 50 Most Engaged Workplaces in North America 4th consecutive year Canada's Top 100 Employers 2016 2016 EXIT➤ SORTIE CANADA'S BEST DIVERSITY EMPLOYERS 21#2210-YEAR LABOUR AGREEMENTS WITH MOST MAJOR UNIONS ACPA - union representing 3,000 pilots - collective agreement terms for 10 years in effect until September 2024* ■ Unifor- union representing 4,000 customer service and sales agents - collective agreement terms for five years in effect until February 2020 CUPE - union representing 7,200 flight attendants - collective agreement terms for 10 years in effect until March 2025* IAMAW - union representing 7,500 machinists and aerospace workers - collective agreement terms for 10 years in effect until April 2026* CALDA - union representing flight dispatchers - collective agreement terms for 12 years in effect until February 2028* * Subject to certain renegotiation, provisions and/or benchmarks over this period 22 22#23FINANCIAL RISK MANAGEMENT 23#24PENSION DEFICIT ELIMINATED - SIGNIFICANT REALLOCATION OF CAPITAL TO OTHER USES As at January 1, 2016, aggregate solvency surplus in domestic registered pension plans is $1.3B Plans are in a solvency surplus position therefore no past service cost payments made in 2016 Plans funded at 105% or more therefore no contributions are required for current service as long as the solvency position is not reduced to less than 105% Total pension funding contributions are forecast to be $94M, on a cash basis, for 2016 vs $312M in 2015 - cash savings of $218M ■ Risk significantly mitigated - 75% of pension liabilities matched with fixed income products - Overall risk profile lower by 50% Improved financial flexibility to fund capital expenditure programs, lower debt levels and return value to shareholders 24#25EF RISK MITIGATION - FUEL AND CURRENCY 动 Fuel hedging strategy designed to lock in booking curve profitability Use of call options protects against short-term price spikes while allowing to participate 100% in fuel price declines Foreign exchange risk strategy is to cover 70% of net U.S. exposure on a rolling 18-month basis using derivatives and U.S. cash reserves U.S. dollar revenues together with foreign currency net revenues converted to U.S. dollars essentially cover non-fuel U.S. dollar costs - Fuel expenses are a significant U.S. dollar requirement but the impact in Canadian dollars is mitigated by a correlation between the Canadian dollar and the price of crude oil - Impact of hedging benefits cash flow but hedging results reported in non-operating income 25#26COMMITTED TO STRENGTHENING BALANCE SHEET USING FREE CASH FLOW ☐ $8B in capital expenditures to acquire more efficient aircraft and improve the competitiveness of existing aircraft to better position Air Canada for the future Access to EETC market at investment grade rates Cash inflow of $690M in 2016 from sale of 20 E190s and sale and leaseback of two B787s Lowering adjusted net debt and leverage levels is top priority followed by shareholder distributions via share buybacks Leverage ratio and credit ratings have improved Completed $1.25B refinancing transaction at a lower cost of debt and extended term Increase in unencumbered asset pool by $650M to approximately $2B Income tax shelter of $4.7B* - Operating loss carryforwards of $400M and tax shields related to fixed assets and pension obligations of $4.3B *As of December 31, 2015 LANCE SHEET and equament ent assets Note 26#27FINANCIAL TARGETS / RESULTS 27#28FINANCIAL TARGETS Financial Targets 2016-2018* Target FY 2015 Q3 2016 EBITDAR margin 15-18% 18.3% 19.0% (on a 12-month trailing basis) ROIC (return on invested capital) 13-16% 18.3% 15.5% (on a 12-month trailing basis) Leverage ratio by end of 2018 2.2 2.5 2.5 Air Canada remains on track to reducing CASM by 21%, excluding the impact of foreign exchange and fuel prices, by the end of 2018 when compared to 2012 • Air Canada assumes relatively low to modest Canadian GDP growth for the period 2016-2018 • Air Canada assumes a continuing relationship between the price of jet fuel and the value of the Canadian dollar whereby increases and decreases in the cost of fuel continue to be respectively associated, to some degree, with increases and decreases in the value of the Canadian dollar *As reported on November 7, 2016 28#29CONCLUSION ✓ Achieved/exceeded 2013 Investor Day financial targets ✓ On track to meet or exceed 2016-2018 targets for EBITDAR margin, ROIC and leverage* Eliminated pension solvency deficit Engaged employees and an experienced and results-driven management team ✓ Focused on value creation - Expand earnings through strategic initiatives Stronger balance sheet - reducing net debt/share buyback program * As reported on November 7, 2016 29#30THANK YOU 30