2023 Consolidated Financial Statements and Notes
AIR CANADA
2023 Consolidated Financial Statements and Notes
the noteholders. The conversion rate of the Convertible Notes is 65.1337 shares per US$1,000 principal amount of
Convertible Notes, or a conversion price of approximately US$15.35 per share, subject to adjustment in certain events
in accordance with the indenture.
The Corporation's option to deliver cash or a combination of cash and shares on the conversion date in lieu of shares
(based on the daily conversion values for 40 consecutive trading days) gives rise to an embedded derivative financial
liability measured separately at fair value through profit or loss. The carrying value of the underlying notes is accreted
to their face value using the effective interest method, which results in an effective interest rate of 10.76%. The fair
value of the embedded derivative which is recorded in Other long-term liabilities was $320 million at initial recognition.
At December 31, 2023, the fair value was $56 million (2022 - $120 million) and the Corporation recorded a gain of $64
million for the year ended December 31, 2023 ($219 million gain for the year 2022). Refer to Note 16.
In 2022, the Corporation repurchased $635 million (US$473 million) aggregate principal amount of its outstanding 4%
Convertible Notes for an aggregate cash repurchase price of $778 million (US$579 million), including accrued
interest. The Corporation recorded a $14 million loss on debt settlement related to this repurchase. As at
December 31, 2023, $363 million (US$274 million) aggregate principal amount of Convertible Notes remains
outstanding (US$274 million at December 31, 2022).
(c) Government of Canada unsecured credit facility to support customer refunds of non-refundable tickets. The facility
has a seven-year term maturing April 2028 with a stated annual interest rate of 1.211%, with the balance due on
maturity. The carrying value of the debt was recognized at inception using an effective interest rate of 4.90%. The
difference accretes the carrying value of the underlying debt upwards to its face value using the effective interest rate
method.
The debt and equity instruments issued under the financing agreement with the Government of Canada were measured
at fair value at inception. The difference between fair value and proceeds received was recognized for accounting
purposes as a government grant. The deferred grant income recorded at the inception of the agreement and taking into
account the amounts drawn under the ticket refund facility up to December 31, 2021, was $138 million. This deferred
grant income reflects the aggregate net fair value adjustments of the ticket refund facility, the shares issued and the
vested warrants (which were purchased and cancelled with settlement completed in January 2022), and is being
amortized into Other revenues on a straight line basis over three years. The amortization period was based on the
Corporation's approximation of the expected timing of the costs for which the grant is intended to compensate. During
2023, grant income of $50 million (2022 - $50 million) was recognized in Other revenues.
(d) In August 2021, Air Canada completed a private offering of $2.0 billion of 4.625% senior secured notes due 2029
(the "Canadian Dollar Notes") and US$1.2 billion of 3.875% senior secured notes due 2026 (the "US Dollar Notes", and
together with the Canadian Dollar Notes, the "Senior Secured Notes"). Air Canada also closed a US$2.9 billion new
senior secured credit facility, comprised of a US$2.3 billion new term loan B maturing in 2028 (the "Term Loan"),
together with a new undrawn US$600 million revolving credit facility maturing in 2025 (the "Revolving Facility" and,
together with the Term Loan, the "Senior Secured Credit Facilities").
The Senior Secured Notes and Air Canada's obligations under the Senior Secured Credit Facilities are senior secured
obligations of the Corporation, secured on a first-lien basis, subject to certain permitted liens, by certain collateral
comprised of substantially all of the Corporation's international routes, airport slots and gate leaseholds.
The Corporation also has a $200 million Canadian dollar revolving credit facility maturing in December 2026. Both of
the revolving credit facilities remained undrawn as of December 31, 2023.
(e) Lease liabilities, related to facilities and aircraft, total $2,537 million ($406 million, US$1,593 million and GBP £13
million) (2022 - $3,038 million ($415 million, US$1,923 million and GBP £10 million)). The carrying value of aircraft and
facilities under lease liabilities amounted to $1,637 million and $352 million respectively (2022 - $1,882 million and
$355 million).
Other
As at
Under Interbank Offered Rate ("IBOR") reform, IBORS are replaced with alternative benchmark rates.
December 31, 2023, debt and aircraft leases referencing $3,296 million USD LIBOR were transitioned to term SOFR
(Secured Overnight Financing Rate). There was no significant impact to the financial statements as the change in
contractual cash flows was on an economically equivalent basis, and therefore the change is accounted for by updating
the effective interest rate with no gain or loss recognized. As at December 31, 2023, the Corporation had transitioned
all exposure to USD LIBOR settings to alternative reference rates.
Cash interest paid on Long-term debt and lease liabilities in 2023 by the Corporation was $858 million (2022 - $761
million).
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