Major Step in AC Restructuring

[Guest GDR]

Air Canada Announces Comprehensive Lease Restructuring

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Air Canada Announces Comprehensive Lease Restructuring, New CDN $1.8 Billion Secured Loan and Aircraft Financing with General Electric Capital Aviation Services (GECAS)

MONTREAL, July 3 /CNW Telbec/ - Air Canada announced today that it has reached a tentative agreement with General Electric Capital Aviation Services (GECAS) on the restructuring of all GECAS financed and managed aircraft as well as on new exit and aircraft financing totaling approximately CDN $1.8 billion.

"This agreement with GECAS constitutes a major statement of confidence and a solid endorsement from a global business leader on the significant progress we are making and the strategic direction we are taking with Air Canada's overall restructuring plan," said Robert Milton, President and Chief Executive Officer. "I am extremely pleased by the speed with which we have reached a comprehensive agreement with our biggest financial provider that not only addresses current aircraft obligations but also provides significant additional exit financing and endorses our restructured fleet plan.

"This agreement builds on the substantial progress made to date in a very complex process and advances us considerably towards our goal of restructuring Air Canada into a stronger airline that is well positioned to compete profitably in the new industry environment," said Mr. Milton.

The restructuring of the GECAS aircraft leases involves a combination of lease rate reductions, lease payment deferrals, early lease terminations and the cancellation of future aircraft delivery commitments. The agreement encompasses 106 Air Canada and Air Canada Jazz aircraft including operating,

parked and undelivered aircraft. It also includes leases on certain of the 106 aircraft that were cross-collateralized under the terms of the debtor-in- possession (DIP) financing of US $700 million announced April 1, 2003.

As part of the tentative agreement, GECAS has agreed to extend to Air Canada as debt financing for emergence from the Companies' Creditor Arrangement Act (CCAA) a secured loan of US $425 million (approximately CDN $575 million) to be secured by a fixed and floating charge over the unencumbered assets of Air Canada. This will largely constitute the same collateral pool against which its current DIP financing is secured. This new loan would come into effect upon Air Canada's exit from CCAA) proceedings and would be used for general corporate purposes to improve the Company's cash position. The loan would also form an important portion of the Company's previously announced exit debt and equity financing requirements of approximately CDN $1.35 billion.

GECAS has also agreed to provide a maximum of approximately US $950 (CDN $1.285 billion) to finance up to 43 regional aircraft, for which financing is expected to occur through a series of transactions. This regional aircraft financing is subject to, among other things, maintaining a specified credit rating following Air Canada's emergence from CCAA.

As part of this tentative agreement, Air Canada has agreed that it will immediately recommence payment of aircraft rent to GECAS.

GECAS' financing commitment and the tentative agreement are subject to various conditions including the following:

- completion of definitive documentation;

- conversion of all Air Canada unsecured debt into equity under the Plan of Arrangement;

- substantial restructuring of Air Canada in accordance with the Restructuring Plan presented by the airline;

- GECAS' satisfaction with the amount of the overall exit financing and key terms of the equity investment;

- GECAS' satisfaction with the Air Canada business plan, ownership structure, capital structure and governance structure under the Company's Plan of Arrangement; and,

- no defaults under any existing GECAS-related entity transaction.

The detailed terms of the aircraft lease restructuring are confidential. Details relating to the new exit financing and aircraft financing will form part of Air Canada's overall Plan of Arrangement to be presented to the Ontario Superior Court of Justice.

Air Canada and its financial advisors are continuing intensive

negotiations with other aircraft lessors and lenders on revised aircraft lease arrangements consistent with current market rates and the Company's Restructuring Plan. The Company will resume aircraft lease payments at restructured rates as new agreements are reached.

Since filing for CCAA on April 1, 2003, Air Canada has achieved

significant progress in its restructuring process, including:

- completion of a USD $700 million (or an equivalent amount in Canadian dollars not to exceed $1.05 billion) debtor-in-possession (DIP) secured financing facility from General Electric Capital Canada Inc.;

- permanent labour cost reductions of CDN $1.1 billion annually on a consolidated basis under new collective agreements reached with Air Canada's five major unions and Air Canada Jazz's four major unions;

- conclusion of an amended affinity agreement with CIBC with respect to the CIBC Aerogold Visa card program and completion of a CDN $350 million credit facility from CIBC;

- conclusion of an agreement in principle with American Express with respect to a new co-branded consumer and corporate charge card program and Aeroplan's participation in American Express' Canadian and international Membership Rewards Programs;

- completion of a going-forward Restructuring Plan based on fleet restructuring, lower operating costs, reduced debt, enhanced liquidity and a revised product strategy; and,

- commencement of detailed negotiations between Air Canada and its largest lessors, lenders and suppliers.

The airline has now revised its restructuring timetable and anticipates filing its CCAA Restructuring Plan and CBCA Plan of Arrangement with the Ontario Superior Court of Justice in the fall of this year.

[Sky High]

"Permenant labor cost reductions"? Does that mean no one will be hired back in the future?

Gotta wonder how 'satisfied' GECAS is going to be if AC can't come up with a decent restructuring plan. Sounds like they want to be able to pull out at any minute.