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(AIR CANADA LOGO)

ANNUAL INFORMATION FORM

MAY 15, 2003





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Glossary

Available Seat Miles or ASMs:A measure of passenger capacity calculated by
multiplying the total number of seats available for passengers by the miles
flown;

Code-share or Code-sharing:Refers to a commercial agreement between air
carriers where an air carrier sells air transportation under its own designator
code and the actual transportation is provided by the other air carrier;

Passenger Load Factor:A measure of passenger capacity utilization derived by
expressing revenue passenger miles as a percentage of available seat miles;

Revenue Passenger Miles or RPMs:Total number of revenue passengers carried,
including frequent flyer redemptions, multiplied by the miles they are flown;
and

Yield:Average revenue per Revenue Passenger Mile.

Explanatory
Notes

Air Canada and the Corporation References herein to Air Canada are
references to Air Canada itself and references to the Corporation include
references, as the context may require, to Air Canada and its subsidiaries
collectively, Air Canada and one or more of its subsidiaries, one or more of
Air Canadas subsidiaries, or Air Canada itself.

Currency All currency amounts used in this document are stated in Canadian
dollars, unless otherwise indicated.

Statistical Information Part of the data and statistics pertaining to growth
rates, market shares and market segments, as well as other industry data and
statistics contained in this document have been derived from statistics and
other information accumulated internally by Air Canada and from external
sources or upon assumptions or estimates made by Air Canada. Canadian and
global industry statistics have been obtained from the Aviation Statistics
Centre of Statistics Canada and the International Civil Aviation Organization
(ICAO).

Trademarks The following trademarks are owned by Air Canada and are used in
this document in italics to identify products or services offered by the
Corporation: Aeroplan, Tango by Air Canada, Air Canada Jetz, Air Canada Jazz,
ZIP, ACTS, Destina.ca, Acetek, Air Canada Vacations, Executive First, Executive
Class, AC Expedair, AC Priority, AC Air Freight, AC Lynx, Hospitality Service,
Rapidair, Maple Leaf Lounge, AC WEBSAVER, and Aeroplan Super Elite.The enRoute
trademark is also owned by Air Canada. Star Allianceis a trademark of Air
Canada, Deutsche Lufthansa AG (Lufthansa), Scandinavian Airlines System,
Denmark-Norway-Sweden (SAS), Thai Airways International Public Company
Limited (Thai Airways) and United Air Lines Inc. (United Airlines or
United).





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TABLE OF CONTENTS

|                                                     |                                                  |                                          |    |    |    | 
|---------------------------------------------------- | ------------------------------------------------ | ---------------------------------------- | -- | -- | -- | 
|IA   THE CORPORATION                                 |                                                  |                                          | 4  |   
|Incorporation                                        |                                                  |                                          | 4  |   
|Corporate Structure                                  |                                                  |                                          | 5  |   
|IB   REGULATORY ENVIRONMENT                          |                                                  |                                          | 7  |   
|Domestic Services                                    |                                                  |                                          | 7  |   
|Transborder Services                                 |                                                  |                                          | 9  |   
|International Services                               |                                                  |                                          | 9  |   
|Charter Services                                     |                                                  |                                          | 10 |   
|Security Initiatives                                 |                                                  |                                          | 11 |   
|Other Matters                                        |                                                  |                                          | 11 |   
|IC   INDUSTRY OVERVIEW AND COMPETITIVE
ENVIRONMENT   |                                                  |                                          | 12 |   
|Domestic Market                                      |                                                  |                                          | 12 |   
|Transborder and International Markets                |                                                  |                                          | 13 |   
|II   DEVELOPMENT OF THE BUSINESS OF THE
CORPORATION  |                                                  |                                          | 14 |   
|Corporate Profile                                    |                                                  |                                          | 14 |   
|Recent Events                                        |                                                  |                                          | 15 |   
|                                                     |                                                  | Filing For Protection Under CCAA         |    |    | 15 | 
|                                                     |                                                  | Pension Plans                            |    |    | 15 | 
|                                                     |                                                  | Financing During CCAA Proceedings        |    |    | 16 | 
|                                                     |                                                  | CIBC Agreement                           |    |    | 16 | 
|                                                     |                                                  | Preliminary Reduction in Operating Costs |    |    | 16 | 
|                                                     |                                                  | Aeroplan                                 |    |    | 16 | 
|                                                     |                                                  | Air Canada Jazz                          |    |    | 17 | 
|                                                     |                                                  | Government and Regulatory                |    |    | 17 | 
|                                                     |                                                  | Flight Attendants                        |    |    | 17 | 
|                                                     |                                                  | Global Airline Industry                  |    |    | 17 | 
|Three-Year Summary: Evolution of Business            |                                                  |                                          | 18 |   
|                                                     |                                                  | Acquisition of Canadian Airlines         |    |    | 18 | 
|                                                     |                                                  | Integration of Canadian Airlines         |    |    | 19 | 
|                                                     |                                                  | Economic Environment                     |    |    | 19 | 
|                                                     |                                                  | Regulatory Environment                   |    |    | 20 | 
|Other Corporate Initiatives                          |                                                  |                                          | 20 |   
|                                                     |                                                  | Asset Sales                              |    |    | 20 | 
|                                                     |                                                  | Business Process Re-engineering          |    |    | 21 | 
|Fleet and Capacity Initiatives                       |                                                  |                                          | 21 |   
|Subsidiaries and Divisions                           |                                                  |                                          | 22 |   
|                                                     |                                                  | Aeroplan                                 |    |    | 22 | 
|                                                     |                                                  | ZIP                                      |    |    | 22 | 
|                                                     |                                                  | Air Canada Jazz                          |    |    | 22 | 
|                                                     |                                                  | Destina.ca                               |    |    | 23 | 
|                                                     |                                                  | Air Canada Technical Services (ACTS)     |    |    | 23 | 
|                                                     |                                                  | Tango by Air Canada                      |    |    | 23 | 
|III   DESCRIPTION OF THE BUSINESS OF THE
CORPORATION |                                                  |                                          | 24 |   
|Passenger Operations and Route Networks              |                                                  |                                          | 24 |   
|                                                     |                                                  | Domestic                                 |    |    | 25 | 
|                                                     |                                                  | Transborder (Canada  United States)     |    |    | 25 | 
|                                                     |                                                  | International                            |    |    | 26 | 
|Products and Services                                |                                                  |                                          | 26 |   
|Cargo Operations                                     |                                                  |                                          | 28 |   
|Other Operations                                     |                                                  |                                          | 29 |   
|                                                     | Aeroplan                                         |                                          |    | 29 |   
|                                                     | Technical Services                               |                                          |    | 30 |   
|                                                     | Other Revenues                                   |                                          |    | 30 |   
|Star Alliance                                        |                                                  |                                          | 30 |   
|United Airlines                                      |                                                  |                                          | 31 |   
|Lufthansa                                            |                                                  |                                          | 31 |   
|Other Alliances                                      |                                                  |                                          | 31 |   
|Fleet Overview                                       |                                                  |                                          | 32 |   
|                                                     | Widebody Aircraft                                |                                          |    | 33 |   
|                                                     | Narrowbody Aircraft (Air Canada, Tango, and ZIP) |                                          |    | 33 |   
|Fuel                                                 |                                                  |                                          | 34 |   
|Employees                                            |                                                  |                                          | 35 |   
|Properties and Facilities                            |                                                  |                                          | 36 |   
|Insurance                                            |                                                  |                                          | 38 |   
|IV   MANAGEMENT DISCUSSION AND ANALYSIS
OF RESULTS   |                                                  |                                          | 39 |   
|V   SELECTED CONSOLIDATED FINANCIAL
INFORMATION      |                                                  |                                          | 39 |   
|VI   MARKET FOR THE NEGOTIATION OF
SECURITIES        |                                                  |                                          | 41 |   
|Price Range and Trading Volume of Air Canada Shares  |                                                  |                                          | 41 |   
|                                                     | Common Shares                                    |                                          |    | 41 |   
|                                                     | Class A Non-Voting Common Shares                 |                                          |    | 41 |   
|VII   DIVIDEND RECORD                                |                                                  |                                          | 42 |   
|VIII DIRECTORS AND OFFICERS                          |                                                  |                                          | 43 |   
|Directors                                            |                                                  |                                          | 43 |   
|Officers                                             |                                                  |                                          | 45 |   
|IX   RESTRICTIONS ON VOTING SECURITIES               |                                                  |                                          | 47 |   
|X   ADDITIONAL INFORMATION                           |                                                  |                                          | 48 |   
|Evaluation of Disclosure Controls and Procedures     |                                                  |                                          | 48 |   





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IA  THE CORPORATION

Incorporation

Air Canada was established by the Parliament of Canada on April 10, 1937,
as the national airline to provide essential air transport, cargo and mail
services across Canada. Air Canada was originally incorporated as Trans-Canada
Air Lines under the Trans-Canada Air Lines Act, as a wholly-owned subsidiary of
Canadian National Railway Corporation, which itself was wholly-owned by the
Government of Canada. Air Canada was reorganized and continued under the Air
Canada Act, 1977 at which time it became a direct wholly-owned subsidiary of
the Government of Canada.

In August 1988, the Air Canada Public Participation Act authorized the
continuance of Air Canada under the Canada Business Corporations Act and the
issuance and sale of shares to the public. In October 1988, Air Canada
completed its initial public offering of 30.8 million Common Shares. Following
this offering, the Government of Canada continued to hold 57% of the Common
Shares. In July 1989, a secondary offering of the Government of Canadas 57%
common shareholding in Air Canada was completed following which Air Canada
became entirely publicly-owned.

Air Canadas Articles were amended by Articles of Amendment in May 1994,
in order to create a new class of shares designated as Class A Non-Voting
Common Shares. In December 1999, the Articles were further amended to create
Class A Convertible Non-Voting Preferred Shares, Series 1 and Series 2, and the
Corporation issued 10 million Class A Convertible Non-Voting Preferred Shares,
Series 1 (Convertible Preferred Shares) for cash consideration of $233
million. In July 2001, the Articles were again amended to modify individual
ownership restrictions applicable to the Common Shares of Air Canada and
further amended and restated in order to remove such individual ownership
restrictions in February 2002.

The Common Shares and the Class A Non-Voting Common Shares of Air Canada
are listed on The Toronto Stock Exchange, under the symbols AC and AC.A,
respectively.

The registered and principal office of Air Canada is located at the Air
Canada Headquarters Building, Air Canada Centre, 7373 Côte Vertu Boulevard
West, Saint-Laurent, Québec, H4Y 1H4.

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Corporate Structure

The following table lists Air Canadas major subsidiaries and divisions,
including their jurisdictions of incorporation and the percentage of common
equity held or controlled directly or indirectly by Air Canada:

(CORPORATE STRUCTURE CHART)



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|(1) |  | Jazz Air Inc. (formerly Air Canada Regional Inc.) operates under one brand
name, Air Canada Jazz, since April 1, 2002.                                                                  
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | ZIP Air Inc. carries on
business under the name ZIP. Operations commenced in September 2002.                                                                                            
|   
|(3) |  | Touram Inc. carries on business under the name of Air Canada Vacations.                                                                                                                 
|   
|(4) |  | Wingco Leasing Inc. is a leasing company whose main business is the leasing
of commuter aircraft to Jazz Air Inc. and third party airlines operating under
capacity purchase agreements.
|   
|(5) |  | Air Canada Capital Ltd. is a company whose
main business is the leasing of aircraft to Air Canada and ZIP.                                                                              

Certain subsidiaries, each of which represents not more than 10% of the
consolidated assets and not more than 10% of the consolidated sales and
operating revenues of the Corporation, and all of which, in the aggregate,
represent not more than 20% of the total consolidated assets and the total
consolidated sales and operating revenues of the Corporation at December 31,
2002, have been omitted.

On April 1, 2003 Air Canada obtained an order from the Ontario Superior
Court of Justice (the Court) providing creditor protection under the
Companies Creditors Arrangement Act (CCAA). The initial order was amended by
the Court on April 25, 2003 and may be further amended by the Court throughout
the CCAA proceedings based on motions from Air Canada, its creditors and other
interested parties. On April 1, 2003, Air Canada, through its Court-appointed
Monitor, also made a concurrent petition for recognition and ancillary relief
under Section 304 of the U.S. Bankruptcy Code. The CCAA and U.S. proceedings
cover Air Canada and the following of its wholly-owned subsidiaries: Jazz Air
Inc., ZIP Air Inc., 3838722 Canada Inc., Air Canada Capital Ltd., Manoir
International Finance Inc., Simco Leasing Ltd., and Wingco Leasing Inc.
(collectively, the Applicants). Aeroplan, Air Canada Vacationsand
Destina.caare not included in the CCAA filing. These three subsidiaries
continue dealings with their creditors on a normal basis, unaffected by the
CCAA and U.S. proceedings.

The Court order and U.S. proceedings provide for a general stay period
that expires on June 30, 2003, subject to extension as the Court may deem
appropriate. This stay generally precludes parties from taking any action
against the Applicants for breach of contractual or other obligations. The
purpose of the stay period order is to provide the

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Applicants with relief designed to stabilize operations and business
relationships with customers, vendors, employees and creditors. During the
stay period, Air Canada is developing its revised business plan and negotiating
new arrangements with creditors (including aircraft lessors) and labour unions
with a view to having those arrangements completed prior to proposing a final
Plan of Arrangement.

The Applicants continue operations with the consent and assistance of the
Court-appointed Monitor and under the provisions of the Court orders. The
Applicants are undertaking an operational, commercial, financial and corporate
restructuring and will propose a Plan of Arrangement, which will be submitted
to the Court for confirmation after submission to any required vote to
creditors for approval. Under the Plan of Arrangement, claims against and
interests in the Applicants will be divided into classes according to their
seniority or similarity of interests and each class of creditors will vote on
the Plan of Arrangement as it pertains to that class. No rulings have yet been
made on the classification of affected creditors.

The CCAA filing triggered defaults on substantially all of the Applicants
debt and lease obligations. The stay period order stays most actions against
the Applicants, including employee group actions and most actions to collect
pre-filing indebtedness or to exercise control over the Applicants property.
The order also grants the Applicants with the authority to, among other things,
a) pay outstanding and future employee wages, salaries and employee benefits
and other employee obligations; b) honour obligations related to airlines
tickets and Aeroplanredemptions; and c) honour obligations related to the
Applicants interline, clearing house, code sharing and other similar
agreements.

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IB REGULATORY ENVIRONMENT

In Canada, commercial air transportation, including policy, maintenance
standards, operations standards, safety and ground and navigation facilities,
falls wholly within federal government jurisdiction and is the responsibility
of the Minister of Transport. Since 1996, air navigation services in Canada
have been provided by NAV Canada, a privatized company. In addition, most major
airports are operated by local airport authorities that are also privatized
companies.

The National Transportation Act, 1987 significantly reduced the economic
regulation of the airline industry in Southern Canada effective January 1988
and, to a lesser extent, the regulation of commercial air transportation on
routes in Northern Canada. This Act established the National Transportation
Agency (NTA), which reported through the Minister of Transport to the
Governor in Council. The NTA issued air carrier licenses for both domestic and
international services and regulated international air fares and conditions of
carriage. In May 1996, the Canada Transportation Act was passed by the Federal
Parliament to replace the National Transportation Act, 1987 and to further
reduce regulation in the industry. Most provisions of the previous National
Transportation Act applicable to air carriers remained in force. However,
effective May 1996, Northern Canada routes became subject to the same
regulatory framework as Southern Canada routes. The NTA was renamed the
Canadian Transportation Agency (CTA). The CTA continues to exercise licensing
authority and enforces the requirement that a carrier applying for a domestic
or international license as a Canadian carrier show that it is Canadian as
defined in the Canada Transportation Act. A Canadian carrier is defined as
being controlled by Canadians and having at least 75% of its voting interests
owned and controlled by Canadians.

Domestic
Services

The 1987 deregulation of the domestic airline industry allowed carriers to
establish fares and conditions of carriage without government regulation in
Southern Canada and with reduced regulation in Northern Canada. In 1996, the
remaining regulation in Northern Canada was eliminated. On non-competitive
routes, the CTA was given the power, on receipt of a complaint, to disallow
certain fare increases. Confidential contracts were permitted for domestic air
services giving passengers and shippers the ability to negotiate price and
service agreements directly with the airlines. Under the Canada Transportation
Act, there is free market entry provided a carrier can show that: (i) it is
Canadian as defined in the Act; (ii) can operate safely; (iii) is suitably
insured; and (iv) meets the minimum financial requirements set out in the Air
Transportation Regulations.

In July 2000, the Government of Canada amended the Canada Transportation
Act, the Competition Act and the Air Canada Public Participation Act to address
the competitive airline environment in Canada and ensure protection for
consumers. The legislation increased the powers of the CTA with respect to
pricing on non-competitive domestic routes, and domestic terms and conditions
of carriage. In addition, the legislation granted new powers to the Competition
Bureau concerning anti-competitive airline behaviour and incorporated
undertakings made to the Commissioner of Competition whereby Air Canada, in
connection with the acquisition of Canadian Airlines International Limited
(CAIL), accepted certain conditions in order to promote and maintain airline
competition in Canada. One of the new powers granted was the ability of the
Commissioner of Competition to issue cease and desist orders against alleged
anti-competitive behaviour of domestic air carriers. Air Canada challenged this
power before the courts in the Province of Quebec on the basis that it was
unconstitutional. On January 16, 2003, the Quebec Court of Appeal rendered its
decision declaring this power as being inoperative since
it conflicted with the due process provisions of the Canadian Bill of
Rights. Also included in the legislation were commitments made by Air Canada to
the Minister of Transport in December 1999 regarding the provision of domestic
service to small communities served by Air Canada, CAIL or any of their
wholly-owned subsidiaries for a three-year period as well as commitments to
employees regarding involuntary layoffs or involuntary relocations. The
commitments made by Air Canada to the Minister of Transport expired on January
4, 2003.

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In February 2001, the Competition Bureau released, for consultation, draft
enforcement guidelines outlining the approach it proposed to take in enforcing
the abuse of dominance provisions of the Competition Act for the airline
industry. Air Canada provided its comments on the draft guidelines in May 2001.
However, the Competition Bureau has advised that it will not finalize the
Guidelines until the Competition Tribunal has reached a decision in a case
brought by the Commissioner of Competition against Air Canada that is
hereinafter described.

In March 2001, the Competition Bureau made an application under the abuse
of dominance provisions of the Competition Act, seeking an order prohibiting
Air Canada from charging fares on flights on certain routes in Eastern Canada
that would allegedly not cover its avoidable costs of providing the service.
Air Canada subsequently challenged the Competition Bureaus application for an
order, which, if granted, could prohibit Air Canada from matching fares or
otherwise being price competitive on those routes. Air Canada disagrees with
the Competition Bureaus finding that it engaged in anti-competitive practices
directed against other carriers and the Bureaus interpretation of avoidable
costs. During 2001, hearings commenced before the Competition Tribunal for
clarification of certain rules relating to pricing behaviour in the domestic
market including, in particular, the application of the avoidable cost test
set out in the Regulations Respecting Anti-Competitive Acts of Persons
Operating a Domestic Service. The hearings have now been completed and a
decision is expected from the Competition Tribunal. It is not possible, at this
point, to determine the potential outcome of the application by the Competition
Bureau. If the avoidable cost test proposed by the Competition Bureau is
accepted, the potential impact upon the way in which Air Canada operates across
its system could be materially adverse to Air Canada and could impose
unworkable constraints on its operations.

In June 2002, the Government of Canada proclaimed into force Bill C-23, an
Act to amend the Competition Act. Bill C-23, among other things, gives
individuals the right to seek relief directly from the Competition Tribunal
(instead of first dealing with the Competition Bureau) in regards to exclusive
dealing, tied selling, market restriction and refusal to deal practices. It
also gives the Competition Tribunal the power to issue an interim order to
prevent certain anti-competitive behaviour specified in the Competition Act.
The Competition Tribunal has also been given the authority to levy a penalty of
up to $15 million against a domestic air carrier if the Tribunal finds that the
carrier has abused its dominant position in the market.

On February 25, 2003, the Minister of Transport released Straight Ahead 
A Vision for Transportation in Canada which sets out the Government of
Canadas strategy for a sustainable transportation system. As part of this
strategy, the Minister introduced concurrently in the House of Commons Bill
C-26, An Act to amend the Canada Transportation Act. The proposed legislation
grants the CTA the power, in certain circumstances, to order domestic carriers
to interline and establish joint fares for domestic services, as well as
provide access to their loyalty marketing programs. The CTA would be required
to determine, in consultation with the Commissioner of Competition, that the
absence of an agreement would substantially prevent or lessen competition, and
that the agreement would not cause financial hardship to the carrier that is
the subject of the order. This provision would replace certain undertakings
made by Air Canada to the Commissioner of Competition and incorporated into
legislation in July 2000.

Bill C-26 also includes requirements for publishing terms and conditions
of carriage on Internet sites used by domestic carriers and for full price
disclosure in advertisements including the amount or range of non-airline fees
and charges. In addition, the CTA would be permitted to investigate on its own
motion fares on non-competitive domestic routes and domestic terms and
conditions of carriage.

Between January 2002 and May 2003, there have been no domestic pricing
complaints forwarded by the CTA to Air Canada for response. Prior to this
period, approximately thirty complaints had been filed since the CTAs
jurisdiction over of domestic fares was increased in July 2000. In March 2001,
the CTA issued its first decision concerning the reasonableness of fares on a
non-competitive domestic route and determined that the lowest year-round
excursion fare offered by Air Canada on its services between Vancouver and
Prince Rupert in August 2000 was unreasonable. However, the CTA subsequently
decided not to order Air Canada to reduce its fare on the basis that Air Canada
had already introduced a lower fare and Hawkair, a competing airline, had
initiated service on that route. Since then, the CTA has upheld the
reasonableness of Air Canadas fares and/or adequacy in the range of fares on
the following routes:

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Vancouver-Sandspit, Vancouver-Smithers, Calgary-Kamloops, Toronto-Victoria,
Toronto-Calgary, Toronto-Inuvik, Toronto-Regina, Toronto-Saskatoon, Toronto-St.
Johns, and Halifax-Gander. In the case of Toronto-Regina, the CTA determined
that two of the fares were unreasonable and the range of fares was inadequate,
but Air Canada was not ordered to amend its tariffs since new lower fares were
offered between the two points.

Also, between January 2002 and May 2003, five complaints have been filed
with the CTA concerning Air Canadas domestic terms and conditions of carriage,
for a total of twenty complaints since July 2000. Over 80% of the complaints
have been dismissed or withdrawn, and the CTA has held that Air Canadas
domestic change fee, minimum stay requirement for restricted fares and
prohibition against back-to-back ticketing are not unreasonable and/or unduly
discriminatory.

Transborder
Services

In February 1995, a new air services agreement, the Open Skies Agreement,
was implemented between Canada and the United States, replacing the previous
bilateral agreement, which restricted market access and fares. This agreement
gave Canadian air carriers unlimited route rights to provide own aircraft
services between Canada and the United States. U.S. carriers were granted
unlimited route rights between the United States and Canada, subject to certain
restrictions in Toronto, Montreal and Vancouver over a maximum three-year
phase-in period, which ended in February 1998. Unlimited code-sharing was
allowed between any city in Canada and the United States, except for code-share
services to/from Toronto, Montreal and Vancouver, where certain restrictions
applied during the transition period. The carriage of local traffic between
points within one country by carriers of the other country continues to be
prohibited.

Under the Open Skies Agreement, rules governing fare levels and the
requirement to file tariffs (excluding rules tariffs) with government
authorities were eliminated. Carriers of both countries are free to set their
own prices for transborder services according to market forces. Prices may only
be disallowed under special circumstances if the authorities of both countries
agree, for example in response to predatory or monopoly pricing behaviour on
specific routes. In September 1997, the United States Department of
Transportation granted Air Canada and United Airlines antitrust immunity for
their marketing alliance. This authority has allowed the two carriers to more
closely coordinate strategic, commercial and network planning between Canada
and the United States with some restrictions on the San Francisco to Toronto
and Chicago to Toronto routes.

In November 1997, Canada and the United States concluded an agreement that
allows Canadian and U.S. carriers to code-share to, from and, via each others
territory, with carriers from other countries provided the other country allows
code-sharing and the carriers hold the underlying rights to serve that country.
As a result, Air Canada increased its code-sharing with certain Star Alliance
partners via Canada and the United States.

In December 2001, Air Canada proposed that the Canadian and U.S.
governments pursue an Open Skies Plus agreement consisting of a full U.S.
Open Skies model agreement plus the ability for carriers of each country to
carry the domestic traffic of the other country over their own hubs  what is
referred to as modified sixth freedom. Air Canadas proposal followed on the
Minister of Transports statement that the government would look at options
such as more foreign competition or modified sixth freedoms as an alternative
to re-regulation, to increase competition in the Canadian domestic market. The
two governments were urged to build on the success of the Open Skies Agreement
by removing restrictions in the existing agreement
generating more choices and competition within Canada and the United
States and beyond each others country to the rest of the world. There have
been no developments in this matter since then.

International
Services

Scheduled international air services are regulated by the Canadian and
foreign governments involved. The Minister of Transport has the authority to
designate which Canadian air carriers may serve scheduled international routes.

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International route rights are obtained through bilateral negotiations between
Canada and foreign countries. Bilateral agreements provide for the rights which
may be exercised over agreed routings and the conditions under which the
carriers may operate, including, among others, the number of carriers which may
operate, the capacity and/or flight frequencies that may be provided and the
controls over tariffs to be charged. Most bilateral agreements to which Canada
is a party provide for the designation of more than one Canadian carrier, while
some provide for the designation of only one Canadian air carrier. In general,
bilateral agreements between Canada and European countries are more liberal in
terms of controls on capacity and flight frequencies than those between Canada
and Asian countries.

In December 1994 and March 1995, the Minister of Transport introduced a
new international air transportation policy applicable to scheduled
international services by Canadian carriers (excluding services to the United
States). The international policy provided for second carrier designation in
country markets where one-way passenger trips on scheduled services exceeded a
threshold of 300,000 per year. By 2002, the following country markets exceeded
the 300,000 threshold: the United Kingdom, France, Germany, Hong Kong, Japan,
Taiwan and Mexico.

The international policy also established a process for the allocation of
route rights among Canadian carriers in unserved or under-utilized markets
(the Use It or Lose It principle). A designation was deemed under-utilized
if the incumbent carrier operated less than twice weekly flights on a
year-round basis using its own equipment, or was code-sharing with a foreign
carrier without using its own equipment on a significant portion of the
itinerary and was not operating at daily or near daily frequencies during peak
periods.

In December 1999, the Government of Canada announced a new competitive
framework for Canadas international air policy and bilateral relations,
following its approval of Air Canadas proposed acquisition of CAIL. The
framework established the availability of existing and future large country
markets (exceeding the 300,000 annual scheduled passenger trip threshold) to
any Canadian carrier interested in operating scheduled services subject to the
necessary bilateral rights being available and, upon application, the selection
of a Canadian carrier for any country market not allocated in accordance with
current practice. In addition, Air Canada and CAIL retained their country
designation and related route rights.

In February 2001, the Minister of Transport announced the launch of an
international air services policy review to address competition in the
international market with the release of a consultation document for
stakeholder review and comment. The objective of this review is to liberalize
Canadas policy for scheduled international air services, including how Canada
approaches the negotiation and management of air traffic rights with other
countries.

In May 2002, the Minister of Transport introduced a new liberalized
multiple designation policy for scheduled international air services by
eliminating the 300,000 annual scheduled passenger trip threshold. Any Canadian
carrier may now apply to be designated to serve any non-U.S. market, regardless
of the size of the air travel market. If the number of Canadian carriers
permitted is restricted under existing bilateral agreements, the Canadian
government has indicated that it will pursue negotiations with the appropriate
countries to seek the necessary rights for Canadian carriers. An incumbent
carriers designation in a particular market will be subject to reallocation
only in circumstances where the bilateral agreement limits designation and the
carrier is not operation own aircraft or code-share services. The Minister of
Transport also announced that other issues raised during the 2001 policy review
such as Canadas approach to bilateral negotiations will be reconsidered when
the Canadian airline industry recovers from the economic downturn and the
events of September 11, 2001.

Charter Services

Charter operations are generally not covered by bilateral agreements,
although charter services are covered under the Canada-U.S. Open Skies
Agreement. Canadian government policy permits any Canadian carrier to operate
charter services between Canada and any point in the world subject to prior
approval of the Canadian and other appropriate

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regulatory authorities. Charter services are operated by Air Canada to provide
service to foreign points where it is not the designated airline or to generate
additional revenues from aircraft that would otherwise be idle.

In April 2000, the Minister of Transport announced a new policy governing
international passenger charter air services. This policy removed restrictions
such as advance booking, minimum-stay requirements and prohibitions on one-way
travel. To preserve a distinction between charter and scheduled international
services, this policy retains the requirements that the entire seating capacity
of an aircraft be chartered and that charter carriers be prohibited from
selling seats directly to the public.

Security Initiatives

Following the September 11, 2001 terrorist attacks in the United States,
the Minister of Transport issued new air security measures, including increased
passenger and baggage screening and enhanced security procedures at check-in
gates and on board the aircraft. Other countries served by Air Canada, such as
the United States and the United Kingdom, imposed similar security
requirements. Air Canadas priority has been to ensure the safety and security
of all passengers and crew members on all flights. In addition to these new
measures, Air Canada has reinforced the cockpit doors on all of its mainline
operating aircraft and has required its passengers to produce valid
identification prior to boarding all flights.

In December 2001, the Minister of Transport announced several security
initiatives including a new Canadian Air Transport Security Authority
responsible for the provision of key air security services, an expanded program
of armed police on aircraft to cover selected domestic and international
flights, and an air travellers security charge. The air travellers security
charge was introduced on April 1, 2002 and effective March 1, 2003, was reduced
to $14 from $24 per round-trip, for domestic travel in Canada.

In October 2002, Canada Customs and Revenue Agency implemented its Advance
Passenger Information initiative to identify potentially high-risk individuals
and address other border security issues. In March 2003, it also established a
Passenger Name Record program. Canadian and Foreign carriers are now required
by regulation to provide the Minister of National Revenue with specific
personal information on all passengers and crew members on board international
flights destined to Canada at the time of departure, as well as to provide,
upon request, access to passenger name records in the carriers internal
reservation systems. The United States, the United Kingdom, Australia, New
Zealand, Mexico and Korea have proposed similar information requirements with
respect to flights operating into and/or from their territory.

On October 31, 2002, the Minister of Transport tabled in the House of
Commons amendments to the Aeronautics Act in order to enhance the scope and
objectives of the existing national aviation security regime. The proposed
legislation, Bill C-17, includes requirements for Canadian carriers and foreign
carriers operating into Canada to provide, upon request, information concerning
specified flights or persons to the Minister of Transport, Royal Canadian
Mounted Police and Canadian Security Intelligence Service for transportation
security or national security purposes. It would also create a new offence
concerning passengers who are unruly or jeopardize the safety or security of an
aircraft in flight.

Other
Matters

On February 2, 2002, Bill C-38, an Act to amend the Air Canada Public
Participation Act, became effective and removed the 15% limit on individual
ownership of voting shares in Air Canada. While the limit on individual
ownership has been removed, the Corporation continues to be subject to a 25%
restriction on non-resident ownership. (See Restrictions on Voting
Securities).

On March 20, 2003, the Minister of Transport introduced Bill C-27, the
Canada Airports Act, in the House of Commons. The proposed legislation
establishes a framework for the economic activities of thirty airports and
other airports in Canada serving at least 200,000 passengers annually. It
provides for financial disclosure and accountability

11



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##### 



obligations for airport operators, as well as public policy obligations
including the provision of equitable access for carriers to essential airport
facilities. Bill C-27 also sets out charging principles for fees and includes
requirements for transparent charging methodologies, public notice of proposed
fees and consultations with carriers and other stakeholders. In addition, the
CTA would be given the power to hear appeals on new or revised fees in certain
cases.

IC INDUSTRY OVERVIEW AND COMPETITIVE ENVIRONMENT

Domestic Market

The Corporation is the sole major full service airline in Canada. Based on
February 2003 Official Airline Guide data, the Corporation provided for
approximately 60% of the total number of domestic scheduled seats available in
the first quarter of 2003. In the Canadian market, the Corporation competes
with several scheduled and charter airlines. In 2002, WestJet Airlines, a
low-fare carrier based in Western Canada, and the Corporations largest
scheduled domestic competitor, expanded its domestic ASM capacity by
approximately 55%.

Based on International Air Transport Association (IATA) forecasts,
growth in traffic (as measured by RPMs) in the North American airline market is
estimated to be 3.5% on average over the period 2002-2006. From 1992 to 2002,
growth in traffic averaged 7.3%. The following table shows the combined
domestic and international traffic growth in RPMs, the capacity growth in ASMs,
and the yearly percentage changes for the period 1993-2001 for Canadian
scheduled carriers:

|     |  |                   |      |            |  |            |      |            |  |  |      |  |  |  |      |  
|---- |  | ----------------- | ---- | ---------- |  | ---------- | ---- | ---------- |  |  | ---- |  |  |  | ---- | -
|     |  | Scheduled Service
|     |  |                  
|     |  | RPMs(1)           |      | RPM Growth |  | ASMs(1)    |      | ASM Growth
|     |  |                   |      |            |  |            |      |           
|     |  | (billions)        |      | (%)        |  | (billions) |      | (%)       
|2001 |  |                   | 52.7 |            |  |            | (5.6 | )          |  |  | 72.4 |  |  |  | (6.6 | )
|2000 |  |                   | 55.8 |            |  |            | 15.8 |            |  |  | 77.5 |  |  |  | 12.5 |  
|1999 |  |                   | 48.2 |            |  |            | 3.4  |            |  |  | 68.9 |  |  |  | 3.5  |  
|1998 |  |                   | 46.6 |            |  |            | 8.6  |            |  |  | 66.6 |  |  |  | 9.4  |  
|1997 |  |                   | 42.9 |            |  |            | 9.2  |            |  |  | 60.9 |  |  |  | 3.0  |  
|1996 |  |                   | 39.3 |            |  |            | 15.9 |            |  |  | 59.1 |  |  |  | 11.1 |  
|1995 |  |                   | 33.9 |            |  |            | 16.1 |            |  |  | 53.2 |  |  |  | 15.2 |  
|1994 |  |                   | 29.2 |            |  |            | 7.4  |            |  |  | 46.2 |  |  |  | 8.5  |  
|1993 |  |                   | 27.2 |            |  |            | (2.5 | )          |  |  | 42.6 |  |  |  | (3.2 | )



---

|(1) |  | Source: Aviation Statistics Centre, Statistics Canada. Based on Level IA, IB and II air carriers as defined by the Minister of Transport.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------

12



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Transborder and International
Markets

Competition in the transborder market is primarily from the major U.S.
airlines. Based on February 2003 Official Airline Guide data, the Corporation
provided for approximately 43% of the total number of transborder scheduled
seats available in the first quarter 2003. Management believes that over
one-half of transborder passengers are Canadian, which helps support the
Corporations market position. U.S. airlines with transborder operations
include American Airlines, Delta Airlines, Continental Airlines and United
Airlines. The Corporation operates transborder routes from across Canada to and
from destinations across the United States, on a direct non-stop basis, while
the U.S. airlines tend to operate flights to their hubs for connecting flights.

Competition in the Trans-Atlantic and Trans-Pacific markets is primarily
from major foreign airlines, with competition from charter carriers on
higher-density routes and particularly during peak travel seasons. Major U.S.
Airlines also provide indirect competition by flying Canadians through their
hubs to international markets. The continued strengthening of major airline
alliances, such as Star Allianceand oneworld, has consolidated operations in
the Trans-Atlantic and Trans-Pacific markets. Based on February 2003 Official
Airline Guide data, the Corporation provided for approximately 45% of the total
number of both Trans-Atlantic and Trans-Pacific scheduled seats available in
the first quarter 2003. In the premium business travel segments, some airlines
are enhancing product offerings (e.g., flatbed seats in premium classes) in
order to attract and retain high yield business travelers. In the Trans-Pacific
market, the emergence of polar routes has provided opportunities for new
non-stop services from Eastern North American cities to Asian cities, which may
reduce the importance of Western hubs to Asia.

Based on IATA forecasts, growth in traffic (as measured by RPMs) in the
Trans-Atlantic market is estimated to be 3.0% on average for the period
2002-2006, while in the Trans-Pacific market, growth is anticipated to be 2.3%.

Since 1993, there has been considerable traffic growth on scheduled
commercial services as well as capacity growth. The following table shows
global traffic and capacity levels for scheduled services operated by
commercial airlines worldwide:

|     |  |            |         |            |  |            |      |            |  |  |         |  |  |  |      |  
|---- |  | ---------- | ------- | ---------- |  | ---------- | ---- | ---------- |  |  | ------- |  |  |  | ---- | -
|     |  | RPMs(1)    |         | RPM Growth |  | ASMs(1)    |      | ASM Growth
|     |  |            |         |            |  |            |      |           
|     |  | (billions) |         | (%)        |  | (billions) |      | (%)       
|2001 |  |            | 1,820.8 |            |  |            | (2.9 | )          |  |  | 2,639.0 |  |  |  | (0.3 | )
|2000 |  |            | 1,874.9 |            |  |            | 7.8  |            |  |  | 2,646.2 |  |  |  | 5.1  |  
|1999 |  |            | 1,738.5 |            |  |            | 6.5  |            |  |  | 2,517.0 |  |  |  | 5.5  |  
|1998 |  |            | 1,633.0 |            |  |            | 2.1  |            |  |  | 2,384.7 |  |  |  | 2.9  |  
|1997 |  |            | 1,598.8 |            |  |            | 5.8  |            |  |  | 2,316.4 |  |  |  | 4.6  |  
|1996 |  |            | 1,511.0 |            |  |            | 8.2  |            |  |  | 2,214.4 |  |  |  | 6.1  |  
|1995 |  |            | 1,397.0 |            |  |            | 7.1  |            |  |  | 2,087.0 |  |  |  | 6.0  |  
|1994 |  |            | 1,304.8 |            |  |            | 7.7  |            |  |  | 1,969.3 |  |  |  | 5.2  |  
|1993 |  |            | 1,211.3 |            |  |            | 1.1  |            |  |  | 1,872.4 |  |  |  | 2.8  |  



---

|(1) |  | Source: Civil Aviation Statistics of the World  ICAO.
|--- |  | ------------------------------------------------------

13



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##### 



II DEVELOPMENT OF THE BUSINESS OF THE CORPORATION

Corporate
Profile

The Corporation is Canadas sole major domestic and international
full-service airline, providing scheduled and charter air transportation for
passengers and cargo. In 2002, Air Canada was the 7th largest North American
airline and 13th largest airline in the world, based on RPMs. In 2002, the
Corporation carried approximately 29 million passengers annually and at
December 31, 2002, employed 40,238 full-time equivalent employees.

At December 31, 2002, the Corporation, Tango by Air Canada(Tango), ZIP
Air Inc.(ZIP) and the Corporations regional airline subsidiary, Jazz Air
Inc. (Air Canada Jazz), served 148 direct destinations with their fleet of
336 aircraft. The Corporations primary hubs are located in Toronto, Montreal
and Vancouver, each of which has extensive access to domestic, transborder and
international markets. Through commercial agreements with other affiliated
regional airlines, an additional 20 destinations were served at December 31,
2002, for a total of 168 direct destinations on five continents. The
Corporation is the largest provider of scheduled passenger services in the
Canada-U.S. market, as well as in the Canada-Europe and Canada-Pacific Rim
markets. The Corporations cargo division serves numerous destinations in
Canada and internationally, with sales representation in over 70 countries.

The Corporation operates an extended global network in conjunction with
its international partners. Air Canada is a founding member of Star Alliance,
the worlds largest airline alliance group. Other founding members are United
Airlines, Lufthansa, SAS and Thai Airways. They were joined in 1997 by Brazils
VARIG, in 1999 by Air New Zealand and All Nippon Airways, in 2000 by Singapore
Airlines, Mexicana Airlines, bmi and Austrian Airlines Aviation Group (Austrian
Airlines, Lauda Air and Tyrolean Airways) and in 2003 by Asiana Airlines and
Spanair. Through its strategic and commercial partnerships with Star Alliance
members and several other airlines, Air Canada offers service to over 700
destinations.

AeroplanLimited Partnership, is a limited partnership owned by the
Corporation. Aeroplan, the Corporations loyalty program, rewards members with
travel rewards both for flying on Air Canada (Tango, ZIPand Air Canada Jazz)
and its airline partners, and for purchasing services from other program
participants. The Corporation encourages brand loyalty through Aeroplan, which
has over six million members, and through credit card and other merchant
affiliations.

Destina.ca, is the Corporations wholly-owned on-line travel site and is a
major partner of Aeroplan. Destina.carewards customers with Aeroplanmiles for
on-line purchases and features Canadian content and time saving functions for
booking air transportation, hotels and car rental.

ZIP, the Corporations low-fare carrier, is based in Western Canada with
its own management and fleet. ZIPoperates replacement flying on short-haul
routes, with connections to and from the Corporations worldwide network.

The Corporation holds a 100% interest in Touram Inc., which operates under
the name Air Canada Vacations, a major Canadian tour operator.

Air Canada Technical Services (ACTS), a division of Air Canada, provides
maintenance, engineering and repair services to the Corporations aircraft
fleet and maintenance services to
third parties. The major maintenance facilities of the Corporation are
located in Toronto, Montreal, Vancouver, Calgary and Winnipeg.

The Corporation provides other airlines with ground handling and other
contract services.

14



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##### 



Recent
Events

Filing For Protection Under CCAA

On April 1, 2003 Air Canada obtained an order from the Ontario Superior
Court of Justice (the Court")providing creditor protection under the
Companies Creditors Arrangement Act (CCAA). The initial order was amended by
the Court on April 25, 2003 and may be further amended by the Court throughout
the CCAA proceedings based on motions from Air Canada, its creditors and other
interested parties. On April 1, 2003, Air Canada, through its Court-appointed
Monitor, also made a concurrent petition for recognition and ancillary relief
under Section 304 of the U.S. Bankruptcy Code. The CCAA and U.S. proceedings
cover Air Canada and the following of its wholly-owned subsidiaries: Jazz Air
Inc., ZIP Air Inc., 3838722 Canada Inc., Air Canada Capital Ltd., Manoir
International Finance Inc., Simco Leasing Ltd., and Wingco Leasing Inc.
(collectively, the Applicants").Aeroplan, Air Canada Vacationsand
Destina.caare not included in the CCAA filing. These three subsidiaries
continue dealings with their creditors on a normal basis, unaffected by the
CCAA and U.S. proceedings.

The Court order and U.S. proceedings provide for a general stay period
that expires on June 30, 2003, subject to extension as the Court may deem
appropriate. This stay generally precludes parties from taking any action
against the Applicants for breach of contractual or other obligations. The
purpose of the stay period order is to provide the Applicants with relief
designed to stabilize operations and business relationships with customers,
vendors, employees and creditors. During the stay period, Air Canada is
developing its revised business plan and negotiating new arrangements with
creditors (including aircraft lessors) and labour unions with a view to having
those arrangements completed prior to proposing a final Plan of Arrangement.

The Applicants continue operations with the consent and assistance of the
Court-appointed Monitor and under the provisions of the Court orders. The
Applicants are undertaking an operational, commercial, financial and corporate
restructuring and will propose a Plan of Arrangement, which will be submitted
to the Court for confirmation after submission to any required vote to
creditors for approval. Under the Plan of Arrangement, claims against and
interests in the Applicants will be divided into classes according to their
seniority or similarity of interests and each class of creditors will vote on
the Plan of Arrangement as it pertains to that class. No rulings have yet been
made on the classification of affected creditors.

The CCAA filing triggered defaults on substantially all of the Applicants
debt and lease obligations. The stay period order stays most actions against
the Applicants, including employee group actions and most actions to collect
pre-filing indebtedness or to exercise control over the Applicants property.
The order also grants the Applicants with the authority to, among other things,
a) pay outstanding and future employee wages, salaries and employee benefits
and other employee obligations; b) honour obligations related to airlines
tickets and Aeroplanredemptions; and c) honour obligations related to the
Applicants interline, clearing house, code sharing and other similar
agreements.

Pension Plans

On March 21, 2003, the Office of the Superintendent of Financial
Institutions (OSFI) issued a Temporary Direction instructing Air Canada to make
contributions in excess of the minimum required under the regulations and
legislation. Specifically, Air Canada was requested to remit an
amount approximately equal to the contribution holidays taken in 2002, and
to cease taking contribution holidays.

15



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##### 



Pursuant to the Court order currently in effect in connection with the
CCAA proceedings, Air Canada was allowed to cease making contributions to
funded pension plans, pending a further order of the Court. Pension benefit
payments from the registered pension plans continue to be paid.

Financing During CCAA Proceedings

In conjunction with the CCAA proceedings and for the purpose of ensuring
adequate liquidity during the restructuring, Air Canada has arranged for a
US$700 million (or an equivalent amount in Canadian dollars not to exceed $1.05
billion) debtor-in-possession (DIP) secured revolving credit facility from
General Electric Capital Canada Inc. The facility is secured by all of the
unencumbered assets of Air Canada. The facility will be available in stages.
The first tranche is in the amount of US$400 million, of which CDN$350 million
was made available on May 1, 2003. The remainder of the funds within the first
tranche will be available after a 21-day appeal period which commenced on May
1st, subject to some security and other documentation being put into place.
The second tranche is in the amount of US$300 million and will be made
available subject to certain other conditions. The agreement will have a term
of up to the earliest of the (a) effective date of a Plan of Arrangement in the
CCAA proceedings and (b) the prepayment in full by the Corporation of all
amounts outstanding under the agreement and the termination of the lenders
commitments under the agreement.

CIBC Agreement

On April 17, 2003, Air Canada reached an agreement with Canadian Imperial
Bank of Commerce (CIBC) on a new contract with respect to the CIBC Aerogold
Visa card program and a $350 million short-term financing. The agreement is
subject to Court approval under the CCAA proceedings.

If approved by the Court, CIBC would lend Air Canada $350 million, which
loan would be repayable from the proceeds payable by CIBC for points purchased
from Air Canada in connection with credit cards that would be subject to the
new credit card agreement. The new credit card agreement also provides that
the price per point purchased by CIBC would be greater than the price in the
old credit card agreement. Pursuant to the new credit card agreement, the
arrangements between Air Canada and CIBC would be extended from 2009 to 2013.
On April 28, 2003, Air Canada received an unsolicited and non-binding
expression of interest for a credit card agreement with Aeroplanfrom a third
party, who has requested that its identity not be disclosed, leading to a bid
process that ended May 10, 2003. Several financial institutions submitted
their bids for a credit card agreement with Aeroplan. An amended CIBC bid with
increased economic benefits was approved by the Court on May 14, 2003. This
amended bid includes the possibility to have an additional card provider.

Preliminary Reduction in Operating Costs

On May 13, 2003, the Corporation announced immediate and aggressive
actions to reduce operating costs until such time as traffic levels stabilize.
These actions include overall capacity reductions amounting to 17%
year-over-year for June, July and August, mainly on Asian and transborder
routes. This will result in the grounding of approximately 40 aircraft at Air
Canada and at its subsidiary, Air Canada Jazz.

Aeroplan

On January 27, 2003, the Corporation announced it entered into an
agreement to sell a 35% interest in Aeroplanto Onex Corporation. Onex
Corporation has confirmed its intent to proceed with its offer to acquire a 35%
interest in Aeroplanand has agreed to an exclusive negotiating period to
restructure the transaction. The transaction which is subject
16

to the fulfillment of certain closing conditions, including the completion of a
due diligence satisfactory to Onex
Corporation, could close upon Air Canadas emergence from CCAA protection.

Air Canada Jazz

Effective January 4, 2003, Air Canada Jazzdiscontinued service to certain
small communities to coincide with the
expiry of the Corporations three-year commitment to the Minister of Transport
to provide service to communities
previously served by the Corporation or Canadian Airlines International Limited
(CAIL) or their wholly-owned
subsidiaries. This commitment was a condition of the acquisition by the
Corporation of CAIL. These changes are in
addition to service realignments in Western Canada made earlier in the third
quarter of 2002, where smaller local airline
operators replaced Air Canada Jazzoperations.

Government and Regulatory

On January 16, 2003, the Quebec Court of Appeal struck down as
unconstitutional a provision of the Competition Act
introduced in July 2000, which provided the Commissioner of Competition the
power to issue cease and desist orders
against alleged anti-competitive behaviour of domestic air carriers. The Court
issued a declaration that Section 104.1 of
the Competition Act is inoperative in that it conflicts with the due process
provisions afforded by the Canadian Bill of
Rights.

On February 25, 2003, the Minister of Transport released Straight Ahead 
A Vision for Transportation in Canada
which sets out the Government of Canadas strategy for a sustainable
transportation system. As part of this strategy, the
Minister introduced concurrently in the House of Commons Bill C-26, An Act to
amend the Canada Transportation Act.
The proposed legislation grants the CTA the power, in certain circumstances, to
order domestic carriers to interline and
establish joint fares for domestic services, as well as provide access to their
loyalty marketing programs. The CTA would
be required to determine, in consultation with the Commissioner of Competition,
that the absence of an agreement would
substantially prevent or lessen competition, and that the agreement would not
cause financial hardship to the carrier that is
the subject of the order. This provision would replace certain undertakings
made by Air Canada to the Commissioner of
Competition and incorporated into legislation in July 2000.

Bill C-26 also includes requirements for publishing terms and conditions
of carriage on Internet sites used by domestic
carriers and for full price disclosure in advertisements including the amount
or range of non-airline fees and charges. In
addition, the CTA would be permitted to investigate on its own motion fares on
non-competitive domestic routes and
domestic terms and conditions of carriage.

Flight Attendants

On December 31, 2002, Air Canada announced the ratification of a new
four-year contract with the Canadian Union of
Public Employees (CUPE) for the Corporations flight attendants that are part
of the CUPE labour union. The
ratification of the CUPE agreement formally concluded the integration of Air
Canadas and Canadian Airlines workforce.

Global Airline Industry

During 2002 and continuing in 2003, the airline industry has suffered from
a weak economic environment and
competitive pressures resulting from excess capacity, lower demand and lower
fares. In addition, the industry has
experienced challenging operating conditions from increased security measures,
increased user fees and insurance costs
and high fuel prices. The prospects for the industry remain uncertain
reflecting decreasing demand for air travel caused

17



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##### 



by continuing concerns over security, international conflicts, the impact of
Severe Acute Respiratory Syndrome (SARS) on the travel industry and general
economic conditions. During 2002, several major North American airlines
commenced bankruptcy proceedings. The current situation and potential future
adverse events will likely result in continued financial difficulties for
airlines.

Three-Year Summary: Evolution of
Business

Acquisition of Canadian Airlines



| |  |  | In 1999, the Corporation fended off a takeover bid and its proposal to
acquire CAIL was successful which led to the financial restructuring
of Canadian Airlines Corporations (CAC) and CAILs $3.5 billion of
debt and lease obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In 1999, 853350 Alberta Ltd. (853350 Alberta) was incorporated, with
the Corporation owning 10% of its common shares, for the purpose of
acquiring the common shares of CAC and the preferred shares of CAIL.
On January 4, 2000, 853350 Alberta acquired approximately 82% of the
issued and outstanding common shares and non-voting shares of CAC. On
January 5, 2000, 853350 Alberta purchased from a wholly-owned
subsidiary of AMR Corporation its investment in convertible preferred
shares of CAIL. At the same time, AMR Corporation relinquished all
rights related to its shareholdings in CAIL. The Corporation advanced
funds to 853350 Alberta from its internal funds to provide the
financing for these transactions.
|
| |  |  | During that period, it was established that CAC was in significant
financial difficulty and would require a debt restructuring with its
creditors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Effective February 2, 2000, CAC and CAIL suspended payments to lenders
and aircraft lessors on a temporary basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | On March 24, 2000, CAC was granted an order under the Companies
Creditors Arrangement Act (Canada) and an ancillary order under
section 304 of the United States Bankruptcy Code, pursuant to which
CAC was required to present a Plan of Arrangement setting out the
terms of the restructuring of its debt and other obligations. Air
Canada made financing available during the debt restructuring process.                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Following approval by the creditors, the Court of Queens Bench of
Alberta approved the Plan of Arrangement on June 27, 2000, resulting
in the compromise of the indebtedness owed to secured noteholders and
certain affected unsecured creditors of CAC. In connection with the
plan, CAIL became a wholly-owned subsidiary of 853350 Alberta.
Subsequently, the Corporation acquired the remaining 90% of the common
shares of 853350 Alberta.                                                                                                                                                                                                                                                                                       
|
| |  |  | Upon the closing of the restructuring plan and the completion of the
acquisition of 853350 Alberta, CAIL became a wholly-owned indirect
subsidiary of Air Canada, effective July 5, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | The completion of CAILs debt restructuring in late June 2000 resulted
in savings of approximately $500 million on a present value basis.
Once the Corporation gained control of CAIL, the integration process
began.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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Integration of Canadian Airlines



| |  |  | During 2000, the process of integrating the operations of the Corporation
and CAIL included the following steps:
| | - |  | ----------------------------------------------------------------------------------------------------------------

| |   |  |                                                                                                                                                                                       
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o |  | combining schedules, operating authorities, passenger and cargo
terminal operations, system operation centres, computer systems,
accounting, head offices and frequent flyer programs;
| |   |  |                                                                                                                                                                                       
| | o |  | negotiating long term labour agreements with the unions;                                                                                                                              
| |   |  |                                                                                                                                                                                       
| | o |  | training CAIL employees on Air Canada systems;                                                                                                                                        
| |   |  |                                                                                                                                                                                       
| | o |  | producing standardized procedures and manuals for the merged carrier;                                                                                                                 
| |   |  |                                                                                                                                                                                       
| | o |  | creating a single countrywide regional airline system;                                                                                                                                
| |   |  |                                                                                                                                                                                       
| | o |  | combining the two airlines operations at Torontos Pearson International Airport, the Corporations largest
hub;                                                                     
| |   |  |                                                                                                                                                                                       
| | o |  | securing preferred access to Toronto airports new
mega-terminal opening in 2003 (Phase 1); and                                                                                       
| |   |  |                                                                                                                                                                                       
| | o |  | implementing an integrated network schedule for the Corporation, CAIL and their
regional carriers.                                                                                    



| |  |  | The Corporation completed the integration of software applications,
including the two airlines reservation systems, call centres and flight
information displays in airports.                                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Corporation negotiated to allow Air Canada and CAIL staff to work
side by side, rather than wait for third parties to merge labour groups
and obtain union approval for the interim step of intermingling
employees.                  
|
| |  |  | The corporate amalgamation of Air Canada and CAIL was completed on
January 2, 2001.                                                                                                                                                       
|
| |  |  | All regional operations were merged into Air Canada Regional Inc, now
known as Air Canada Jazz.                                                                                                                                           
|
| |  |  | On March 29, 2001, Transport Canada granted Air Canada an amended single
Air Operator Certificate (AOC), allowing for the complete consolidation
of CAILs operations, maintenance and aircraft under the Air Canada
operator certificate.
|
| |  |  | The Corporation completed the intermingling of employees with the
ratification of the CUPE contract on March 3, 2003.                                                                                                                     

Economic Environment



| |  |  | At the end of 2000, the airline industry faced a sudden slowdown in
business travel. The Corporation cut its planned 2001 capacity growth to
zero, parked up to eight older widebody aircraft and reduced employment
levels by 3,500 employees, primarily through voluntary separation
packages and attrition.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The economic slowdown continued culminating in the collapse of the
technology sector in the Spring of 2001 and the further decrease in
premium business travel.                                                                                                                                               
|
| |  |  | The events of September 11, 2001 dramatically impacted the global airline
industry. The Corporation took immediate action to reduce capacity,
labour expense and other costs and arranged financing to ensure
liquidity.                                                                                      
|
| |  |  | During 2002, the economic slowdown continued with the threat of a
U.S.-Iraqi conflict and high and potentially higher fuel prices.                                                                                                                                                                            
|
| |  |  | The $24 Canadian government air travellers security charge negatively
impacted the Corporations performance in 2002 on short haul routes.
Effective March 1, 2003, the domestic air travellers security charge was
reduced to $14 from $24 for a round-trip ticket.                                        

19



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##### 





| |  |  | The Severe Acute Respiratory Syndrome (SARS) outbreak has had a material
impact, not only on the Corporations Asian routes, but on the entire
network and in particular the Corporations Toronto hub.                                                                                                                                                                                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On May 13, 2003, the Corporation announced immediate and aggressive
actions to reduce operating costs until such time as traffic levels
stabilize. These actions include overall capacity reductions amounting
to 17% year-over-year for June, July and August, mainly on Asian and
transborder routes. This will result in the grounding of approximately 40
aircraft at Air Canada and at its subsidiary, Air Canada Jazz.

Regulatory Environment



| |  |  | In July 2000, the Government of Canada amended the Canada Transportation
Act, the Competition Act and the Air Canada Public Participation Act to
address the competitive airline environment in Canada and ensure
protection for consumers. The legislation increased the powers of the
Canadian Transportation Agency (CTA) with respect to pricing on
non-competitive domestic routes, and domestic terms and conditions of
carriage. In addition, the legislation granted new powers to the
Competition Bureau concerning anti-competitive airline behaviour and
incorporated undertakings made by Air Canada to the Commissioner of
Competition in connection with its acquisition of CAIL. Also included in
the legislation were commitments made by Air Canada to the Minister of
Transport in December 1999 regarding the provision of domestic service to
small communities served by Air Canada, CAIL or any of their wholly-owned
subsidiaries for a three-year period as well as commitments to employees
regarding involuntary layoffs or involuntary relocations.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Effective January 4, 2003, Air Canada Jazzdiscontinued service to
certain small communities to coincide with the expiry of the Air Canadas
three-year commitment to the Minister of Transport concerning the
provision of service to small communities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | On January 16, 2003, the Quebec Court of Appeal struck down as
unconstitutional a provision of the Competition Act introduced in July
2000, which provided the Commissioner of Competition the power to issue
cease and desist orders against alleged anti-competitive behaviour of
domestic air carriers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | On February 25, 2003, the Minister of Transport introduced in the House
of Commons Bill C-26, An Act to amend the Canada Transportation Act. The
proposed legislation grants the CTA the power, in certain circumstances,
to order domestic carriers to interline and establish joint fares for
domestic services, as well as provide access to their loyalty marketing
programs. The CTA would be required to determine, in consultation with
the Commissioner of Competition, that the absence of an agreement would
substantially prevent or lessen competition, and that the agreement would
not cause financial hardship to the carrier that is the subject of the
order. This provision would replace certain undertakings made by Air
Canada to the Commissioner of Competition and incorporated into
legislation in July 2000.                                                                                                                                                                                                                                          

Other Corporate Initiatives

Asset Sales

The Corporation started focusing on asset sales for purposes of raising
liquidity in 2001, following the decline of the technological sector and the
resulting economic slowdown and decline in business travel. These types of
financing activities significantly increased following the terrorist attacks of
September 2001. In 2002, the on-going economic slowdown, the threat of a
U.S.-Iraqi conflict and the general decline in travel contributed to further
asset sales. The following amounts were raised by the Corporation through sale
and leaseback transactions:

20



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##### 





| |  |  | 2000: CDN$292 million  aircraft;                                            
| | - |  | -----------------------------------------------------------------------------
|
| |  |  | 2001: CDN$1,468 million  aircraft, spare engines and computer
equipment; and
|
| |  |  | 2002: CDN$284 million  aircraft, engines and real estate.                   

Business Process Re-engineering

As a result of the on-going economic slowdown, the Corporation continued
its focus on cost reduction and revenue improvement initiatives. Several major
undertakings were launched under the umbrella of the Securing Our Future
(SOF) re-engineering program, including the adoption of the Six Sigma
methodology.

SOF is a program, which resulted from extensive management analysis and
benchmarking and includes the following initiatives: the addition of more
economy seating, fuel burn savings projects, the re-negotiation of supply
agreements, the re-evaluation and release of surplus real estate and other
assets, the re-design of products and workflow, the development of on-line
booking technology and the reduction of distribution costs such as Computer
Reservation System fees. A number of these initiatives were implemented and
resulted in improved revenue and cost performance. An objective of SOF was to
make business process re-engineering a permanent part of the Corporations
culture.

In May 2002, the Corporation introduced the Six Sigma methodology, a
discipline to simplify processes, improve service and reduce waste and costs.
Six Sigma is:



| |  |  | a rigorous and disciplined approach to managing business through data
driven processes by providing a consistent analytical approach to project
selection and solutions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | an approach that provides a common business
language that all employees share to discuss business improvements; and                                                     
|
| |  |  | a measurement of variation, or defects, in an individual process.                                                                                                       

A continuing area of focus is the development and implementation of
strategies to utilize the Internet and other electronic media, particularly in
creating new and lower cost channels of distribution. The Corporation continues
to encourage customers to book and check-in electronically. In terms of
booking, the Corporation has websites for Air Canada, Air Canada Jazz,Tango,
Aeroplanand Destina.ca, the Corporations Internet travel services portal.
Regardless of the booking method, the use of electronic ticketing is becoming
much more prevalent. In terms of electronic check-in, the Corporation has made
significant investments in Express self-service check-in kiosks available at
major Canadian airports. In Canada, over one-third of the Corporations
passengers check-in via these fast check-in kiosks. The Corporation became the
first full service carrier to move to exclusively electronic ticketing for its
respective domestic markets in 2003.

Fleet and Capacity
Initiatives

In 2002, the Corporation continued to realign its capacity in order to
address the slowdown in travel resulting from the economic downturn. This was
done primarily by reducing frequencies on certain high frequency routes or
where required, by combining frequencies by operating larger aircraft. This
enabled Air Canada to maintain a full presence on its traditional network while
reducing its operating costs and allowing for redeployment opportunities on
incremental revenue opportunities. On May 13, 2003, the Corporation announced
immediate and aggressive actions to reduce operating costs until such time as
traffic levels stabilize. These actions include overall capacity reductions
amounting to 17% year-over-year for June, July and August, mainly on Asian
and transborder routes. This will result in the grounding of approximately
40 aircraft at Air Canada and at its subsidiary, Air Canada Jazz.

21



---



##### 



In the mainline fleet, many of the Corporations oldest narrow-body
aircraft have been retired or sold, including several Boeing 767-200 and Boeing
737-200 aircraft and the entire DC-9 fleet. Furthermore, by year-end 2002,
seven Boeing 737-200 aircraft were transferred to ZIPoperations. During 2002,
16 new Airbus narrow-body aircraft were delivered, providing replacement
capacity for some of the retired aircraft. In addition, the Corporation also
took delivery of two Boeing B767-300 and three Airbus A321 aircraft on a Power
By the Hour (PBH) basis with aircraft rental payments based on the number of
hours flown. As at December 31, 2002, the Corporation had a total of 10 PBH
aircraft. In regards to wide-body aircraft, in 2002, four aircraft (three
Airbus A340-300 and one Boeing 747-400) were returned to their lessors at the
end of their leases.

At Air Canada Jazz, the Fokker F28 aircraft have all been retired.

To address the decline in business travel and support its drive to reduce
unit costs, the Corporation continued its seat reconfiguration program in 2002,
which has added economy class seating and reduced business class seating on
Airbus A320, Airbus A319, Boeing 737 aircraft and added economy class seating
only on Boeing 767 aircraft, while maintaining industry leading seat pitch
standards.

Subsidiaries and Divisions

Aeroplan



| |  |  | In January 2002, Aeroplanbegan operations as a separate limited
partnership. On January 27, 2003, the Corporation entered into an
agreement with Onex Corporation to sell a 35% interest in Aeroplanto
Onex Corporation. Onex Corporation has confirmed its intent to proceed
with its offer to acquire a 35% interest in Aeroplanand has agreed to an
exclusive negotiating period to restructure the transaction. The
transaction is subject to the fulfillment of closing conditions,
including the completion of due diligence satisfactory to Onex
Corporation and the closing could take place upon Air Canadas emergence
from CCAA protection. Air Canada would retain the remaining 65% interest
in Aeroplan.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ZIP



| |  |  | In September 2002, the Corporation launched a wholly-owned independently
operated low-fare carrier, ZIP Air Inc. The new carrier is based in
Western Canada and has its own management and fleet. ZIPoperates
primarily short-haul routes with connections to and from the
Corporations worldwide network. ZIPhas agreements with the Corporation
for the provisions of certain services, such as pilots, maintenance and
ground handling, but operates independently of the Corporation, with its
own Operating Certificate and management team, for many other functions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Air Canada Jazz



| |  |  | In April 2002, Air Canada Jazzwas launched as a new brand for Air
Canadas regional operations.
| | - |  | -----------------------------------------------------------------------------------------------

22



---



##### 



Destina.ca



| |  |  | In April 2002, Destina.ca, the Corporations wholly-owned online travel
site and a major partner of Aeroplan, was launched.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

Air Canada Technical Services (ACTS)



| |  |  | Air Canada Technical Services (ACTS), a division of Air Canada,
provides maintenance, engineering, repair and overhaul (MRO) services to
airline customers worldwide.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tango by Air Canada



| |  |  | In November 2001, the Corporation launched Tango, a low cost no frills
carrier. Following the launch of Tango, the Corporation continued its
expansion of the number of aircraft and routes served by Tango.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23



---



##### 

\

III   DESCRIPTION OF THE BUSINESS OF THE CORPORATION

Passenger transportation is the principal business of the Corporation and,
in 2002, represented 83% of total operating revenues, while cargo revenues
accounted for 6% of total operating revenues.

The following table sets out the Corporations consolidated operating
revenues from domestic and international routes (including passenger and cargo)
and other operating revenues for the periods indicated. In 2000, Canadian
Airlines accounted for $1,765 million of operating revenues for the July to
December period.

|                         |  |                                                      |       |      |  |      |       |  |  |   |       | 
|------------------------ |  | ---------------------------------------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                         |  | Operating Revenues
Year ended December 31
(millions)
|                         |  |                                                     
|                         |  | 2000                                                 |       | 2001 |  | 2002
|                         |  |                                                      |       |      |  |     
|Domestic routes          |  | $                                                    | 3,654 |      |  | $    | 3,743 |  |  | $ | 3,688 | 
|International routes     |  |                                                      | 4,837 |      |  |      | 4,958 |  |  |   | 5,087 | 
|Other operating revenues |  |                                                      | 805   |      |  |      | 910   |  |  |   | 1,051 | 
|                         |  |                                                      |       |      |  |      |       |  |  |   |       | 
|Total                    |  | $                                                    | 9,296 |      |  | $    | 9,611 |  |  | $ | 9,826 | 
|                         |  |                                                      |       |      |  |      |       |  |  |   |       | 

Passenger Operations and Route
Networks

At December 31, 2002, the Corporation provided direct passenger air
transportation to approximately 148 destinations, operated, on average,
approximately 1,328 scheduled flights each day and carried approximately 29
million passengers during 2002. The Corporation operates significant domestic,
transborder and international routes networks. In 2000, Canadian Airlines
accounted for $1,544 million of passenger revenues for the July to December
period.



|                    |  |                                                      |       |      |  |      |       |  |  |   |       | 
|------------------- |  | ---------------------------------------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                    |  | Passenger Revenues
Year ended December 31
(millions)
|                    |  |                                                     
|                    |  | 2000                                                 |       | 2001 |  | 2002
|                    |  |                                                      |       |      |  |     
|Domestic            |  | $                                                    | 3,508 |      |  | $    | 3,582 |  |  | $ | 3,535 | 
|Transborder         |  |                                                      | 2,245 |      |  |      | 2,118 |  |  |   | 1,945 | 
|Other International |  |                                                      | 2,196 |      |  |      | 2,423 |  |  |   | 2,710 | 
|                    |  |                                                      |       |      |  |      |       |  |  |   |       | 
|Total               |  | $                                                    | 7,949 |      |  | $    | 8,123 |  |  | $ | 8,190 | 
|                    |  |                                                      |       |      |  |      |       |  |  |   |       | 

The Corporations primary hubs are located in Toronto, Montreal and
Vancouver, which serve domestic, transborder and international markets,
respectively. Torontos Lester B. Pearson International Airport (Pearson) is
the Corporations largest hub and, in 2002, its passengers accounted for
approximately 62% of Pearsons passenger traffic. The Corporation is the
principal tenant in Pearsons Terminal 1 and Terminal 2.

The Corporation operates a hub at the Montreal International Airport 
Dorval and in 2002, its passengers accounted for approximately 61% of Dorvals
passenger traffic. Montreal is a hub for domestic, transborder and
international (primarily Trans-Atlantic) traffic. The Corporation also operates
a hub at Vancouvers International Airport and in 2002, its passengers
accounted for approximately 56% of Vancouver Airports passenger traffic.
Vancouver is a hub for domestic, transborder and international (primarily
Trans-Pacific) traffic.

24



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##### 



Domestic

At December 31, 2002, the Corporation provided an extensive network and
product offering across Canada with scheduled passenger service directly to 61
Canadian cities and communities. Domestic passenger revenues accounted for 43%
of total passenger revenues in 2002. The most important Canadian routes in
terms of operating revenues in 2002 were the transcontinental routes linking
Toronto, Montreal and Ottawa with major Western Canadian cities, including
Winnipeg, Calgary, Edmonton and Vancouver. The Corporation operates several
short-haul commuter routes, including Rapidairroutes. Frequent service linking
major centres within Western Canada is also offered with numerous flights
between Calgary and Vancouver and between Calgary and Edmonton. In addition to
transcontinental and commuter routes, the Corporation provides service between
and within Central Canada, the Prairies and the Atlantic Provinces.

Tango operates as a separate brand in the domestic market. Tango operates
lower replacement cost flying, point-to-point, mainly on long haul routes. As
of December 31, 2002, the Tango network covered 14 Canadian cities including:
Vancouver, Edmonton, Calgary, Regina, Saskatoon, Winnipeg, Toronto, Ottawa,
Thunder Bay, Montreal, Halifax, Fredericton, Saint John and St. Johns. Tango
also serves additional cities in Canada and in the U.S on a seasonal basis.

At December 31, 2002, ZIP, which is based in Western Canada, operated on
three short haul routes: Vancouver-Edmonton, Calgary-Winnipeg, and
Edmonton-Winnipeg. ZIPoperations had completely replaced Air Canada network
flights on these routes.

Air Canada Jazz, the Corporations regional operations, form an integral
part of the Corporations domestic market strategy. A significant portion of
the Corporations passengers either originate from or are destined to small
cities and communities. The Corporation has linked its mainline and regional
networks in order to serve connecting passengers more efficiently and to
provide valuable traffic feed to the Corporations mainline routes. The
Corporations mainline and regional operations coordinate marketing, flight
schedules, ticketing and ground handling in order to ensure convenient
passenger connections. Effective August 1, 2002, Air Canada assumed commercial
responsibility for Jazz operations. The regional operations, which operate
under the brand name of Air Canada Jazz, provide service throughout Canada and
to certain destinations in Northeastern and Northwestern United States.

Agreements were put in place with small independent domestic airlines that
operate mainly 18-seat aircraft in markets, which are considered too small for
the Corporation to serve directly. At December 31, 2002, these airlines
operated flights under the Corporations designator code and provided service
to an additional 21 destinations. The Corporation does not own any equity
interests in these carriers.

Transborder (Canada 
United States)

With the most non-stop destinations and flights, the Corporation carries
more passengers between Canada and the United States than any other airline. At
December 31, 2002, the Corporation directly served 80 routes to 41 transborder
destinations with over 1,423 weekly flights. The Corporations network reach
was also augmented by extensive connections and code-sharing
with Star Alliance
partner, United Airlines. In 2002, transborder passenger revenues represented
24% of total passenger revenues.

In 2002, the focus for the Corporation on transborder markets was to
appropriately match capacity to demand, and to maintain a strongly competitive
schedule in key markets. With the changing demand patterns that followed September 11, 2001, marked by a
significant deterioration in traditional business demand, re-optimization of
capacity led to smaller aircraft being deployed on many transborder markets.
Competitively, major U.S. carriers introduced numerous transborder non-stop
services throughout the year, as the domestic U.S. marketplace remained
sluggish. This, coupled with more aggressive pricing activity, has led to
significant downward pressure on Yield.

25



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##### 



Overall capacity for 2002 to the U.S. (excluding sun markets) was reduced
by 7% compared to the previous year, reflecting the changing environment.
Included in these reductions were the cancellation of service between
Toronto-Greensboro, Ottawa-Newark and Toronto-Richmond. The Corporation also
introduced service on the Vancouver-Anchorage and Montreal-Atlanta markets.
Although the number of flights were down by 13% year over year, in order to
remain competitive with U.S. carrier growth, additional flights were added on a
number of key markets.

International

The Corporation has a significant international network (which includes
any destination other than domestic and U.S. destinations), which is enhanced
by strategic and commercial alliances with other Star Alliance  members. At
December 31, 2002, the Corporation provided scheduled service directly to 35
cities in Europe, the Middle East, the Caribbean and Asia and provided seasonal
charter service to 11 additional Caribbean destinations. In 2002, international
passenger revenues from the Atlantic and Pacific regions represented
approximately 19% and 10% of total passenger revenues, respectively. In 2002,
international passenger revenues represented approximately 33% of total
passenger revenues. In the first quarter of 2002, capacity was reduced
significantly on both Atlantic and Pacific routes, due to the demand downturn
as a result of September 11, 2001 (the Japan-Canada market being impacted the
most severely). By the second quarter, demand had rebounded and capacity was
increased back to normal levels. To capitalize on the stronger demand, a number
of new routes were introduced in time for the summer peak period, (including
Toronto-Madrid and seasonal service to Toronto-Dublin/Shannon,
Toronto-Amsterdam, as well as a re-launch of the Toronto-Munich service). In
the Asia/South Pacific region, the Melbourne service was terminated in the
third quarter and the Vancouver-Taipei route was suspended in the fourth
quarter (the Vancouver-Taipei route was replaced with a code-share agreement on
EVA Air). Capacity on the sun routes was increased significantly in the first
quarter of 2002, due to the demise of Canada 3000. New nonstop flights were
introduced to Cancun, Puerto Vallarta, Grand Cayman and San Juan. Air Canada
Vacation charter services were also increased.

Products and Services

The Corporation has an ongoing program to offer superior value products,
services and on-board amenities to its customers, particularly its high value
business travelers. The Corporation offers a mix of product alternatives to its
passengers: Executive Firston Trans-Atlantic and Trans-Pacific flights;
Executive Classon all domestic and transborder flights (except the
Corporations regional services) and Hospitality Class. Executive Firstis an
enhanced business class product similar to First Class but priced at business
class fares. The Executive Firstservice begins on the ground with exclusive
check-in areas and airport concierge service, and continues in the air with
more legroom and improved dining. Comfort and entertainment are enhanced with
electronic sleeper seats, individual audio and video entertainment and
satellite communication technology with global access to telephone and fax
services.

The Corporations products and services also include:



| |  |  | the largest Canadian domestic route network;                                                                                                                                                                                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | high frequency Rapidairand Air Canada Jazzservice in Eastern Canada
linking Toronto, Montreal and Ottawa and Rapidairservices in Western Canada
linking Vancouver, Calgary and Edmonton;                                                                                       
|
| |  |  | a significant international network enhanced by the Corporations Star Alliancemembership;                                                                                                                                                                                     
|
| |  |  | Maple Leaf Lounges, which provide business travelers with advanced
computer, office and high speed internet equipment in a quiet, convenient
working environment as well as entertainment centres at most major
Canadian airports, as well as in Los Angeles, London and Paris;

26



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##### 





| |  |  | arrival Lounges in Vancouver and London Heathrow that allow business
travelers to freshen up with a shower and refreshments before beginning
their business day; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | in-flight entertainment on most flights longer
than one hour offering bilingual daily news and offering full-length feature
movies on all flights over three and a half hours.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | On September 22, 2002, ZIP Air Inc., a wholly-owned, independently
operated low-fare carrier was launched. The new carrier is based in
Western Canada and is currently operating on three replacement short haul
routes: Vancouver-Edmonton, Calgary-Winnipeg and Edmonton-Winnipeg.
By December 31, 2002, ZIPoperated with a fleet of seven Boeing 737-200
aircraft in a 117-seat all economy configuration. The launch of ZIPis a
critical component of the Corporations response to growing consumer
demand for low-fare travel and as such has enabled the Corporation to
reduce unit costs. ZIPhas agreements with the Corporation for the
provisions of certain services, such as pilots, maintenance and ground
handling, but operates independently of the Corporation, with its own
Operating Certificate and management team, for many other functions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | Tango operates as a separately branded product, but with significantly
lower unit costs than the Corporations full service product. The lower
cost structure is due principally to the underlying product design.
Tango aircraft operate in an all-economy configuration with 159 seats on
Airbus A320 aircraft as opposed to 140 seats on the mainline aircraft and
117 seats on the Boeing 737 aircraft as opposed to 100 seats. In
addition, Tangos fleet utilization is greater than the mainlines for
the same aircraft type. Tango operates a fleet of distinctly branded
aircraft and offers an all extras are optional in-flight service where
food/beverages and amenities (in-flight entertainment & advance seat
assignments) are an additional cost to the passenger and additional
revenue to the Corporation. Ticket sales are made exclusively by way of
electronic ticketing. Over 80% of Tango flights are booked on Tangos
dedicated website at www.flytango.ca thus, reducing distribution and call
centre costs. Tango fares are priced as one-way and do not require a
minimum stay or advance purchase. Fares are non refundable, but changes
and cancellation/credit (for one year) can be made for a nominal fee.
Tango offers a choice to consumers with reduced frequencies and amenities
compared to the mainline in return for a lower fare and the reassurance
of Air Canada reliability and the benefits of Aeroplan.

Approximately 84% of the Corporations passenger ticket sales were made by
travel agents in 2002. The Corporation has strategic relationships with
numerous travel agencies throughout the world. The Corporation is also
expanding integrated systems for electronic commerce to enhance its product
offerings:



| |  |  | Electronic ticketing is available throughout Canada, in the United States
and in many international service points for travel on Air Canada and
selected Star Alliance partners. Electronic ticketing simplifies
ticketing, streamlines refund and travel change transactions for
customers and reduces distribution costs. By December 31, 2002,
approximately 78% of the Corporations tickets sold worldwide were
electronic tickets, representing 87% of all tickets issued where
electronic ticketing is available.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Effective January 13, 2003, the Corporation became the first full service
international airline in the world to issue 100% electronic tickets for
its domestic network.                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | Air Canada and United Airlines also have an inter-airline (interline)
electronic ticketing service, making it possible for customers to use a
single electronic ticket for travel on more than one airline. The service
is the first electronic ticketing initiative that actually bridges two
different airline computer reservations systems. Furthermore, during
2001, this interline capability was extended to the travel agency
community.                                                                        
|
| |  |  | The Corporations comprehensive website, www.aircanada.ca, allows
individual passengers to make reservations, purchase tickets and access
up-to-date schedule and corporate information, as well as conveniently receive flight status
notification through their wireless-enabled phones or trace cargo
shipments. The Corporation also operates the following websites:
www.flytango.ca; www.destina.ca; www.aeroplan.com; www.flyjazz.ca and
www.4321zip.com.                                                      

27



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##### 





| |  |  | Self-service airport check-in kiosks are located in Toronto, Montreal,
Ottawa, Halifax, Winnipeg, Calgary, Edmonton and Vancouver. Over 40,000
customers daily use this fast alternative for check-in. The self-service
kiosks allow customers to obtain boarding passes, confirm or select their
seats, select the frequent flyer program for mileage accrual, stand by
for earlier flights or request an upgrade or baggage check. Over 150
kiosks can be used by customers travelling on Air Canada, Jazz, Tango or
ZIPflights.                                                                                           
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In April 2002, the Corporation began using new wireless, mobile, IBM
self-service kiosks in a trial program to help expedite passenger
check-in at Torontos Pearson International Airport. The mobile kiosks
represent the first jointly-developed solution resulting from the
strategic partnership recently formed by IBM and the Corporation. The
wireless mobile kiosks are based on the IBM self-service kiosk system
that the Corporation has been using since 1998. The mobile IBM
self-service kiosks bring the convenience of quick check-in directly to
the customer while using the Corporations infrastructure.
|
| |  |  | On March 11, 2003, the Corporation and Palm Canada unveiled their Beam &
Fly station in the Air Canada Domestic Maple Leaf LoungePearson
International Airport. The Beam & Fly station is a unique kiosk that
allows travelers to receive up-to-the-minute flight schedules,
destination guides, world news, sports briefs, and airport maps simply by
beaming them into their Palm(TM) handheld computers. The users can
download a specially developed Air Canada portal, in either English or
French, to their Palm handhelds, complete with a variety of customized
links to browse with the look and feel of websites.

Cargo Operations

At December 31, 2002, the Corporations cargo division provided direct air
cargo service to approximately 160 Canadian and international destinations and
had sales representation in over 70 countries. Cargo operations generated $585
million in operating revenues in 2002. Cargo services offered by the
Corporation include: guaranteed choice of flight airport-to-airport services
for high priority shipments (AC Expedairand AC Priority), and air freight
services (AC Air Freight), to Air Canada destinations worldwide.

The following table sets out the Corporations cargo revenues from
domestic and international operations for the periods indicated (mainline
operations). In 2000, Canadian Airlines accounted for $105 million of cargo
revenues for the July to December period.

|              |  |                        |     |      |  |      |     |  |  |   |     | 
|------------- |  | ---------------------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|              |  | Year ended December 31
|              |  | (millions)            
|              |  |                       
|              |  | 2000                   |     | 2001 |  | 2002
|              |  |                        |     |      |  |     
|Domestic      |  | $                      | 146 |      |  | $    | 161 |  |  | $ | 153 | 
|International |  |                        | 396 |      |  |      | 417 |  |  |   | 432 | 
|              |  |                        |     |      |  |      |     |  |  |   |     | 
|Total         |  | $                      | 542 |      |  | $    | 578 |  |  | $ | 585 | 
|              |  |                        |     |      |  |      |     |  |  |   |     | 

Air cargo services are provided on most scheduled domestic, transborder
and international passenger flights. The Corporation is a major domestic air
cargo carrier and is the largest supplier of air cargo services to Canada Post
Corporation.

In January 2002, the Corporation opened a new modern cargo terminal at
Pearson. This new state-of-the-art cargo terminal is designed to meet the needs
of customers and will make cargo handling more efficient than ever before. The
cargo terminal is equipped with the new ICS (Inventory Control System) which
interfaces with all aspects of our cargo operation, making this facility one of
the most technically advanced in the world.

28



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On April 15, 2002, Air Canada Cargo launched its new cargo product
line-up. After looking at the global cargo market and listening to customer
feedback, a new product line was developed by the marketing team. The products
have been streamlined and are now easy to use in the marketplace.

In April 2002, the Corporation and Canada Post Corporation renewed their
long standing cargo and passenger services contract. This contract which
includes carriage of mail and corporate passenger travel, was extended for a
further five years for domestic service, three years for transborder and
international service and two years for corporate travel.

In June 2002, Air Canada Cargo launched a new freight management system AC
Lynx.This new easy-to-use system provides more reliable and comprehensive
services to our customers and employees by adopting a Web-based process. AC
Lynxoffers the visibility and the tools needed to track cargo online from
initial booking to delivery.

Air Canada, jointly with United Airlines and Northwest Airlines are the
three founding carriers of the new Cargo Portal Service (CPS), in cooperation
with Unisys. The test launch of the new portal was announced in December 2002
and became operational on January 27, 2003. Endorsed by large freight
forwarders and the Air Forwarders Association, this portal will provide access
to a suite of services from multiple airlines, enabling the forwarders to check
schedules, availability, book a shipment or check flight status, all from one
site.

Other Operations

The Corporation also operates in the following related services (in 2000,
Canadian Airlines accounted for $116 million of other revenues for the July to
December period):

|                     |                    |   |                        |     |      |   |      |     |  |   |       |     | 
|-------------------- | ------------------ | - | ---------------------- | --- | ---- | - | ---- | --- |  | - | ----- | --- | 
|                     |                    |   | Year ended December 31
|                     |                    |   | (millions)            
|                     |                    |   |                       
|                     |                    |   | 2000                   |     | 2001 |   | 2002
|                     |                    |   |                        |     |      |   |     
|Other revenues       |                    |   |                        |     |      |   |      |     |  |   |       |    
|                     | Aeroplan           |   | $                      | 211 |      |   | $    | 230 |  |   | $     | 309 | 
|                     | Technical Services |   |                        | 180 |      |   |      | 224 |  |   |       | 239 | 
|                     | Other              |   |                        | 414 |      |   |      | 456 |  |   |       | 503 | 
|                     |                    |   |                        |     |      |   |      |     |  |   |       |     | 
|Total other revenues |                    | $ | 805                    |     |      | $ | 910  |     |  | $ | 1,051 |    
|                     |                    |   |                        |     |      |   |      |     |  |   |       |     | 

Aeroplan

With over six million members in its database, Aeroplanhas become one of
Canadas leading and largest loyalty programs. Operating as the Corporations
frequent flyer program, Aeroplans objective is to generate loyalty within its
existing membership and attract new members on behalf of over 90 partners
across the travel and non-travel market sectors.

The AeroplanFrequent Flyer Program offers mileage accumulation as an
incentive to the Corporations and other partners customers. Flyers on Air
Canada, any one of the Star Alliancemember airlines or other partner airlines
are able to accumulate miles toward travel rewards worldwide on Air Canada and
Star Alliancemembers. Aeroplanalso manages the tier membership programs for
the Corporations most frequent flyers. The Prestige, Eliteand Super-Elite
tiers are designed to provide a multi-level benefits program to Air Canadas
customers in return for their continued and frequent use of Air Canada as their first
choice for air transportation. Aeroplanalso offers complementary programs like
the AeroplanBusiness Incentive Program, which is used by small to medium
businesses to generate customer and employee loyalty.

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In January 2002, Aeroplanbegan operations as a limited partnership. As
one of its main strategies, Aeroplanwill accelerate the development of its
technology base to leverage its core capabilities in database management,
market segmentation, research, hosting and customer relationship management
(CRM) and continue to develop features to complement these capabilities. In May
2002, Aeroplanlaunched Aeroplan.com enabling members to book online air travel
rewards on Air Canada. During 2002, Aeroplanintroduced several new ways to use
AeroplanMiles. In 2003, Aeroplanwill continue to enhance its site to
accommodate more requests from web users. Aeroplanmembers can now redeem their
miles for non-air rewards such as car rentals, hotel stays, ski, golf and Air
Canada Vacationspackages. At December 31, 2002, Aeroplanhad 1050 call centre
employees, 675 of which were located in Vancouver and 375 in Montreal.

Technical Services

Air Canada Technical Services (ACTS), a separate division of Air Canada,
competes on a global basis as an aircraft maintenance, repair and overhaul
service provider. ACTS is responsible for providing maintenance, engineering
and repair for the Corporations aircraft fleet and for providing maintenance
services to third parties. In 2002, third party operations generated $239
million in operating revenues by selling maintenance and engineering services,
aircraft materials and other services. In 2002, these technical services were
provided to 70 customers including Lufthansa, United Airlines, Atlantic Coast
Airlines, Department of National Defense, Pratt & Whitney, Airborne Express and
America West Airlines. The major maintenance facilities for ACTS are located in
Toronto, Montreal, Vancouver, Calgary and Winnipeg.

Other Revenues

Other revenues include, amongst others, revenues from Air Canada Vacations
and passenger, cargo and ground handling services to numerous airlines.

The Corporations wholly-owned subsidiary, Touram Inc., conducts business
under the trade names Air Canada Vacationsand Netair. Air Canada Vacationsis
a major Canadian tour operator, offering leisure and vacation packages which
include air transportation supplied by Air Canada, hotel accommodations, car
rentals and cruises. Netairsells surplus seat inventory exclusively to travel
agents covering air travel only. In 2002, Touram Inc. arranged travel for over
188,519 passengers. Air Canada Vacationsoffers tour products to 96
destinations in North America and the Caribbean. Vacation packages are provided
to 36 of the U.S. cities where Air Canada operates and to 26 vacation
destinations in Canada.

The Corporation also provides passenger, cargo and ground handling
services to numerous airlines, including major foreign airlines at Canadian and
international airports. These services include airport passenger check-in,
ticketing, baggage handling, cargo handling and processing, as well as aircraft
ramp handling.

Star Alliance

The Star Alliancehas grown, since its inception in 1997, to include the
following 14 airlines: Air Canada, United Airlines, Lufthansa, SAS, Thai
Airways, VARIG, Air New Zealand, All Nippon Airways, Austrian Airlines
(including Lauda Air and Tyrolean Airways), Singapore Airlines, bmi, Mexicana
Airlines and, since 2003, Asiana Airlines and Spanair. The Corporation has
agreed with United Airlines and Lufthansa to maintain their joint relationship
until 2009, and not to enter into strategic alliances with anyone outside Star Alliance
until preferred shares of Air Canada held by these partners are redeemed (with
some exceptions). The preferred shares cannot be redeemed until 2009 or such
earlier time as either United Airlines or Lufthansa leave Star Allianceexcept
in limited circumstances.

30



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The Star Alliancenetwork provides access to over 700 cities across the
globe, with reciprocal participation in frequent flyer programs and use of
airport lounges. The Star Alliancefacilitates code-sharing and traveler
connections and transfers by providing customers with a higher level of service
between network connection points. The airlines have implemented initiatives
such as common utilization of facilities and are focusing on capturing
potential synergies in areas such as joint purchasing. In addition, Air Canada
now code-shares with all of the members. The following is a summary of some of
the Corporations arrangements with Star Alliancepartners, United Airlines and
Lufthansa.

United Airlines

The United Airlines alliance provides extensive access to U.S., South
American, Asian and South Pacific destinations via Air Canadas and United
Airlines hubs in Canada and the United States, respectively, as well as
reciprocal frequent flyer programs and one stop check-in. Since the beginning
of 1998, approximately 1100 code-share flights per day have been added,
building high frequency services, which cater to the needs of the business
traveler. Code-sharing with United Airlines and United Expresscarriers,
Atlantic Coast and Air Wisconsin, allows the Corporation to indirectly serve
over 75 additional destinations in the United States.

In September 1997, the Corporation and United Airlines obtained from the
U.S. Department of Transportation approval for anti-trust immunity, subject
to certain conditions, for their alliance agreement in order to further expand
their transborder alliance activities. Anti-trust immunity enables Air Canada
and United Airlines to jointly develop and extend seamless travel products
between Canada and the United States with coordination in areas such as
marketing, advertising and distribution, pricing, inventory and yield
management, frequent flyer programs and route and schedule coordination, as
well as other areas which were previously restricted. The carriers re-submitted
their alliance agreements to the U.S. Department of Transportation for review
in September 2002.

Lufthansa

Air Canada and Lufthansa have a strategic alliance offering code-sharing,
one-stop check-in, reciprocal frequent flyer programs, schedule coordination
and shared passenger handling services. Non-stop flights under code-share
arrangements are offered from Vancouver, Calgary, Toronto and Montreal to
Lufthansas main hub at Frankfurt, with connections to destinations in Europe,
the Middle East, Africa and Asia. Lufthansa has also expanded its code-sharing
on Air Canada routes to additional Canadian and U.S. destinations. Air Canada
and Lufthansa jointly introduced Montreal-Frankfurt service on Air Canada
aircraft and have expanded the joint services to all non-stop Canada-Germany
routes, including Toronto-Munich.

Other Alliances

In addition to Star Alliance,Air Canada has joint marketing, code-sharing
or commercial relationships with the following international airlines:

|        |                 |        |  |  |         | 
|------- | --------------- | ------ |  |  | ------- | 
|Airline |                 | Region
|        |                 |       
|        | El Al           |        |  |  | Israel  | 
|        | Royal Jordanian |        |  |  | Jordan  | 
|        | Alitalia        |        |  |  | Italy   | 
|        | Air Dolomiti    |        |  |  | Italy   | 
|        | Air One         |        |  |  | Italy   | 
|        | EVA Air         |        |  |  | Taiwan  | 
|        | Air Jamaica     |        |  |  | Jamaica

31



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As a member of the IATA, the Corporation has multilateral interline
traffic agreements with many international air carriers, enabling it to offer
for sale air transportation services between Canada and most countries
worldwide.

Fleet Overview

Air Canadas mainline total fleet and operating fleet, excluding Jazz aircraft, at December 31, 2002, is as described below:

|                      |  |          |     |             |  |           |     |            |  |            |      |            |  |           |    |  |  |  |   |  |  |  |     | 
|--------------------- |  | -------- | --- | ----------- |  | --------- | --- | ---------- |  | ---------- | ---- | ---------- |  | --------- | -- |  |  |  | - |  |  |  | --- | 
|                      |  |          |     |             |  |           |     |            |  | Average    |      |            |  |           |    |  |  |  |   |  |  | 
|                      |  | Total    |     | Number      |  | Age of    |     |            |  |            |      | Operating  |  | Operating
|                      |  | Number   |     | of          |  | Operating |     | Operating  |  | Aircraft - |      | Aircraft -
|                      |  | of       |     | Operating   |  | Aircraft  |     | Aircraft - |  | Capital    |      | Operating 
|                      |  | Aircraft |     | Aircraft(1) |  | (Years)   |     | Owned      |  | Lease      |      | Lease     
|                      |  |          |     |             |  |           |     |            |  |            |      |           
|Widebody Aircraft     |  |          |     |             |  |           |     |            |  |            |      |            |  |           |    |  |  |  |   |  |  |  |     | 
|Airbus A340-600       |  |          |    |             |  |           |    |            |  |            |     |            |  |           |   |  |  |  |  |  |  |  |    | 
|Airbus A340-500       |  |          |    |             |  |           |    |            |  |            |     |            |  |           |   |  |  |  |  |  |  |  |    | 
|Airbus A340-300       |  |          | 9   |             |  |           | 9   |            |  |            | 5.5  |            |  |           |   |  |  |  |  |  |  |  | 9   | 
|Airbus A330-300       |  |          | 8   |             |  |           | 8   |            |  |            | 2.2  |            |  |           |   |  |  |  |  |  |  |  | 8   | 
|Boeing 747-400        |  |          | 6   |             |  |           | 6   |            |  |            |      |            |  |           |   |  |  |  | 1 |  |  |  | 5   | 
|Boeing 747-200        |  |          | 3   |             |  |           |    |            |  |            |     |            |  |           |   |  |  |  |  |  |  |  |    | 
|Boeing 767-300        |  |          | 35  |             |  |           | 35  |            |  |            | 9.5  |            |  |           |   |  |  |  | 3 |  |  |  | 32  | 
|Boeing 767-200        |  |          | 23  |             |  |           | 15  |            |  |            | 17.0 |            |  |           | 9  |  |  |  |  |  |  |  | 6   | 
|Narrowbody Aircraft   |  |          |     |             |  |           |     |            |  |            |      |            |  |           |    |  |  |  |   |  |  |  |     | 
|Airbus A321           |  |          | 13  |             |  |           | 13  |            |  |            | 1.9  |            |  |           |   |  |  |  |  |  |  |  | 13  | 
|Airbus A320           |  |          | 50  |             |  |           | 50  |            |  |            | 10.5 |            |  |           |   |  |  |  | 1 |  |  |  | 49  | 
|Airbus A319           |  |          | 46  |             |  |           | 46  |            |  |            | 4.1  |            |  |           |   |  |  |  |  |  |  |  | 46  | 
|Boeing
737-200(2)     |  |          | 36  |             |  |           | 25  |            |  |            | 21.6 |            |  |           | 1  |  |  |  | 4 |  |  |  | 20  | 
|DC-9                  |  |          | 20  |             |  |           |    |            |  |            |     |            |  |           |   |  |  |  |  |  |  |  |    | 
|Canadair Regional Jet |  |          | 25  |             |  |           | 25  |            |  |            | 7.2  |            |  |           |   |  |  |  |  |  |  |  | 25  | 
|                      |  |          |     |             |  |           |     |            |  |            |      |            |  |           |    |  |  |  |   |  |  |  |     | 
|Total Aircraft        |  |          | 274 |             |  |           | 232 |            |  |            | 9.4  |            |  |           | 10 |  |  |  | 9 |  |  |  | 213 | 
|                      |  |          |     |             |  |           |     |            |  |            |      |            |  |           |    |  |  |  |   |  |  |  |     | 



|(1) |  | Excludes four owned and one leased Boeing 767-200 aircraft, and two owned
and two leased Boeing 737-200 aircraft, which were temporarily parked. Also
excludes three owned Boeing 747-200, three owned Boeing 767-200, 20 owned DC9
and four leased Boeing 737-200 aircraft which were permanently removed from
service. In addition, three Boeing 737-200 aircraft were subleased to a third
party. The owned permanently parked aircraft were available for sale as at
December 31, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | ZIPoperated with seven B737-200 aircraft, which are
included in the Mainline Fleet.                                                                                                                                                                                                                                                                                                                                                                                                        

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Air Canada Jazzs total fleet and operating fleet at December 31, 2002 is as described below:

|                          |  |             |     |                  |  |             |     |            |  |               |      |       |  |  |    |  |  |  |    | 
|------------------------- |  | ----------- | --- | ---------------- |  | ----------- | --- | ---------- |  | ------------- | ---- | ----- |  |  | -- |  |  |  | -- | 
|                          |  | Total       |     | Number           |  | Average     |     |            |  |               |      | Total
|                          |  | Number      |     | of               |  | Age of      |     | Total      |  | Aircraft -   
|                          |  | of          |     | Operating        |  | Total Fleet |     | Aircraft - |  | Operating    
|                          |  | Aircraft(1) |     | Aircraft (2) (3) |  | (Years)     |     | Owned (1)  |  | Lease (1) (3)
|                          |  |             |     |                  |  |             |     |            |  |              
|Jazz                      |  |             |     |                  |  |             |     |            |  |               |      |       |  |  |    |  |  |  |    | 
|Canadair Regional Jet     |  |             | 10  |                  |  |             | 10  |            |  |               | 4.0  |       |  |  |   |  |  |  | 10 | 
|British Aerospace BAe 146 |  |             | 10  |                  |  |             | 10  |            |  |               | 13.8 |       |  |  |   |  |  |  | 10 | 
|Fokker F28                |  |             | 29  |                  |  |             |    |            |  |               | 29.2 |       |  |  | 29 |  |  |  |   | 
|de Havilland DHC-8-300    |  |             | 26  |                  |  |             | 26  |            |  |               | 12.8 |       |  |  | 17 |  |  |  | 9  | 
|de Havilland DHC-8-100    |  |             | 58  |                  |  |             | 58  |            |  |               | 14.5 |       |  |  | 47 |  |  |  | 11 | 
|                          |  |             |     |                  |  |             |     |            |  |               |      |       |  |  |    |  |  |  |    | 
|Total Aircraft            |  |             | 133 |                  |  |             | 104 |            |  |               | 16.2 |       |  |  | 93 |  |  |  | 40 | 
|                          |  |             |     |                  |  |             |     |            |  |               |      |       |  |  |    |  |  |  |    | 



|(1) |  | Includes aircraft owned by the Corporation and its subsidiaries except for
five owned Beech 1900D aircraft, which have been leased by Wingco to third
party airlines operating under capacity purchase agreements. Also excludes five
leased Jetstream aircraft, of which two were subleased to a third party and
three were surplus.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes 29 Fokker F28 aircraft of which 28 have been
permanently retired and one of which is subleased to a third party. At December
31, 2002, Air Canada Jazzhad an agreement in place under which five Fokker F28
aircraft were planned to be sold to a third party in 2003.                                                      
|   
|(3) |  | In 2001, the Jazz operating fleet was calculated on an equivalent flying hour basis. On that
same basis, Jazzs 2002 operating fleet would have totaled 97 aircraft.                                                                                                                                                                 

Widebody Aircraft

At December 31, 2002, the Corporations operating widebody fleet was
comprised of 73 aircraft, configured in two classes of service, Executive First
or Executive Classand Hospitality Class.

The Airbus A340 is a four-engine technologically advanced 284-seat
aircraft with low operating costs and is well suited to the long-range, medium
density Trans-Pacific and Trans-Atlantic routes that Air Canada serves. Air
Canada operates the Airbus A340 aircraft mainly on Trans-Pacific routes. The
Airbus A330 aircraft is a twin-engine version of the Airbus A340 that the
Corporation operates mainly on Trans-Atlantic routes.

The Boeing 747-400 aircraft, used primarily on Trans-Atlantic and
Trans-Pacific routes, is a four-engine high capacity, long-range aircraft. The
Combi configuration, which seats 299 passengers and has significant cargo
capacity, is well suited for European medium density passenger routes in
important cargo markets. In full passenger configuration, the aircraft seats
425 passengers and is used on high-density Trans-Pacific routes.

The Boeing 767 is a twin-engine aircraft offering a high degree of fuel
efficiency with corresponding low operating costs. As of December 31, 2002, the
Corporation had 35 Boeing 767-300 long-range aircraft in service that were used
mainly on international routes; nine of the 15 operating Boeing 767-200
aircraft have long-range capability and were used mainly on Trans-Atlantic
routes.

Narrowbody Aircraft (Air Canada, Tango, and ZIP)

At December 31, 2002, the Corporation operated 159 narrowbody aircraft,
configured in two classes of service: Executive Classand Hospitality Class
(except for Canadair Regional Jets, Tango and ZIPaircraft, which are only in
Hospitality Class) and operated 109 Airbus narrowbody aircraft.

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The Airbus A320 aircraft is a 140-seat (159-seat in Tango configuration)
fuel-efficient, technologically advanced twin-engine commercial aircraft.
Features include increased cabin space, reduced noise levels and longer range.
Air Canada operates Airbus A319 aircraft, which complement the Airbus A320
fleet and are well suited for the Corporations North American route network.
The twin-engine Airbus A319 offers 120 seats and is essentially a shortened
version of the Airbus A320 aircraft with the same engines, operating systems
and cockpit. Compared to alternative fleet types, the Airbus A319 offers
increased scheduling flexibility, interchangeability of air crew with the
Airbus A320 and savings in pilot training, aircraft maintenance, fleet
introduction and inventory costs. The Airbus A319 delivers improved range and
significantly greater cargo carrying capacity than the Boeing B737-200
aircraft.

The Corporation took delivery of its first Airbus A321 aircraft in 2001.
This aircraft is the largest narrowbody aircraft in the Airbus family with 166
seats.

The 100-seat Boeing 737-200 are twin-engine aircraft used on many of the
Corporations short and medium-haul North American routes. At December 31,
2002, Air Canada had 25 Boeing B737-200 aircraft in operation. Some of the
aircraft were converted to a 114-117 seat all-economy configuration for Tango
and ZIPoperations.

At December 31, 2002, the Corporation operated 25 50-seat Canadair
Regional Jets, which are well-suited to provide direct point-to-point services,
particularly to lower density markets on routes under 1,000 miles. The
Corporation is operating the Canadair Regional Jets on transborder and selected
domestic routes in order to capitalize on market opportunities and to build
traffic levels toward the operation of larger jet aircraft. The Canadair
Regional Jet was a major factor in the Corporations U.S. transborder expansion
strategy.

At December 31, 2002, Air Canada had commitments to acquire two Airbus
A340-500 and two Airbus A321 aircraft in 2003 and three Airbus A340-600
aircraft in 2004, for a total payment amount of $970 million. Financing
commitments as at December 31, 2002, amounted to $940 million for these
aircraft deliveries. At December 31, 2002, the Corporation had also committed
to leasing two Airbus A319 and six Airbus A320 aircraft in 2003, and three
Airbus A320 aircraft in 2004 on a long term basis and one Boeing 767-300 on a
PBH basis. As a result of the CCAA filing, the financing commitments may no
longer be available and the status of the orders will be determined by the
outcome of the restructuring process under CCAA.

Fuel

Aircraft fuel is a major expense to the Corporation. Fuel prices
fluctuate widely depending on international market conditions, political events
(e.g. the U.S.-Iraqi conflict) and exchange rates of foreign currencies. In the
first quarter of 2003, fuel prices were at near record levels. The Corporation
may enter into contracts, not exceeding two years, with unrelated creditworthy
financial intermediaries and oil companies to manage its exposure to crude oil
and fuel price volatility. At December 31, 2002, the Corporation had
effectively hedged 46% of its anticipated first quarter 2003 fuel consumption.
Based on 2002 volumes, a US$1 per barrel movement in the average price of crude
oil would have resulted in an approximate CDN$28 million change in 2002 fuel
expense for Air Canada, net of fuel hedges, assuming flying capacity remained
unchanged and that refining spreads between WTI and jet fuel as well as foreign
exchange rates remained constant.

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Employees

As at December 31, 2002, the Corporation had 40,238 employees, measured on
a full-time equivalent (FTE) basis.     During the fourth quarter of 2002, the
Corporation had an average of 39,996 FTE employees, up 1% from the fourth
quarter of 2001, as described below:

|                                              |  |           |  |              |  |                                           
|--------------------------------------------- |  | --------- |  | ------------ |  | ------------------------------------------
|                                              |  |           |  | FTE          |  |                                           
|                                              |  |           |  | Employees    |  | Agreement                                 
|Employee Group                                |  | Union (1) |  | 4th Qtr 2002 |  | Expiry Date                               
|                                              |  |           |  |              |  |                                           
|Mainline-related                              |  |           |  |              |  |                                           
|                                              |  |           |  |              |  |                                           
|Management & administrative
support employees |  | N/A       |  | 4,723        |  | N/A                                       
|                                              |  |           |  |              |  |                                           
|Pilots                                        |  | ACPA      |  | 3,100        |  | April 2004                                
|                                              |  |           |  |              |  |                                           
|Flight attendants                             |  | CUPE      |  | 6,789        |  | August 2005                               
|                                              |  |           |  |              |  |                                           
|Customer sales & service
Agents               |  | CAW/IBT   |  | 6,303        |  | March 2004                                
|                                              |  |           |  |              |  |                                           
|Maintenance, ramp & cargo
Employees           |  | IAMAW     |  | 5,270        |  | June 22, 2002
(wages until June 18, 2005) 
|                                              |  |           |  |              |  |                                           
|Technical Services employees                  |  | IAMAW     |  | 6,994        |  | June 22, 2002,
(wages until June 18, 2005)
|                                              |  |           |  |              |  |                                           
|Other unionized employees                     |  | Various   |  | 1,664        |  | From 2004 to 2005                         
|                                              |  |           |  |              |  |                                           
|Other                                         |  |           |  | 362          |  |                                           
|                                              |  |           |  |              |  |                                           
|Total mainline-related (2)                    |  |           |  | 35,205       |  |                                           
|                                              |  |           |  |              |  |                                           
|Air Canada Jazz and other
subsidiaries        |  | Various   |  | 4,791        |  |                                           
|                                              |  |           |  |              |  |                                           
|                                              |  |           |  |              |  |                                           
|Consolidated total                            |  |           |  | 39,996       |  |                                           
|                                              |  |           |  |              |  |                                           



|(1) |  | ACPA: Air Canada Pilots Association; CUPE: Canadian Union of Public
Employees; CAW: Canadian Auto Workers Union; IBT: International Brotherhood of
Teamsters; IAMAW: International Association of Machinists and Aerospace
Workers.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | ZIPemployees are included in the mainline numbers.                                                                                                                                                                                  

The Corporation has concluded long-term labour agreements with all of its
major unions until 2004 or 2005: ACPA, CAW representing sales and service
agents, CUPE covering flight attendants and IAMAW covering maintenance, cargo
and airport ramp service personnel. Although Air Canada has an agreement with
IAMAW until 2005 with respect to wage increases, it is currently in the process
of negotiating work conditions and benefits. Collective bargaining between the
Corporation and IAMAW commenced in June 2002 and at the end of the first
quarter of 2003, negotiations were still on-going.

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##### 



In 2002, Air Canada concluded, with the assistance of a mediator, a
collective agreement with its flight attendants who are represented by CUPE.
Intermingling of the former Air Canada and Canadian Airlines flight attendant
groups was concluded as of March 3, 2003.

In 2002, Air Canada Jazzimplemented single collective labour agreements
with its major unions, including pilots, flight attendants, customer service
agents and maintenance workers.

Properties and Facilities

The following describes principal properties owned or leased by Air Canada at
December 31, 2002.

|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|--------------------------------------------------- |  | ------------------------------------------------------------------------ |  | -------------- | --------- | --------------- |  | -------------------------------------------------------------------------------------------------------------------------
|                                                    |  |                                                                          |  | Approx. Gross  |           |                
|                                                    |  |                                                                          |  | Internal Floor |           |                
|Principal Properties                                |  | Description                                                              |  | Area (Sq. Ft.) |           | Nature of Title
|                                                    |  |                                                                          |  |                |           |                
|Vancouver International Airport
Terminal Facilities |  | Counters, offices, passenger and
baggage handling facilities             |  |                | 187,000   |                 |  | Leased with options
until 2005                                                                                           
|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|Vancouver Technical Operations
Centre               |  | Offices, hangars, shops, flight
kitchen, simulator, test cell
facilities |  |                | 1,076,000 |                 |  | Owned facilities on
leased land; lease and
options until 2048                                                            
|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|Vancouver South Hangar                              |  | Offices, hangars, shops, stores                                          |  |                | 250,000   |                 |  | Owned facilities on
leased land lease until
2009                                                                         
|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|Vancouver Cargo Building                            |  | Cargo facility                                                           |  |                | 92,000    |                 |  | Long-term lease
expires 2019, with
options to renew until
2039                                                           
|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|Calgary International Airport                       |  | Hangar, Commissary, Ground
Support Equipment (GSE), and
Warehouse      |  |                | 234,000   |                 |  | Owned facility on
leased land; lease and
options until 2020                                                              
|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|Calgary International Airport                       |  | Office facilities                                                        |  |                | 106,000   |                 |  | Five floors of leased
space until 2009.
Currently, all floors are
sub-leased until 2006
with options to renew
until 2008.
|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|Winnipeg Air Canada Building                        |  | Offices and computer centre                                              |  |                | 392,000   |                 |  | Building on long-term
lease to 2013; on
owned land                                                                       
|                                                    |  |                                                                          |  |                |           |                 |  |                                                                                                                          
|Winnipeg Airport Maintenance
Base                   |  | Offices, aircraft maintenance
hangars and workshops                      |  |                | 300,000   |                 |  | Owned facilities on
leased land; lease and
options until 2015                                                            

36



---



##### 



|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------ |  | -------------- | --------- | --------------- |  | --------------------------------------------------------------------------------------------------------------------------
|                                                                   |  |                                                                                            |  | Approx. Gross  |           |                
|                                                                   |  |                                                                                            |  | Internal Floor |           |                
|Principal Properties                                               |  | Description                                                                                |  | Area (Sq. Ft.) |           | Nature of Title
|                                                                   |  |                                                                                            |  |                |           |                
|Winnipeg Cargo Building                                            |  | Offices, Cargo                                                                             |  |                | 124,000   |                 |  | Owned facilities on
leased land; lease until
2008                                                                         
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Toronto  Pearson International
Airport Terminals 1 & 2
Facilities |  | Counters, offices, passenger and
baggage handling facilities and
commuter terminal         |  |                | 330,000   |                 |  | Lease expires in 2003
for Terminal 1 and in
2005 for Terminal 2
and Terminal 3, in
conjunction with move
to new Terminal 1
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Toronto  Pearson International
Airport Maintenance Base           |  | Offices, simulator building,
hangars and workshops                                         |  |                | 1,540,000 |                 |  | Owned facilities on
leased land; lease and
options until 2012                                                             
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Toronto  Air Canada
Office
Tower  Adjacent to Air Canada
Centre  |  | Offices and reservation call centre                                                        |  |                | 162,000   |                 |  | 9 floors of a 14-story
complex; owned
facilities on owned land                                                            
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Toronto  Cargo Facility                                           |  | Offices, Cargo & Equipment
Maintenance Building (EMB)                                    |  |                | 425,000   |                 |  | Lease facility from the
Greater Toronto
Airports Authority
(GTAA). Term of the
lease expires 2027.                        
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Montreal International Airport

Dorval Terminal Facilities        |  | Counters, offices, passenger and
baggage handling facilities                               |  |                | 162,000   |                 |  | Premises leased on a
long term basis until
2014                                                                           
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Montreal International Airport
Maintenance Base                    |  | Offices, computer centre, aircraft
maintenance, hangars, workshops
and training facilities |  |                | 1,858,000 |                 |  | Owned facilities on
leased land; lease and
option until 2051                                                              
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Montreal Air Canada Centre                                         |  |                                                                                            |  |                |           |                 |  | Owned facilities on                                                                                                       
|Air Canada Headquarters                                            |  | Head office and training facilities                                                        |  |                | 272,000   |                 |  | leased land;
lease and
option until 2051                                                                                  
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Montreal Office Building  Air
Canada Call Centre                  |  | Offices, reservations and Aeroplan
call centers                                            |  |                | 202,000   |                 |  | Owned facilities on
owned land                                                                                            
|                                                                   |  |                                                                                            |  |                |           |                 |  |                                                                                                                           
|Halifax Hangar Base                                                |  | Offices, Hangar, and Cargo                                                                 |  |                | 90,000    |                 |  | Owned facilities on
leased land lease and
options until 2021                                                              

37



---



##### 



Air Canada operates terminal, maintenance and/or cargo facilities under
long term leases at Toronto, Montreal, Vancouver, Calgary, London (England) and
Los Angeles.

Pursuant to the Air Canada Public Participation Act, Air Canada must
maintain its head office in the City of Montreal. Major operational and
overhaul facilities are maintained in Montreal, Winnipeg, Mississauga, Calgary
and Vancouver.

Insurance

All airlines have experienced a dramatic rise in the cost of aviation
insurance since September 11, 2001. For the year 2002, the Corporations
aviation insurance increased by approximately $71 million compared to insurance
costs in effect prior to September 11, 2001. In addition, the previous level of
third party war risk liability insurance was limited to US$50 million by
aviation insurers shortly after September 11, 2001. The Government of Canada
continues to provide an indemnity for essential aviation service operators
which, in Canada, include air carriers, airports and NAV CANADA, which restored
the war risk liability coverage to what existed previously. In accordance with
its established risk management practice, Air Canada continues to maintain
adequate levels of insurance to protect the Corporations assets and
operational exposures. Such insurance is comparable to insurance coverage
carried by other major international airlines.

38



---



##### 



IV   MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS

The information that appears in the 2002 Management Discussion and
Analysis of Results (MD&A) of Air Canada is incorporated herein by reference.

V   SELECTED CONSOLIDATED FINANCIAL INFORMATION

Three-year consolidated financial information for the Corporation is as
follows:

|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|---------------------------------------------------------------------------------- | -------------------------------------------- | - | ---------------------- | ----- | ----------- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                                   |                                              |   | Year ended December 31
|                                                                                   |                                              |   |                       
|                                                                                   |                                              |   | (millions)            
|                                                                                   |                                              |   | 2000(1) (3)            |       | 2001(1) (3) |   | 2002  
|                                                                                   |                                              |   |                        |       |             |   |       
|Operating revenues:                                                                |                                              |   |                        |       |             |   |        |       |   |   |        |      
|                                                                                   | Passenger                                    |   | $                      | 7,949 |             |   | $      | 8,123 |   |   | $      | 8,190 |  
|                                                                                   | Cargo                                        |   |                        | 542   |             |   |        | 578   |   |   |        | 585   |  
|                                                                                   | Other                                        |   |                        | 805   |             |   |        | 910   |   |   |        | 1,051 |  
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Total operating revenues                                                           |                                              | $ | 9,296                  |       |             | $ | 9,611  |       |   | $ | 9,826  |      
|Operating expenses:                                                                |                                              |   |                        |       |             |   |        |       |   |   |        |      
|                                                                                   | Salaries and wages                           |   |                        | 2,159 |             |   |        | 2,495 |   |   |        | 2,492 |  
|                                                                                   | Benefits                                     |   |                        | 411   |             |   |        | 527   |   |   |        | 607   |  
|                                                                                   | Aircraft fuel                                |   |                        | 1,371 |             |   |        | 1,593 |   |   |        | 1,288 |  
|                                                                                   | Depreciation, amortization and obsolescence  |   |                        | 408   |             |   |        | 441   |   |   |        | 372   |  
|                                                                                   | Commissions                                  |   |                        | 521   |             |   |        | 476   |   |   |        | 369   |  
|                                                                                   | Food, beverages and supplies                 |   |                        | 367   |             |   |        | 435   |   |   |        | 395   |  
|                                                                                   | Aircraft maintenance, materials and supplies |   |                        | 465   |             |   |        | 569   |   |   |        | 508   |  
|                                                                                   | Airport and navigation fees                  |   |                        | 657   |             |   |        | 738   |   |   |        | 772   |  
|                                                                                   | Aircraft rent                                |   |                        | 713   |             |   |        | 959   |   |   |        | 1,109 |  
|                                                                                   | Other                                        |   |                        | 1,963 |             |   |        | 2,109 |   |   |        | 2,106 |  
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Total operating expenses                                                           |                                              | $ | 9,035                  |       |             | $ | 10,342 |       |   | $ | 10,018 |      
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Operating income before the undernoted item                                        |                                              | $ | 261                    |       |             | $ | (731   | )     |   | $ | (192   | )    
|Non-recurring labour expenses                                                      |                                              |   | 178                    |       |             |   |       |       |   |   | 26     |      
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Operating income (loss)                                                            |                                              | $ | 83                     |       |             | $ | (731   | )     |   | $ | (218   | )    
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Non-operating income (expense):                                                    |                                              |   |                        |       |             |   |        |       |   |   |        |      
|                                                                                   | Net-interest expense                         |   |                        | (210  | )           |   |        | (275  | ) |   |        | (221  | )
|                                                                                   | Other                                        |   |                        | 52    |             |   |        | 41    |   |   |        | 55    |  
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Total non-operating income (expense)                                               |                                              | $ | (158                   | )     |             | $ | (234   | )     |   | $ | (166   | )    
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Income (loss) before foreign exchange on long-term
monetary items and income taxes |                                              | $ | (75                    | )     |             | $ | (965   | )     |   | $ | (384   | )    
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Foreign exchange on long-term monetary items                                       |                                              | $ | 78                     |       |             | $ | (20    | )     |   | $ | (60    | )    
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Income (loss) before income taxes and minority interest                            |                                              | $ | 3                      |       |             | $ | (985   | )     |   | $ | (444   | )    
|Recovery of (provision for) income tax                                             |                                              |   | (39                    | )     |             |   | (330   | )     |   |   | (384   | )    
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Income (loss) for the year                                                         |                                              | $ | (36                    | )     |             | $ | (1,315 | )     |   | $ | (828   | )    
|                                                                                   |                                              |   |                        |       |             |   |        |       |   |   |        |       |  
|Earnings:                                                                          |                                              |   |                        |       |             |   |        |       |   |   |        |      
|Earnings (loss) per Share (2)basic and diluted                                    |                                              |   | (0.30                  | )     |             |   | (10.95 | )     |   |   | (6.89  | )    

39



---



##### 



|                                                                         |  |  |                        |   |             |  |        |   |  |  |        |   | 
|------------------------------------------------------------------------ |  |  | ---------------------- | - | ----------- |  | ------ | - |  |  | ------ | - | 
|                                                                         |  |  | Year ended December 31
|                                                                         |  |  |                       
|                                                                         |  |  | (millions)            
|                                                                         |  |  | 2000(1) (3)            |   | 2001(1) (3) |  | 2002  
|                                                                         |  |  |                        |   |             |  |       
|Cash Flow from Operations                                                |  |  | 140                    |   |             |  | (1,072 | ) |  |  | (95    | )
|Total assets                                                             |  |  | 9,681                  |   |             |  | 8,744  |   |  |  | 7,416  |  
|Long-term debt and capital lease obligations (including
current portion) |  |  | 3,300                  |   |             |  | 3,939  |   |  |  | 3,494  |  
|Subordinated perpetual debt                                              |  |  | 1,250                  |   |             |  | 1,172  |   |  |  | 1,193  |  
|Shareholders equity                                                     |  |  | (145                   | ) |             |  | (1,460 | ) |  |  | (2,288 | )



---

|(1) |  | Effective January 1, 2002, the Corporation retroactively adopted, with
restatement of prior periods, the amendments to Canadian Institute of
Chartered Accountants standard #1650  Foreign Currency Translation (CICA
1650), which no longer permits the deferral and amortization
of unrealized translation gains and losses on long-term foreign currency
denominated assets and liabilities. The impact on loss for the year
ended December 31, 2002 is unfavourable $33 or $0.28 per share, basic and
diluted. The impact on loss for the year ended December 31, 2001
is unfavourable $61 or $0.52 per share, basic and diluted. The impact on
loss for the year ended December 31, 2000 is favourable $46 or $0.39
per share, basic and diluted.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Per share amounts have been calculated using the weighted average number
of Common Shares and Class A Non-Voting Common Shares
outstanding during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) |  | The results of 2000 include the results of the former Canadian Airlines
for the period July to December 2000. The results of 2001 include a full-year of the former Canadian Airlines. Thus, these three years of results
are not entirely comparable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

40



---



##### 



VI   MARKET FOR THE NEGOTIATION OF SECURITIES

The Common Shares of the Corporation and the Class A Non-Voting Common
Shares of the Corporation are listed on The Toronto Stock Exchange, under the
symbols AC and AC.A, respectively.

Price Range and Trading Volume
of Air Canada Shares

Common Shares

The following table lists the high and low market prices and trading volume of the Common Shares of Air Canada on
The Toronto Stock Exchange, where applicable, for the periods indicated:

|               |  |      |       |     |  |        |      |  |  |  |             | 
|-------------- |  | ---- | ----- | --- |  | ------ | ---- |  |  |  | ----------- | 
|Period         |  | High |       | Low |  | Volume
|               |  |      |       |     |  |       
|2003           |  |      |       |     |  |        |      |  |  |  |             | 
|April          |  | $    | 1.64  |     |  | $      | 0.69 |  |  |  | 175,285,073 | 
|First Quarter  |  |      | 5.02  |     |  |        | 2.02 |  |  |  | 37,525,028  | 
|2002           |  |      |       |     |  |        |      |  |  |  |             | 
|Fourth Quarter |  | $    | 6.29  |     |  | $      | 3.75 |  |  |  | 23,537,550  | 
|Third Quarter  |  |      | 7.22  |     |  |        | 4.38 |  |  |  | 16,182,941  | 
|Second Quarter |  |      | 8.10  |     |  |        | 6.03 |  |  |  | 27,544,667  | 
|First Quarter  |  |      | 7.00  |     |  |        | 4.30 |  |  |  | 30,770,139  | 
|2001           |  |      |       |     |  |        |      |  |  |  |             | 
|Fourth Quarter |  | $    | 5.78  |     |  | $      | 1.64 |  |  |  | 121,892,500 | 
|Third Quarter  |  |      | 8.90  |     |  |        | 3.00 |  |  |  | 48,743,396  | 
|Second Quarter |  |      | 10.70 |     |  |        | 7.50 |  |  |  | 31,795,869  | 
|First Quarter  |  |      | 14.60 |     |  |        | 7.45 |  |  |  | 43,292,640  | 

Class A Non-Voting Common Shares

The following table lists the high and low market prices and trading volume of the Class A Non-Voting Common
Shares on The Toronto Stock Exchange, where applicable, for the periods indicated:

|               |  |      |      |     |  |        |      |  |  |  |            | 
|-------------- |  | ---- | ---- | --- |  | ------ | ---- |  |  |  | ---------- | 
|Period         |  | High |      | Low |  | Volume
|               |  |      |      |     |  |       
|2003           |  |      |      |     |  |        |      |  |  |  |            | 
|April          |  | $    | 0.61 |     |  | $      | 0.20 |  |  |  | 36,228,118 | 
|First Quarter  |  |      | 3.07 |     |  |        | 0.85 |  |  |  | 10,435,444 | 
|2002           |  |      |      |     |  |        |      |  |  |  |            | 
|Fourth Quarter |  | $    | 4.30 |     |  | $      | 2.20 |  |  |  | 8,448,850  | 
|Third Quarter  |  |      | 4.96 |     |  |        | 2.75 |  |  |  | 4,458,829  | 
|Second Quarter |  |      | 5.80 |     |  |        | 4.05 |  |  |  | 4,815,309  | 
|First Quarter  |  |      | 4.99 |     |  |        | 2.85 |  |  |  | 6,080,975  | 

41



---



##### 



|               |  |      |       |     |  |        |      |  |  |  |            | 
|-------------- |  | ---- | ----- | --- |  | ------ | ---- |  |  |  | ---------- | 
|Period         |  | High |       | Low |  | Volume
|               |  |      |       |     |  |       
|2001           |  |      |       |     |  |        |      |  |  |  |            | 
|Fourth quarter |  | $    | 3.93  |     |  | $      | 1.15 |  |  |  | 20,765,300 | 
|Third quarter  |  |      | 7.16  |     |  |        | 2.15 |  |  |  | 7,854,154  | 
|Second quarter |  |      | 8.65  |     |  |        | 6.00 |  |  |  | 9,837,545  | 
|First quarter  |  |      | 12.40 |     |  |        | 6.00 |  |  |  | 14,718,633 | 

The following table lists the high and low prices of the Class A Non-Voting Common Shares quoted in U.S. dollars
and the trading volumes on the NASDAQ Stock Market, before the Corporations shares were de-listed on December 3,
2002, for the periods indicated:

|                        |  |              |      |              |  |        |      |  |  |  |           | 
|----------------------- |  | ------------ | ---- | ------------ |  | ------ | ---- |  |  |  | --------- | 
|                        |  | High         |      | Low          |  |        |      | 
|Period                  |  | (US Dollars) |      | (US Dollars) |  | Volume
|                        |  |              |      |              |  |       
|2002                    |  |              |      |              |  |        |      |  |  |  |           | 
|October 1 to December 2 |  | $            | 2.77 |              |  | $      | 1.39 |  |  |  | 990,018   | 
|Third quarter           |  |              | 3.20 |              |  |        | 1.75 |  |  |  | 933,176   | 
|Second quarter          |  |              | 3.72 |              |  |        | 2.58 |  |  |  | 2,307,237 | 
|First quarter           |  |              | 3.13 |              |  |        | 1.80 |  |  |  | 3,456,790 | 
|2001                    |  |              |      |              |  |        |      |  |  |  |           | 
|Fourth quarter          |  | $            | 2.76 |              |  | $      | 0.75 |  |  |  | 9,408,167 | 
|Third quarter           |  |              | 4.70 |              |  |        | 1.40 |  |  |  | 1,154,392 | 
|Second quarter          |  |              | 5.55 |              |  |        | 3.75 |  |  |  | 199,115   | 
|First quarter           |  |              | 8.25 |              |  |        | 3.75 |  |  |  | 440,607   | 

VII   DIVIDEND RECORD

|                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------
|The Corporation has not paid dividends on its Common Shares or Class A Non-Voting Common Shares in the last
five years.

42



---



##### 



VIII   DIRECTORS AND OFFICERS

Directors

The name, municipality of residence and principal occupation of each of the directors are set forth below:

|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | -------------- |  | ------ | ------ | ------ |  | ----------
|                              |  |                                                                                                                 |  |                |  |        |        |        |  | Class A   
|                              |  |                                                                                                                 |  |                |  |        |        |        |  | Non-Voting
|Name and Municipality of      |  |                                                                                                                 |  |                |  | Common |        | Common
|Residence                     |  | Principal Occupation                                                                                            |  | Director Since |  | Shares |        | Shares
|                              |  |                                                                                                                 |  |                |  |        |        |       
|HON. W. DAVID ANGUS, Q.C.     |  | Senior Partner                                                                                                  |  | March 1985     |  |        | 2,572  |        |  |          
|(1) (2)                       |  | Stikeman Elliott LLP                                                                                            |  |                |  |        |        |        |  |           
|Montreal, Québec              |  | (Barristers & Solicitors)                                                                                       |  |                |  |        |        |        |  |           
|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|ROBERT E. BROWN               |  | Chairman of the Board                                                                                           |  | December 2002  |  |        |       |        |  |          
|Westmount, Québec             |  | Air Canada                                                                                                      |  |                |  |        |        |        |  |           
|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|J.V. RAYMOND CYR, O.C.,       |  | Chairman of Polyvalor Inc.                                                                                      |  | April 1990     |  |        | 16,211 |        |  | 3,125     
|LL.D. (2) (3)                 |  | (research and                                                                                                   |  |                |  |        |        |        |  |           
|Montreal, Québec              |  | telecommunications
company)                                                                                     |  |                |  |        |        |        |  |           
|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|JOHN F. FRASER, O.C. (2) (5)  |  | Corporate Director                                                                                              |  | April 1989     |  |        | 34,634 |        |  |          
|(6)                           |  | Air Canada                                                                                                      |  |                |  |        |        |        |  |           
|Winnipeg, Manitoba            |  |                                                                                                                 |  |                |  |        |        |        |  |           
|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|DAVID A. GANONG (3) (4)       |  | President                                                                                                       |  | August 1988    |  |        | 13,211 |        |  |          
|St. Stephen, New Brunswick    |  | Ganong Bros. Limited
(chocolate and confectionery
manufacturer)                                                 |  |                |  |        |        |        |  |           
|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|PIERRE MARC JOHNSON,          |  | Senior Counsel                                                                                                  |  | May 2000       |  |        | 9,245  |        |  |          
|B.A., LL.L, M.D., Ph.D. (hc), |  | Heenan Blaikie                                                                                                  |  |                |  |        |        |        |  |           
|F.R.S.C. (1) (4)              |  | (Canadian law firm)                                                                                             |  |                |  |        |        |        |  |           
|Montreal, Québec              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|EVA LEE KWOK (4) (5) (7)      |  | Chair and Chief Executive                                                                                       |  | May 1998       |  |        | 10,494 |        |  | 1,000     
|West Vancouver,               |  | Officer                                                                                                         |  |                |  |        |        |        |  |           
|British Columbia              |  | Amara International
Investment Corp.
(real estate investment, land
development and cross-
cultural development) |  |                |  |        |        |        |  |           
|                              |  |                                                                                                                 |  |                |  |        |        |        |  |           
|FERNAND LALONDE, Q.C.         |  | Counsel                                                                                                         |  | March 1988     |  |        | 12,211 |        |  |          
|(1) (2)                       |  | PouliotMercure                                                                                                  |  |                |  |        |        |        |  |           
|Westmount, Québec             |  | (Barristers & Solicitors)                                                                                       |  |                |  |        |        |        |  |           

43



---



##### 



|                          |  |                                                               |  |                |  |        |        |        |  |           
|------------------------- |  | ------------------------------------------------------------- |  | -------------- |  | ------ | ------ | ------ |  | ----------
|                          |  |                                                               |  |                |  |        |        |        |  | Class A   
|                          |  |                                                               |  |                |  |        |        |        |  | Non-Voting
|Name and Municipality of  |  |                                                               |  |                |  | Common |        | Common
|Residence                 |  | Principal Occupation                                          |  | Director Since |  | Shares |        | Shares
|                          |  |                                                               |  |                |  |        |        |       
|HON. EDWARD C. LUMLEY,    |  | Vice Chairman                                                 |  | April 1994     |  |        | 12,211 |        |  |          
|P.C. , LL.D. (3) (5)      |  | BMO Nesbitt Burns                                             |  |                |  |        |        |        |  |           
|South Lancaster, Ontario  |  | (investment banking)                                          |  |                |  |        |        |        |  |           
|                          |  |                                                               |  |                |  |        |        |        |  |           
|ROBERT A. MILTON (4)      |  | President and Chief                                           |  | August 1999    |  |        | 5,970  |        |  | 11,000    
|Westmount, Québec         |  | Executive Officer
Air Canada                                  |  |                |  |        |        |        |  |           
|                          |  |                                                               |  |                |  |        |        |        |  |           
|PAUL D. MITCHELL, LL.D.   |  | Chairman of the Board                                         |  | March 1985     |  |        | 12,211 |        |  |          
|(1) (5)                   |  | (Retired)                                                     |  |                |  |        |        |        |  |           
|Waterloo, Ontario         |  | McNeil Consumer                                               |  |                |  |        |        |        |  |           
|                          |  | Healthcare Canada
(pharmaceuticals)                           |  |                |  |        |        |        |  |           
|                          |  |                                                               |  |                |  |        |        |        |  |           
|DAVID P. OBRIEN (2) (3)  |  | Chairman of EnCana                                            |  | May 1998       |  |        | 10,494 |        |  |          
|Calgary, Alberta          |  | Corporation
(oil and gas company)                             |  |                |  |        |        |        |  |           
|                          |  |                                                               |  |                |  |        |        |        |  |           
|RONALD W. OSBORNE (4) (5) |  | President and Chief                                           |  | May 1999       |  |        | 19,472 |        |  |          
|Toronto, Ontario          |  | Executive Officer                                             |  |                |  |        |        |        |  |           
|                          |  | Ontario Power Generation
Inc.
(hydro electric energy
company) |  |                |  |        |        |        |  |           
|                          |  |                                                               |  |                |  |        |        |        |  |           
|JOHN C. POPE (1) (3)      |  | Chairman of PFI Group                                         |  | May 1999       |  |        | 11,284 |        |  | 5,000     
|Lake Forest, Illinois     |  | (investment firm)                                             |  |                |  |        |        |        |  |           



---

|(1) |  | Member of Audit Committee                                                                                                                         
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Member of Human Resources and
Compensation Committee                                                                                              
|   
|(3) |  | Member of Strategic Planning Committee                                                                                                            
|   
|(4) |  | Member of Investment Policy Committee                                                                                                             
|   
|(5) |  | Member of Corporate Governance and Nominating Committee                                                                                           
|   
|(6) |  | Retired as Chairman of the Board on May 13, 2003 and will retire as a
director at the next annual meeting of shareholders  date to be determined.
|   
|(7) |  | Will retire as a director at the next annual meeting of shareholders  date
to be determined                                                      

Each of the directors has held the principal occupation listed above in the
last five years except as follows:

Mr. Robert E. Brown became Chairman of the Board on May 13, 2003. Prior
to May 13, 2003 he was Vice Chairman of the Board since March 12, 2003. He is
a Corporate Director since December 2002. Prior to December 2002, Mr. Robert
E. Brown was President and Chief Executive Officer of Bombardier. Prior to
February 1999, Mr. Brown was President and Chief Operating Officer of
Bombardier Aerospace (including Short Brothers of Northern Ireland). From 1989
to 1998, Mr. Johnson was Professor of law at McGill University. Prior to June
2001, Mr. Fernand Lalonde was counsel at the law firm Leduc Leblanc. Prior to
August 1999, Robert A. Milton was President and Chief Operating Officer; prior to May 1999, Mr.
Milton was Executive Vice President and Chief Operating Officer. Prior to April
2002, Mr. David OBrien was Chairman and Chief Executive Officer of PanCanadian
Energy Corporation and prior to October 2001, Mr. OBrien was Chairman
President and Chief Executive Officer of Canadian Pacific Limited. Prior to
November 1999, John C. Pope was Chairman of MotivePower Industries.

At the May 14, 2002 shareholders meeting, the directors were elected
until the next annual meeting of shareholders or until their successors are
appointed or elected. The Corporation does not have an executive committee of
the Board of Directors.

44



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##### 



Officers

The name, municipality of residence, position held with Air Canada and years of industry experience of each of the
officers are as set forth below:

|                                   |  |                                           |  |                     |    | 
|---------------------------------- |  | ----------------------------------------- |  | ------------------- | -- | 
|                                   |  |                                           |  | Years of Airline   
|Name and Municipality of Residence |  | Position held                             |  | Industry Experience
|                                   |  |                                           |  |                    
|J.M. BAKER                         |  | Senior Vice President & General Counsel   |  |                     | 8  | 
|Westmount, Québec                  |  |                                           |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|W.G. BREDT                         |  | Vice President, Network and Revenue       |  |                     | 29 | 
|Hudson Heights, Québec             |  | Management                                |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|M.R. BREWER                        |  | Executive Vice President, Commercial      |  |                     | 22 | 
|Hudson, Québec                     |  |                                           |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|P.E. BROTTO                        |  | Executive Vice President, Planning & Cost |  |                     | 31 | 
|Pointe-Claire, Québec              |  | Management                                |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|D. DEE                             |  | Vice President, Corporate Affairs         |  |                     | 5  | 
|Ottawa, Ontario                    |  |                                           |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|R.J. DUCHESNE                      |  | President and Chief Executive Officer,    |  |                     | 17 | 
|Montreal, Québec                   |  | Aeroplan                                  |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|L. FOURNEL                         |  | President and Chief Executive Officer,    |  |                     | 24 | 
|Lachine, Québec                    |  | Destina.ca                                |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|R.G. GIGUERE                       |  | Executive Vice President, Operations      |  |                     | 29 | 
|Mississauga, Ontario               |  |                                           |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|K.C. HOWLETT                       |  | Vice President, Labour Relations          |  |                     | 30 | 
|Delta, British Columbia            |  |                                           |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|A.C. KEUNG                         |  | Vice President, Information Technology &  |  |                     | 19 | 
|Saint-Laurent, Québec              |  | Chief Information Officer                 |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|P. LÉTOURNEAU, Q.C.                |  | Vice President and Corporate Secretary    |  |                     | 23 | 
|Saint-Laurent, Québec              |  |                                           |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|G.R. MACCORMACK                    |  | Senior Vice President,                    |  |                     | 36 | 
|Montreal, Québec                   |  | International and Alliances               |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|N. MANGER                          |  | Vice President, Airports                  |  |                     | 31 | 
|Pointe-Claire, Québec              |  |                                           |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|S. MARKEY                          |  | Vice President, Government Relations &    |  |                     | 8  | 
|Ottawa, Ontario                    |  | Regulatory Affairs                        |  |                     |    | 
|                                   |  |                                           |  |                     |    | 
|R.A. MILTON                        |  | President & Chief Executive Officer       |  |                     | 20 | 
|Westmount, Québec                  |  |                                           |  |                     |    | 

45



---



##### 



|                                   |  |                                                                                      |  |                     |    | 
|---------------------------------- |  | ------------------------------------------------------------------------------------ |  | ------------------- | -- | 
|                                   |  |                                                                                      |  | Years of Airline   
|Name and Municipality of Residence |  | Position held                                                                        |  | Industry Experience
|                                   |  |                                                                                      |  |                    
|C. MORIN                           |  | Vice President, Cargo                                                                |  |                     | 18 | 
|Montreal, Québec                   |  |                                                                                      |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|A. PATERSON                        |  | President & Chief Operating Officer, Air                                             |  |                     | 16 | 
|Oakville, Ontario                  |  | Canada Vacations                                                                     |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|M.R. PETERSON                      |  | Executive Vice President & Chief Financial                                           |  |                     | 29 | 
|Beaconsfield, Québec               |  | Officer                                                                              |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|D.D. PORT                          |  | Senior Vice President, Customer Service                                              |  |                     | 32 | 
|Etobicoke, Ontario                 |  |                                                                                      |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|D. POUDRETTE                       |  | Vice President, Corporate Initiatives                                                |  |                     | 18 | 
|Verdun, Québec                     |  |                                                                                      |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|R.F. REID                          |  | Acting President and Chief Executive                                                 |  |                     | 26 | 
|Oakville, Ontario                  |  | Officer, Air Canada Technical Services
and Vice President, System Operations
Control |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|M. ROSENBERG                       |  | Vice President, Sales and Product                                                    |  |                     | 33 | 
|Toronto, Ontario                   |  | Distribution                                                                         |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|C. ROVINESCU                       |  | Executive Vice President, Corporate                                                  |  |                     | 15 | 
|Westmount, Québec                  |  | Development & Strategy and Chief
Restructuring Officer                               |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|S. WELSCHEID                       |  | Vice President, People                                                               |  |                     | 23 | 
|Town of Mount Royal, Québec        |  |                                                                                      |  |                     |    | 
|                                   |  |                                                                                      |  |                     |    | 
|J.R. WOHNSIGL                      |  | Senior Vice President, Air Canada                                                    |  |                     | 13 | 
|Beaconsfield, Québec               |  | Maintenance                                                                          |  |                     |    | 

All the above officers of Air Canada have been engaged in their present
occupation, or have been actively engaged in the affairs of Air Canada or
related companies in executive or other capacities, in both instances for more
than five years, except for Calin Rovinescu who, prior to April 2000, was
Managing Partner of Stikeman Elliott LLP; Montie Brewer who, prior to 2002, was
Senior Vice President  Planning at United Airlines and, prior to 2001 was
President of United Shuttle and Vice President, Alliances for United Airlines;
Kevin Howlett, who prior to 2002 was Vice President, Labour Relations and
Corporate Safety at Air Canada Regional Inc. and, prior to 2000, was Vice
President, Labour Relations at Canadian Airlines International Ltd.; and,
Allister Paterson, who, prior to 2002 was Executive General Manager, Commercial
at Air New Zealand Group.

From January 4, 2000 to July 5, 2000, R.A. Milton, C. Rovinescu and M.R.
Peterson were directors of Canadian Airlines Corporation and P. Brotto was an
officer of Canadian Airlines Corporation.

As at the date hereof, the directors and officers of Air Canada as a group
hold 0.23% of the Common Shares of Air Canada.

46



---



##### 



IX     RESTRICTIONS ON VOTING SECURITIES

Pursuant to the Air Canada Public Participation Act, Air Canada is
required, inter alia, to include in its Restated Articles of Incorporation
certain constraints on the issue, transfer, ownership and voting of its Common
Shares.

The Corporations Restated Articles of Incorporation provide that the
Corporation may not accept subscriptions for voting shares, issue voting
shares, register or recognize the transfer of voting shares or the purchase or
otherwise the acquisition of voting shares of Air Canada if, as a result of
such subscription, issue, transfer or purchase, voting shares of Air Canada to
which are attached, in the aggregate, more than 25% (or any higher percentage
that the Governor in Council may, by regulation, specify) of the votes that may
ordinarily be cast to elect directors of Air Canada are or would be held,
beneficially owned or controlled, directly or indirectly, by non-residents of
Canada. In addition, such Articles provide that the total number of votes cast
by or on behalf of non-residents at any meeting shall not be greater than 25%
(or any higher percentage that the Governor in Council may, by regulation,
specify) of the total number of votes, which may be cast at such meeting.

Air Canadas Restated Articles of Incorporation also provide restrictions
similar to the ones described above with respect to subscriptions, issues,
transfers or purchases which would cause Air Canada to cease to be Canadian as
defined in the Canada Transportation Act. The applicable provisions of the
Canada Transportation Act require that holders of domestic, scheduled
international and non-scheduled international licences be Canadian; that is, in
the case of the Corporation, that it be controlled in fact by Canadians and
that at least 75% of its voting interests be owned and controlled by Canadians,
as this term is defined in such Act.

The constraints on ownership rights contained in Air Canadas Articles
require Air Canada to refuse to recognize all ownership rights which would
otherwise be attached to any voting shares held contrary to such constrained
share provisions, by deeming all such shares to be struck from the register of
securities

The constraints described above do not apply to voting shares held by way
of security only. Furthermore, they do not apply to voting shares of Air Canada
held by one or more underwriters solely for the purpose of distributing the
shares to the public, or by any person acting as an intermediary in the payment
of funds or the delivery of securities in connection with trades in securities
and providing centralized facilities for the clearing of trades in securities.

Air Canadas Restated Articles of Incorporation grant to the Board of
Directors all powers necessary to give effect to the ownership restrictions,
including all powers contemplated by the provisions of the Canada Business
Corporations Act and regulations thereunder relating to constrained share
corporations.

Air Canada has adopted various procedures and processes with respect to
the transfer of shares to ensure that the 25% limitation on non-resident
ownership of voting shares is respected. In addition, Air Canada has adopted
such procedures and processes in order to monitor the number of its voting
shares owned by Canadians under the Canada Transportation Act to ensure that
the provisions of that statute are respected.

Further details concerning Air Canadas restrictions on voting securities,
including applicable definitions, are provided in the Air Canada Notice of
Annual Meeting of Shareholders and Management Proxy Circular dated March 13,
2002 (the Proxy Circular).

47



---



##### 



X  ADDITIONAL INFORMATION

Additional information, including directors and officers remuneration,
indebtedness of officers, executive stock options and interests of management
and others in material transactions, where applicable, is contained in the
Proxy Circular. Financial information, including consolidated comparative
audited financial statements, are provided in the 2002 Management Discussion &
Analysis of Results / 2002 Financial Statements and Notes of Air Canada.

The following documents can be obtained upon request from the Vice
President & Corporate Secretary of Air Canada, Air Canada Headquarters
Building, Air Canada Centre, P.O. Box 14000, Station Airport, Dorval, Québec,
H4Y 1H4:



| | (i)   |  | this Annual Information Form, together with any document incorporated
herein by reference;                                                                                                                                                                                             
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | the 2002 Management Discussion & Analysis of Results / 2002
Financial Statements and Notes of Air Canada and any interim financial
statements filed with Securities Commissions subsequent to the audited
financial statements for Air Canadas most recently completed financial
year;
|
| | (iii) |  | the Proxy Circular; and                                                                                                                                                                                                                                                                
|
| | (iv)  |  | any other documents that are incorporated by reference into a
preliminary short form prospectus or a short form prospectus pursuant to
which securities of Air Canada are in the course of a distribution.                                                                             

Except when securities of Air Canada are in the course of distribution
pursuant to a short form prospectus or a preliminary short form prospectus, Air
Canada may require the payment of a reasonable charge from persons, other than
security holders of Air Canada, requesting copies of these documents.

Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer have reviewed
Air Canadas disclosure controls and procedures as of the date of this Annual
Information Form (the Evaluation Date). Based on that review, they have
concluded that, as of the Evaluation Date, these controls and procedures were,
in design and operation, effective to assure that the information required to
be included in this report has been properly collected, processed and timely
communicated to those responsible in order that it may be included in this
report.

48