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NAV CANADA's financial results for the fiscal year ending August 31, 2000

24 Oct 2000
#284

NAV CANADA announced its financial results for the fiscal year ending August 31, 2000. The results reflect continued powth in air traffic and the customer service charges reduction effective September 1, 1999, as well as the Company's continued success in controlling operating expenses consistent with its mandate to operate a safe and efficient air navigation system.

The Company's revenues for the year were $909 million derived primarily from customer service charges. Total operating expenses for the year were $703 million including salaries and benefits of $470 million. Non-operating expenses, including interest, depreciation and amortization and restructuring costs amounted to $204 million. This resulted in an excess of revenue over expenses for the year of $2 million compared to $7 million for the previous year.

The year-end results reflect the Company's policy and mandate under its governing legislation to align its customer service charges as closely as possible to its total costs.

These results are reported after giving effect to rate stabilization accounting principles.

While revenues for the year were $24 million lower than in 1999, the change in sources of revenue rejects the abolishment of the Air Transportation Tax accompanied by the cessation of transition period payments on November 1, 1998, and the full implementation of customer services charges. Customer service charges fully replaced the transition payments effective November 1, 1998.

Operating expenses were $8 million lower than in 1999. This decrease is du primarily to reductions in costs in many areas of the Company through continued restructuring initiatives and efficiencies. Non-operating expenses were 312 million lower than in 1999 due primarily to lower restructuring charges in the current year.

The Company invested $102 million in a number of capital projects as compared to $123 million in 1999. This includes $26 million in fiscal 1999-2000 relating to the Company's $300 million investment in the Canadian Automated Air Traffic System which is designed to modernize the existing air traffic control infrastructure and enhance the management of growth in air traffic.

Fourth quarter revenues were $248 million, compared to $259 million in 1999. Operating expenses were $174 million compared to $175 million in 1999. Interest and depreciation amounted to approximately $66 million in the fourth quarter of 2000 and $77 million in the fourth quarter of 1999.

In the fourth quarter of 2000 the Company recorded an additional $20 million restructuring charge relating to the program, announced in 1997, to carry out strategic initiatives over subsequent years to improve the effciency and effectiveness of the Company's operations.

During the year ended August 31, 1998, the Company established a rate stabilization account, initially in the amount of $50 million, to mitigate the effect on its operations of unpredictable and uncontrollable factors, principally fluctuations in air traffic volumes resulting from the cyclical nature of the commercial air carrier industry. Amounts will be added to or deducted from the rate stabilization account based upon variations from amounts used in establishing customer service charges.

The Company has announced an extension of the September 1, 1999 fee reductions to December 31, 2000, and a proposed further extension of the reductions until Decernber 31, 2001. The fee reduction will result in savings of approximately $50 million to its customers over the next fiscal year.

NAV CANADA, the country’s provider of civil air navigatian services, is a private, non-share capital corporation with operations coast to coast providing air traffic control, flight information, weather briefings, airport advisory services and electronic aids to navigation.

BACKGROUNDER ON RATE STABILIZATION A.CCOUNT

In establishing new charges or revising existing charges for its services, NAV CANADA must follow the charging principles as set out in the ANS Act. The principles in the Act prescribe that "such charges must not be set at a level that, based on reasonable and prudent projections, would generate revenues exceeding the Corporation’s current and future financial requirements in relation to the provision of civil aviation services."

Should actual revenues exceed the Company’s current and future financial requirements such excess will be returned to the customers through a future fee reduction. Similarly should actual revenues be insufficient to meet current and future financial requirements such deficiencies will be recovered from customers through a future fee increase.

In order to mitigate the immediate effect on its operations and its user charges of unpredictable and uncontrollable factors, principally fluctuations in air traffic volumes resulting from the cyclical nature of the commercial carrier industry, the Company established a rate stabilization account of $50 million at the end of fiscal 1997-98. This rate stabilization mechanism will also be used to reduce the risk of customer service charge volatility due to factors with only a short-term effect on operations

In the preparation of its financial statements, the Company adjusts its actual revenues and expenses through transfers to or withdrawals from the rate stabilization account based upon variations from amounts used in establishing user charges. For the current year results, the adjustments are made on a quarterly basis; for the prior year results, an adjustment was made at year end to initially establish the rate stabilization account.

In the annual process of determining future rates for its services, the Company will take into account the accumulated balances of the rate stabilization account, positive and negative.

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