ANNUAL INFORMATION FORM

MAY 15, 2003

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 Canadas 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 Alliance is 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).

TABLE OF CONTENTS

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 Canadas 57% common shareholding in Air Canada was completed following which Air Canada became entirely publicly-owned.

     Air Canadas 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 Cte Vertu Boulevard West, Saint-Laurent, Qubec, H4Y 1H4.

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Corporate Structure

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

     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 Vacations and Destina.ca are 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 Aeroplan redemptions; 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 Bureaus 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 Bureaus finding that it engaged in anti-competitive practices directed against other carriers and the Bureaus 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 Canadas 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 CTAs 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 Canadas 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. Johns, 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 Canadas 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 Canadas 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 others 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 Canadas proposal followed on the Minister of Transports 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 others 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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