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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of ~~March~~June 2003

AIR CANADA

7373 Côte Vertu West, P.O. Box 14000, Saint-Laurent, Quebec, Canada H4Y 1H4

Commission File Number: 0-27096

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:

Form 20-F o Form 40-F ý

Commission File Number: 0-27096

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No ý

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 0-27096.

CONTENTS

Please find attached an English copy of the Interim Results for the 3 6 months ended ~~March 31~~June 30, 2003.

AIR CANADA ~~RELEASES~~REPORTS ~~FIRST~~SECOND QUARTER RESULTS~~; CONFIRMS PRELIMINARY RESULTS RELEASED MAY 13, 2003~~

~~MONTRÉAL, May 28,~~Q2 2003 — On May 13, 2003, Air Canada, on an exceptional basis, released preliminary unaudited consolidated operating results for the first quarter 2003 and for April 2003. The objective of the early release was to ensure that Air Canada stakeholders would have its financial results on as current a basis as possible while Air Canada is developing its restructuring plan. The airline also released an aggressive action plan to reduce operating costs until traffic levels stabilize. OVERVIEW

•: Operating revenues down $600 million or 24 per cent year over year, mainly due to SARS and the impact of the war in Iraq
•: Shortfall in Asian passenger revenues of $127 million or 63 per cent
•: Domestic passenger revenues down $251 million or 26 per cent
•: Operating expenses before reorganization items reduced by $268 million or 11 per cent
•: Operating loss before reorganization items of $270 million
•: Cash and cash equivalents of $838 million at June 30, 2003
•: US$700 million DIP secured financing facility from General Electric Capital Canada Inc. not drawn

AsMONTRÉAL, ~~previously announced~~August 7, ~~for~~2003 — For the ~~first~~second quarter ended ~~March~~June 3130, 2003, Air Canada reported an operating loss before reorganization items of $~~354~~270 million, acompared to income of $~~194~~62 million ~~deterioration~~in ~~from~~ the same quarter in of 2002. The ~~average~~revenue ~~operating~~and ~~loss~~traffic ~~for~~downturn experienced in the first quarter ~~amounted~~intensified toin ~~just~~the ~~under~~second quarter of 2003 primarily as a result of the SARS crisis. On a network-wide basis, total operating revenues declined $4600 million or 24 per cent ~~day~~from the second quarter of 2002 mainly due to a deterioration in passenger revenues. Loss before foreign exchange on long-term monetary items and income taxes was $~~415~~765 million ~~versus~~and aincluded ~~loss~~reorganization items oftotaling $~~246~~426 million. inReorganization ~~2002~~items represent revenues, expenses, gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business under the Companies' Creditors Arrangement Act (CCAA). Refer to Note 5 to the Consolidated Financial Statements. The net loss ~~amounted~~was to $~~270~~566 million compared to a net ~~loss~~income of $~~219~~30 million in the ~~first~~second quarter of 2002.

On April 1, 2003, Air Canada obtained an order from the Ontario Superior Court of Justice providing creditor protection under ~~the Companies' Creditors Arrangement Act (~~CCAA). Air Canada also made a concurrent petition under Section 304 of the U.S. Bankruptcy Code. Refer to ~~Note~~Notes 1 tothrough 5 to the Consolidated Financial Statements as well as to the "Restructuring Update" on page 5 of this press release.

As"The ~~previously~~airline's ~~reported~~restructuring inis ~~the~~progressing ~~May 13,~~at ~~2003~~a ~~press~~rapid ~~release,~~pace. ~~the~~Recognizing ~~downturn~~that ~~experienced in~~ the ~~first~~marketplace ~~quarter~~has ~~intensified~~changed ~~in April 2003 primarily as a result of the SARS outbreak in Toronto~~forever, ~~Air~~ ~~Canada's~~we ~~main~~made ~~hub,~~permanent ~~which~~structural ~~was~~changes ~~estimated~~ to ~~have~~our ~~negatively~~cost ~~impacted~~base ~~revenues~~in ~~by more than $125 million for~~ the ~~month.~~early ~~The~~stages ~~April 2003~~of ~~preliminary unaudited operating loss is expected~~our torestructuring, be"said ~~$152 million~~Robert orMilton, ~~$123 million~~President ~~worse~~and ~~than~~Chief ~~the~~Executive ~~corresponding period last year~~Officer. ~~The~~"In ~~airline's~~just ~~inability~~four tomonths, ~~offset~~we ~~April's~~have ~~revenue~~successfully ~~loss~~restructured ~~with~~on ~~corresponding~~a ~~cost~~permanent ~~reductions~~basis ~~resulted~~a insignificant ~~an operating~~portion ~~loss~~ of ~~just~~our ~~over~~operating ~~$5 million~~costs, including ~~per~~salaries ~~day.~~and Atwages ~~the~~across ~~time~~all ofemployee ~~the May 13th release~~groups, ~~traffic~~and onrenegotiated ~~Asian~~many ~~routes~~of ~~was~~our ~~experiencing~~aircraft aleases. ~~decline~~The ofcurrent ~~approximately 60 per cent~~focus ~~and~~is ~~Toronto~~on ~~enplanements~~renegotiating ~~were~~the ~~significantly~~company's ~~down.~~unsecured ~~On a network-wide basis~~claims, ~~forward~~all ~~bookings~~significant ~~for~~commercial agreements ~~May, June~~ and ~~July~~raising ~~were~~equity ~~reported~~capital ~~down by 20~~ to ~~25 per cent~~ ~~year-over-year.~~ensure ~~Based~~financial onstability ~~May 2003~~upon ~~traffic~~exit ~~and~~from onCCAA. ~~forward~~We ~~bookings~~expect to ~~date,~~ ~~these~~file a ~~adverse~~Plan ~~revenue~~of ~~and~~Arrangement ~~traffic~~in ~~trends~~the ~~are~~fall ~~expected~~with toexit ~~continue,~~from ~~which~~CCAA ~~further~~anticipated ~~underscores~~by the ~~urgency~~end toof ~~restructure under~~ the ~~CCAA process~~ year.

"While Aswe aachieved ~~result~~an operating cost reduction of ~~this~~$268 million ~~deteriorating~~or 11 per cent year over year, the significant and immediate revenue and traffic ~~environment,~~shortfall ~~Air~~caused ~~Canada~~by ~~also~~the ~~announced~~SARS crisis, onthe ~~May 13,~~lingering ~~2003,~~impact of the ~~implementation~~war ofin aIraq ~~number~~as ofwell ~~actions~~as tothe ~~reduce~~continuing weak yield environment resulted in an operating ~~costs~~loss. ~~until~~Given ~~traffic~~the nature of our business, I am satisfied that we reacted as ~~levels~~quickly ~~stabilize:~~as feasible to remove costs when faced with the unanticipated fall-out from SARS, said Mr. Milton.

"The revenue shortfall was progressively disclosed on a monthly basis throughout the quarter and as anticipated, over $400 million of the revenue loss in the quarter can be directly attributed to the impact of SARS following on the war in Iraq. Given two consecutive outbreaks in Toronto, our main hub, in addition to our extensive presence in Asia, Air Canada has been hit harder by SARS than any other airline worldwide with the exception of certain Asian Pacific carriers. The effect of the second Toronto outbreak in late May was devastating with travelers avoiding Toronto as both a destination and connecting point. Although the traffic decline did bottom out in May and traffic trends showed some improvement in June, international and transborder traffic to all points in Canada continues to be affected. As the SARS crisis in Toronto peaked at a time when travelers were firming up summer travel plans, many international travelers avoided all of Canada as a summer holiday destination with severe negative impact to the entire Canadian tourism industry.

"Our quick actions to lower costs together with some recovery in traffic, in part due to seasonal demand, reduced the operating loss for June to $400,000 per day from a daily operating loss of over $5 million in April.

"With the SARS crisis now largely over we are seeing some pick up in demand overall in our network although the pricing environment remains weak. While the third quarter should reflect some improvement relative to the significant revenue drop in prior months, the lingering effect of SARS is expected to continue for the balance of the year. We currently expect the revenue shortfall from SARS and the war in Iraq to be approximately $850 million for the year. The overall year over year decline in revenue is estimated to be well in excess of $1 billion. No meaningful recovery is expected before the third quarter of 2004, "concluded Mr. Milton.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS

OPERATING RESULTS

~~Compared~~For to the ~~2002~~ quarter, ~~first quarter 2003~~ consolidated passenger revenues declined $~~112~~567 million or 626 per cent from the prior year on aan 218 per cent reduction to available seat mile ("ASM") capacity. ~~Increased~~The SARS crisis, increased low cost competition, the ~~build-up~~lingering ofadverse ~~the~~effect ~~war~~on inpassenger ~~Iraq~~volumes ~~and~~from the ~~first~~war ~~stage~~in ofIraq ~~the~~and ~~SARS~~a ~~crisis~~weak ~~all~~economy contributed to a passenger traffic decline of 6 21 per cent. Passenger ~~yield~~revenue per revenue passenger mile ("~~RPM~~yield") was ~~unchanged~~down 7 per cent from the ~~first~~second quarter of 2002 while passenger revenue per available seat mile ("RASM") for the quarter was down 4 10 per cent.

First quarter consolidated domestic passenger revenues were down $101 million or 12 per cent on a 6 per cent reduction to ASM capacity. Reflecting significantly increased domestic low cost competition, uncertainty regarding the Iraq war, higher security charges, and the first stage of the SARS crisis, domestic passenger revenues at Mainline, including Tango and ZIP, declined $95 million or 15 per cent. Total consolidated domestic passenger traffic declined 11 per cent. Domestic yield per RPM was 2 per cent lower and domestic RASM declined 7 per cent over 2002.

Mainline US transborder passenger revenues were 9 per cent below the prior year due mainly to lower yields per RPM with increased fare competition, and due to reduced traffic on non-leisure markets and the reallocation of some short-haul transborder flying to Air Canada Jazz. Consolidated US transborder passenger revenues declined 5 per cent.

Other international passenger revenues were up $16 million or 3 per cent. While Atlantic and Pacific passenger revenues in the fourth quarter of 2002 reflected a year-over-year improvement, the trend was reversed in the first quarter of 2003. Atlantic revenues declined 1 per cent with ASM capacity unchanged from the prior year and Pacific revenues declined 4 per cent on a 4 per cent reduction to flying capacity. South Pacific, Caribbean, Mexico and South America revenues were up 22 per cent due mainly to increased revenue from Caribbean markets, many of which were served in conjunction with Air Canada Vacations.

Cargo revenues improved $14 million or 11 per cent. Other revenues were up $23 million or 8 per cent largely as a result of increased revenues from Air Canada Vacations, partially offset by a reduction in third party maintenance revenues in the Technical Services division.

For the quarter, total operating revenues declined $75 million or 3 per cent compared to the first quarter of 2002.

Page 2

Second quarter domestic passenger revenues were down $251 million or 26 per cent on a 13 per cent reduction to ASM capacity. Domestic passenger traffic was down 16 per cent due to lower domestic and international demand resulting from the SARS crisis in Toronto and to increased low cost competition. Reflecting price competition as well as initiatives to stimulate traffic, domestic yield was 12 per cent lower and domestic RASM declined 15 per cent from 2002.

US transborder passenger revenues were down $137 million or 27 per cent on an 18 per cent reduction to ASM capacity. In a weak market with increased competition from US airlines, US transborder traffic declined 18 per cent and yield decreased 12 per cent.

Other international passenger revenues were $179 million or 26 per cent below the prior year. Atlantic revenues declined 11 per cent with decreases of 8 per cent in yield and 4 per cent in both traffic and ASM capacity over the prior year. The Pacific market was severely impacted by the SARS crisis resulting in a 63 per cent decline in passenger revenues. Pacific traffic was down 62 per cent on a 52 per cent reduction to flying capacity. South Pacific, Caribbean, Mexico and South America revenues were down 8 per cent on reduced traffic.

Reflecting the reduction to flying capacity, cargo revenues decreased $19 million or 13 per cent. Other revenues were $14 million or 6 per cent lower largely as a result of reduced Aeroplan revenues and a decrease in third party aircraft maintenance revenues in the Technical Services division.

For the quarter, total operating revenues declined $600 million or 24 per cent compared to the second quarter of 2002.

OPERATING EXPENSES

~~With~~Operating ~~significantly higher fuel prices, operating~~ expenses ~~increased~~were down $~~119~~268 million or 511 per cent from the ~~first~~second quarter of 2002 on aan 218 per cent reduction to ASM capacity. Salaries, wages and benefits expense ~~was~~declined up $3140 million or 45 per cent. ofThis ~~which~~decrease ~~$16 million~~ was mainly due to ~~higher~~a ~~employee~~reduction ~~benefits~~of ~~including~~over 3,100 full-time equivalent employees and, starting in June, changes to ~~future~~work ~~employee~~rules ~~benefits~~and salaries for unionized and ~~pension~~non-unionized ~~expenses~~labour groups. Fuel expense ~~rose~~decreased $5325 million or 188 per cent indue ~~spite~~to of reduced ASM capacity. ~~Aircraft~~which ~~maintenance~~was ~~materials~~partly offset ~~and~~by ~~supplies~~higher ~~expense was~~fuel upprices ~~$25 million~~compared orto ~~21 per cent~~last year. ~~The~~Aircraft ~~lower~~rent ~~level~~ of ~~maintenance~~$261 million ~~materials~~was ~~expense~~expensed in the ~~prior~~quarter, ~~year~~however, ~~was~~cash ~~mainly~~rental ~~the~~payments ~~result~~were ofnot ~~the~~made ~~temporary~~due ~~parking~~to ofthe amoratorium ~~number~~on ~~of high~~aircraft ~~maintenance~~lease ~~aircraft~~payments inallowed ~~2002~~under the Court order. Airport and navigation fees ~~increased~~decreased by $516 million onor 8 per cent reflecting reduced aircraft departures, ~~reflecting~~partially ~~continued~~offset ~~cost~~ by increases ~~for~~in landing fees and general terminal charges year-over-year. ~~Commission~~Aircraft maintenance materials and supplies expense was ~~below~~down ~~the~~$34 million ~~prior~~or 28 per cent ~~year~~due byto reduced flying activity and aircraft retirements/reductions. Commission expense was $1439 million or 1539 per cent ~~resulting~~below ~~from~~the ~~lower~~prior ~~commission~~year ~~rates~~resulting ~~and~~ from reduced passenger revenues and lower commission rates. ~~Other year~~Year-over-year cost reductions were recorded in other categories including communications and information technology, ~~and~~ food, beverages and supplies expenses. ~~The~~and "other" expense ~~category increased $29 million or 7 per cent due largely to Air Canada Vacations' expanded tour operations~~areas.

~~Unit cost, as measured by operating expense per ASM, was up 5~~Page ~~per cent~~3 ~~from the prior year for the Mainline-related operations (up 2 per cent, excluding fuel expense).~~

REORGANIZATION ITEMS

As a result of the CCAA filing, the Corporation is following accounting policies applicable to an entity under creditor protection. As per Note 2 to the Consolidated Financial Statements, revenues, expenses, gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business have been reported separately as "reorganization items".

Reorganization items totaling $426 million were recorded in the second quarter of 2003 and were comprised of estimated claims for repudiated leases, hedging adjustments, write-off of deferred financing costs on compromised debt, amortization of DIP financing fees, labour-related items, claims for the termination of contracts and professional fees. Please refer to Note 5 to the Consolidated Financial Statements.

NON-OPERATING EXPENSE

~~Non-operating~~As ~~expense~~described ~~amounted~~in toNote 2 ~~$61~~to ~~million~~the inConsolidated ~~the~~Financial ~~quarter~~Statements, ~~down~~while ~~$25 million~~the ~~with~~Corporation ~~net~~is under creditor protection, interest expense ~~unchanged~~has ~~from~~been ~~the~~reported ~~prior~~only ~~year.~~to In the ~~first~~extent ~~quarter~~that ofit ~~2002,~~will ~~the~~be ~~Corporation~~paid ~~recorded,~~under inthe ~~"other"~~plan ~~non-operating~~or ~~expense,~~that ait ~~$37 million~~is ~~charge~~probable ~~related~~that toit ~~the~~will ~~disallowance,~~be byan ~~the~~allowed ~~Government~~claim. ~~of Canada~~Consequently, ofnet ainterest ~~portion~~expense ofdecreased ~~Air Canada's 2001 claim for~~ $~~105~~49 million ofprimarily ~~government~~due ~~assistance pertaining~~ to the ~~closure~~Corporation ofnot ~~Canada's~~recording ~~airspace~~interest expense ~~following~~on ~~the~~unsecured ~~September 11, 2001 terrorist attacks~~debt.

InA loss on disposal of assets of $46 million was recorded in the 2003 quarter, ~~Air~~mainly ~~Canada~~from ~~recorded~~a provision of $~~132~~49 million ofrelated ~~income~~to ~~from~~the ~~foreign~~write-down ~~exchange~~of ~~fluctuations~~a ~~on long~~B747-~~term~~400 aircraft. ~~monetary~~"Other" ~~assets~~non-operating ~~and~~expenses ~~liabilities.~~in ~~This~~2003 ~~compares~~amounted to ~~income of~~ $2118 million inlargely ~~the~~related ~~first~~to ~~quarter~~foreign ofexchange ~~2002~~adjustments.

In the second quarter of 2003, Air Canada recorded $205 million of income from foreign exchange fluctuations on long-term monetary assets and liabilities mainly attributable to the strengthening of the Canadian dollar. This compared to income of $19 million in the second quarter of 2002.

CASH FLOW

~~Cash~~As ~~flows~~described ~~used~~in ~~for~~Note 1 ~~operations~~to the ~~amounted~~Consolidated toFinancial ~~$56 million~~Statements, the Court stay order enabled a ~~$27 million~~moratorium ~~deterioration~~on ~~from~~all ~~the~~aircraft ~~2002~~lease ~~quarter~~payments. ~~This~~In ~~was~~addition, ~~mainly~~on ~~due~~the tobasis ~~deteriorating~~of ~~operating~~the ~~results~~order, ~~and~~the Corporation ~~declining~~has ~~advance ticket~~ceased ~~sales~~making ~~partly~~payments ~~offset~~of byprincipal ~~changes~~and ininterest ~~trade~~on ~~balances~~debt ~~(accounts~~as ~~receivable,~~well ~~accounts~~as ~~payable~~on ~~and~~pre-petition ~~spare~~accounts ~~parts,~~payable ~~materials~~subject ~~and~~to ~~supplies)~~compromise.

~~Page~~Cash flows 3from operations amounted to $188 million in the quarter, a $107 million improvement from the 2002 quarter. Cash flows from operations improved mainly due to payment deferrals under the CCAA filing and other factors as further described below:

•: accounts payable and accrued liabilities provided cash of $194 million in the quarter. This improvement was mostly as a result of the CCAA filing and Court order placing a stay on pre-petition accounts payable subject to compromise which was partially offset by cash outflows due to accelerated payment terms for certain goods and services received subsequent to the CCAA filing.

Air Canada's 2003 first quarter results are being made available on Air Canada's website www.aircanada.ca and at SEDAR. com. A copy may also be obtained on request by contacting the office of Air Canada's Shareholder Relations department at (514) 422-5787 or 1-800-282-7427.

MAINLINE

The terms "Mainline" and "Mainline-related" refer to the operations of unconsolidated Air Canada (including Tango) and include, as the context may require, the operations of Aeroplan, ZIP, Air Canada Capital, Acetek and Destina.ca. The terms "Mainline" and "Mainline-related" exclude the operations of Air Canada's regional airline, Air Canada Jazz, Air Canada Vacations and other non-airline subsidiaries.

EBITDAR

EBITDAR (as reported on the following "Highlights" page) is a non-GAAP financial measure commonly used in the airline industry to assess earnings before interest, taxes, depreciation and aircraft rent. Air Canada provides this information to enable the reader to view operating results before ownership costs which can vary among airlines due to differences in aircraft ownership structures. EBITDAR is not a recognized measure for financial statement presentation under GAAP and does not have any standardized meaning and is therefore not likely to be comparable to similar measures presented by other public companies.

EBITDAR is calculated by taking operating income (loss) and adding back the line items Depreciation, amortization and obsolescence and aircraft rent as described below:

		Three months ended March 31
		2003			2002
		($ millions)
GAAP operating loss		$	(354	)	$	(160	)
Add back:
	Depreciation, amortization & obsolescence		91			90
	Aircraft rent		281			273
EBITDAR		$	18		$	203

Page 4

•: advance ticket sales provided cash of $57 million in the quarter; however, this was $70 million below the second quarter of 2002 due to lower advance bookings.
•: aircraft lease payments less than (in excess of) rent expense provided cash of $255 million due to the moratorium on aircraft lease payments allowed under the Court order. As a result of the moratorium on aircraft lease payments, contractual payments of approximately $326 million were not paid during the quarter.
•: "other" cash used for operations was $142 million due in large part to payments made to financial institutions, passenger settlement systems and other trade vendors following the CCAA filing.

~~Caution~~The Corporation ~~Concerning~~received ~~Forward-looking~~net ~~Information:~~ proceeds of $315 million from the CIBC credit facility issued in connection with the new CIBC contract. The principal on this secured CIBC facility may be repaid through the purchase of Aeroplan miles by CIBC. DIP financing fees of $62 million were paid during the quarter (see Note 1 to the Consolidated Financial Statements). As of August 7, 2003, no funds have been drawn against the DIP facility with General Electric Capital Canada Inc.

~~Certain statements made in this press release are of a forward-looking nature and are subject to important risks and uncertainties. The results indicated in these statements~~As ~~may~~at ~~differ materially from actual results for a number of reasons~~June 30, ~~including without limitation~~2003, ~~restructuring,~~cash ~~war, terrorist attacks, energy prices, general industry, market~~ and ~~economic~~cash ~~conditions, the~~equivalents ~~ability~~amounted to reduce operating costs and employee counts, employment relations, labour negotiations or disputes, currency exchange and interest rates, changes in laws, adverse regulatory developments or proceedings, pending litigation and actions by third parties. The forward-looking statements contained in this press release represent Air Canada's expectations as of May$838 ~~28, 2003, and are subject to change after such date~~million. ~~However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.~~

~~– 30 –~~ YEAR-TO-DATE

INFORMATION
Shareholders Relations:		1 800 282-SHARE OR (514) 422-5787
Internet:		aircanada.com

For the first six months of 2003, the Corporation recorded an operating loss before reorganization items of $624 million compared to a loss of $98 million in 2002. Net loss, which included $426 million of reorganization items, was $836 million versus a net loss of $189 million in the prior year.

RESTRUCTURING UPDATE

Since filing for CCAA on April 1, 2003, Air Canada has achieved significant progress in its restructuring process, including:

•: development of a going-forward Restructuring Plan based on a new revenue model, major fleet restructuring, lower labour and other operating costs, reduced debt, enhanced liquidity and a revised product strategy;
•: completion of a US$700 million debtor-in-possession (DIP) secured financing facility from General Electric Capital Canada Inc. which has not been drawn;
•: restructuring of labour agreements with all Air Canada and Air Canada Jazz unions and implementation of productivity improvements and reductions to salary and wage costs across all employee groups which will allow the Corporation to achieve significant permanent cost reductions;
•: conclusion of an amended affinity agreement with CIBC with respect to the CIBC Aerogold Visa card program and completion of a credit agreement which provided for a secured credit facility from CIBC under which the Corporation received net proceeds of $315 million;

Page 5

•: signing of a letter of intent with American Express with respect to a new co-branded consumer and corporate charge card program and Aeroplan's participation in American Express' Canadian and international Membership Rewards Programs;
•: completion of a memorandum of understanding with General Electric Capital Aviation Services (GECAS) on the lease restructuring of 106 GECAS financed and managed aircraft as well as on new exit and aircraft financing totaling approximately $1.8 billion;
•: completion of a memorandum of understanding with International Lease Finance Corporation (ILFC) on the lease restructuring of 12 aircraft;
•: commencement of process of soliciting qualified parties to act as equity plan sponsor in its plan of arrangement to assist in funding its emergence from CCAA and to provide the necessary liquidity to execute its business plan, and commencement of an ancillary process involving the sale of a minority investment in Air Canada's wholly-owned affiliate, Aeroplan Limited Partnership. The Company is targeting to raise approximately $700 million of new equity investment;
•: commencement of discussions with its largest lenders and detailed negotiations with its major suppliers;
•: commencement of discussions with the Office of the Superintendent of Financial Institutions (OSFI) and representatives of all employee groups on alternative funding scenarios related to its Canadian pension plan;
•: implementation of commercial restructuring initiatives such as a simplified, online domestic fare structure and the introduction of onboard restaurant service.

Air Canada's ~~HIGHLIGHTS (Under~~2003 ~~Creditor~~second ~~Protection~~quarter asresults ofare ~~April 1,~~being ~~2003. Refer~~made toavailable ~~Note 1~~on ~~to the~~Air ~~Consolidated~~Canada's ~~Financial~~website ~~Statements~~www.aircanada.com and at SEDAR. com. A copy may also be obtained on request by contacting Air Canada Shareholder Relations at (514) 422-5787 or 1-800-282-7427.

	For the three months ended March 31
Financial (dollars in millions except per share figures)
	2003			2002
Operating revenues		2,211			2,286
Operating loss		(354	)		(160	)
Loss before foreign exchange on long-term monetary items and income taxes		(415	)		(246	)
Loss for the period		(270	)		(219	)
Operating margin		(16.0	)%		(7.0	)%
EBITDAR (1)		18			203
EBITDAR margin		0.8	%		8.9	%
Cash and cash equivalents		414			924
Cash flows used for operations		(56	)		(29	)
Weighted average common shares outstanding — basic		120			120
Weighted average common shares outstanding — diluted		140			140
Loss per share — basic and diluted	$	(2.25	)	$	(1.83	)

MAINLINE

Operating Statistics (mainline-related) (2) (3)							% Change
Revenue passenger miles (millions)		9,186			9,853		(7)
Available seat miles (millions)		12,626			12,970		(3)
Passenger load factor		72.8	%		76.0	%	(3.2) pt
Passenger revenue yield per revenue passenger mile (cents)		16.7			16.8		(1)
Passenger revenue per available seat mile (cents)		12.1			12.7		(5)
Operating revenue per available seat mile (cents)		15.0			15.6		(4)
Operating expense per available seat mile (cents)		17.4			16.7		5
Operating expense (net of cargo and other non-ASM revenue) per available seat mile (cents) (4)		14.6			13.9		5
Average number of employees (thousands)		34.8			33.7		3
Available seat miles per employee (thousands)		363			385		(6)
Operating revenue per employee (thousands)	$	55		$	60		(9)
Aircraft in operating fleet at period end		233			224		4
Average aircraft utilization (hours per day) (5)		10.1			10.2		(1)
Average aircraft flight length (miles)		1,192			1,192		0
Fuel price per litre (cents) (6)		41.4			33.2		25
Fuel litres (millions)		769			812		(5)

The terms "Mainline" and "Mainline-related" refer to the operations of unconsolidated Air Canada (including Tango) and include, as the context may require, the operations of Aeroplan, ZIP, Air Canada Capital, Simco, Acetek and Destina.ca. The terms "Mainline" and "Mainline-related" exclude the operations of Air Canada's regional airline, Air Canada Jazz, Air Canada Vacations and other non-airline subsidiaries.

Operating Statistics (consolidated)					% Change
Revenue passenger miles (millions)	9,586		10,213		(6)
Available seat miles (millions)	13,310		13,636		(2)
Passenger load factor	72.0	%	74.9	%	(2.9) pt
Passenger revenue yield per revenue passenger mile (cents)	18.2		18.1		0

Price Range and Trading Volume of Air Canada Shares

	TORONTO STOCK EXCHANGE
2002
	High		Low		Volume
Common Shares:
January	$	5.02	$	3.31	10,775,358
February	$	3.71	$	2.51	13,123,250
March	$	3.22	$	2.02	13,626,420
Class A Non-Voting Shares:
January	$	3.07	$	1.95	2,284,758
February	$	2.15	$	1.20	4,806,078
March	$	1.82	$	0.85	3,344,608

Page 6

Caution Concerning Forward-looking ~~AIR CANADA CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (Under Creditor Protection as of April 1, 2003 — note 1)~~Information: ~~(in millions except per share figures) (unaudited)~~

		Three Months Ended March 31
		2003			2002
Operating revenues
	Passenger	$	1,745		$	1,857
	Cargo		144			130
	Other		322			299
			2,211			2,286
Operating expenses
	Salaries, wages and benefits		802			771
	Aircraft fuel		347			294
	Aircraft rent		281			273
	Airport and navigation fees		180			175
	Aircraft maintenance, materials and supplies		142			117
	Communications and information technology		110			122
	Food, beverages and supplies		87			94
	Depreciation, amortization and obsolescence		91			90
	Commissions		79			93
	Other		446			417
			2,565			2,446
Operating loss			(354	)		(160	)
Non-operating income (expense)
	Interest income		8			9
	Interest expense		(66	)		(70	)
	Interest capitalized		4			7
	Gain (loss) on sale of assets		(3	)		1
	Other		(4	)		(33	)
			(61	)		(86	)
Loss before foreign exchange on long-term
monetary items and income taxes			(415	)		(246	)
Foreign exchange on long-term monetary items			132			21
Loss before income taxes			(283	)		(225	)
Recovery of income taxes			13			6
Loss for the period		$	(270	)	$	(219	)
Deficit, beginning of period			(3,280	)		(2,452	)
Deficit, end of period		$	(3,550	)	$	(2,671	)
Loss per share
— Basic and diluted		$	(2.25	)	$	(1.83	)

Certain statements made in this press release are of a forward-looking nature and are subject to important risks and uncertainties. The results indicated in these statements may differ materially from actual results for a number of reasons, including without limitation, restructuring, war, terrorist attacks, energy prices, general industry, market and economic conditions, the ability to reduce operating costs and employee counts, employment relations, labour negotiations or disputes, currency exchange and interest rates, changes in laws, adverse regulatory developments or proceedings, pending litigation and actions by third parties. The forward-looking statements contained in this press release represent Air Canada's expectations as of August 7, 2003, and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

-30-

INFORMATION

Shareholders Relations:		1 800 282-SHARE OR (514) 422-5787

Internet:		aircanada.com

Page 7

~~AIR CANADA CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Under Creditor Protection as of April 1, 2003 — note 1) (in millions) (unaudited)~~ HIGHLIGHTS

		March 31, 2003			December 31, 2002
ASSETS
Current
	Cash and cash equivalents	$	414		$	558
	Accounts receivable		675			760
	Spare parts, materials and supplies		319			367
	Prepaid expenses		70			86
			1,478			1,771
Property and equipment			2,234			2,279
Deferred charges			1,815			1,781
Goodwill			510			510
Other assets			1,007			1,071
		$	7,044		$	7,412
LIABILITIES
Current
	Accounts payable and accrued liabilities	$	1,779		$	1,713
	Advance ticket sales		582			506
	Current portion of long-term debt and capital lease obligations		503			373
			2,864			2,592
Long-term and subordinated perpetual debt and capital lease obligations			3,928			4,314
Future income taxes			10			28
Other long-term liabilities			1,456			1,405
Deferred credits			1,344			1,361
			9,602			9,700
SHAREHOLDERS' EQUITY
Share capital and other equity (note 3)			977			977
Contributed surplus			15			15
Deficit			(3,550	)		(3,280	)
			(2,558	)		(2,288	)
		$	7,044		$	7,412

(Under Creditor Protection as of April 1, 2003.
Refer to Note 1 to the Consolidated Financial Statements.)

Page 8

	Periods ended June 30
	Three months								Six months
	2003			2002					2003			2002
	(dollars in millions except per share figures)
Financial
Operating revenues		1,952			2,552					4,163			4,838
Operating income (loss) before reorganization items		(270	)		62					(624	)		(98	)
Income (loss) before foreign exchange on long-term monetary items and income taxes		(765	)		16					(1,180	)		(230	)
Income (loss) for the period		(566	)		30					(836	)		(189	)
Operating margin before reorganization items		(13.8	)%		2.4	%				(15.0	)%		(2.0	)%
EBITDAR before reorganization items⁽¹⁾		83			429					101			632
EBITDAR margin before reorganization items		4.3	%		16.8	%				2.4	%		13.1	%
Cash and cash equivalents		838			897					838			897
Cash flows from operations		188			81					132			52
Weighted average common shares outstanding — basic		120			120					120			120
Weighted average common shares outstanding — diluted		120			140					120			120
Loss per share — basic	$	(4.70	)	$	0.25				$	(6.96	)	$	(1.58	)
Loss per share — diluted	$	(4.70	)	$	0.23				$	(6.96	)	$	(1.58	)

Operating Statistics (mainline-related)⁽²⁾⁽³⁾								% Change								% Change

Revenue passenger miles (millions)		8,653			11,086		(22	)		17,839			20,939		(15	)
Available seat miles (millions)		11,889			14,587		(18	)		24,515			27,557		(11	)
Passenger load factor		72.8	%		76.0	%	(3.2	) pts		72.8	%		76.0	%	(3.2	) pts
Passenger revenue yield per revenue passenger mile (cents)		15.9			17.3		(8	)		16.3			17.1		(4	)
Passenger revenue per available seat mile (cents)		11.6			13.2		(12	)		11.9			13.0		(8	)
Operating revenue per available seat mile (cents)		14.3			15.7		(9	)		14.7			15.6		(6	)
Operating expense per available seat mile (cents)⁽⁴⁾		16.4			15.3		7			16.9			15.9		6
Operating expense (net of cargo and other non-ASM revenue) per available seat mile (cents)⁽⁴⁾⁽⁵⁾		13.7			12.8		7			14.2			13.3		7
Average number of employees (thousands)		32.5			34.9		(7	)		33.6			34.3		(2	)
Available seat miles per employee (thousands)		366			417		(12	)		729			803		(9	)
Operating revenue per employee (thousands)	$	52		$	66		(20	)	$	107		$	126		(15	)
Aircraft in operating fleet at period end		227			229		(1	)		227			229		(1	)
Average aircraft utilization (hours per day) (6)		9.8			10.9		(10	)		9.6			10.3		(7	)
Average aircraft flight length (miles)		1,195			1,231		(3	)		1,193			1,212		(2	)
Fuel price per litre (cents) (7)		37.4			32.5		15			39.5			32.8		20
Fuel litres (millions)		712			896		(21	)		1,480			1,707		(13	)

Operating Statistics (consolidated)								% Change								% Change

Revenue passenger miles (millions)		9,073			11,511		(21	)		18,660			21,724		(14	)
Available seat miles (millions)		12,579			15,358		(18	)		25,889			28,994		(11	)
Passenger load factor		72.1	%		75.0	%	(2.9	) pts		72.1	%		74.9	%	(2.8	) pts
Passenger revenue yield per revenue passenger mile (cents)		17.5			18.8		(7	)		17.9			18.5		(3	)

(1): EBITDAR is a non-GAAP financial measure commonly used in the airline industry to assess earnings before interest, taxes, depreciation and aircraft rent. Air Canada provides this information to enable the reader to view operating results before ownership costs which can vary among airlines due to differences in aircraft ownership structures. EBITDAR is not a recognized measure for financial statement presentation under GAAP and does not have any standardized meaning and is therefore not likely to be comparable to similar measures presented by other public companies.

EBITDAR before reorganization ~~AIR~~items ~~CANADA CONSOLIDATED~~is ~~STATEMENT~~calculated OFby ~~CASH~~taking ~~FLOW~~ operating income (~~Under~~loss) ~~Creditor~~before ~~Protection~~reorganization asitems ofand ~~April 1,~~adding ~~2003 — note 1) (in~~back ~~millions)~~the ~~(unaudited)~~ line items Depreciation, amortization and obsolescence and Aircraft rent as described below:

				Three Months Ended March 31
			Three months ended June 30				Six months ended June 30
			2003	~~2003~~	2002		~~2002~~2003		2002
Cash flows from (used for)
			($ millions)				($ millions)
Operating
Operating income (loss) before reorganization items			(270	)	62		(624	)	(98	)
	Loss for the period			$	(270	)	$	(219	)
Add back:
	Adjustments to reconcile to net cash provided by operations
	Depreciation, amortization & obsolescence		92		94		183		184
		Depreciation, amortization and obsolescence			91			90
	Aircraft rent		261		273		542		546
		(Gain) loss on sale of assets			3			(1	)
EBITDAR before reorganization items			83		429		101		632
		Foreign exchange on long-term monetary items			(132	)		(21	)
		Future income taxes			(17	)		(9	)
		Employee future benefit funding less than expense			70			66
		Decrease in accounts receivable			107			5
		Decrease (increase) in spare parts, materials and supplies			46			(4	)
		Increase (decrease) in accounts payable and accrued liabilities			23			(40	)
		Increase in advance ticket sales			77			196
		Aircraft lease payments in excess of rent expense			(60	)		(50	)
		Other			6			(42	)
					(56	)		(29	)
Financing
	Reduction of long-term debt				(68	)		(52	)
	Proceeds from sale and leaseback of assets				—			33
	Other				14			(33	)
					(54	)		(52	)
Investing
	Additions to property and equipment				(46	)		(61	)
	Proceeds from sale of assets				10			3
	Investments and advances				2			(4	)
					(34	)		(62	)
Decrease in cash and cash equivalents					(144	)		(143	)
Cash and cash equivalents, beginning of period					558			1,067
Cash and cash equivalents, end of period				$	414		$	924
Cash payments of interest				$	69		$	82
Cash payments of income taxes				$	1		$	2

(2): Includes the operations of Air Canada (incl. Tango), ZIP, Aeroplan, Air Canada Capital, Simco, Acetek and Destina.
(3): Mainline-related operating statistics exclude capacity purchase arrangements with third party carriers.
(4): Before reorganization items.
(5): Represents the net cost of the passenger transportation business after deducting the revenue impact of cargo and other non-ASM businesses.
(6): Excludes maintenance down-time.
(7): Net of fuel hedging and includes all fuel handling expense.

~~Page~~ 9 AIR CANADA Consolidated Statement of Operations and Retained Earnings (Deficit) (Under Creditor Protection as of April 1, 2003 — note 1) (in millions except per share figures) (unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (currencies in millions) FIRST QUARTER 2003

		Three Months Ended June 30						Six Months Ended June 30
		2003			2002			2003			2002
Operating revenues
	Passenger	$	1,597		$	2,164		$	3,342		$	4,021
	Cargo		122			141			266			271
	Other		233			247			555			546

			1,952			2,552			4,163			4,838

Operating expenses
	Salaries, wages and benefits		736			776			1,538			1,547
	Aircraft fuel		292			317			639			611
	Aircraft rent		261			273			542			546
	Airport and navigation fees		181			197			361			372
	Aircraft maintenance, materials and supplies		88			122			230			239
	Communications and information technology		93			127			203			249
	Food, beverages and supplies		79			99			166			193
	Depreciation, amortization and obsolescence		92			94			183			184
	Commissions		61			100			140			193
	Other		339			385			785			802

			2,222			2,490			4,787			4,936

Operating income (loss) before reorganization items			(270	)		62			(624	)		(98	)
Reorganization items (note 5)			(426	)		—			(426	)		—
Non-operating income (expense)
	Interest income		7			15			15			24
	Interest expense (note 4)		(12	)		(76	)		(78	)		(146	)
	Interest capitalized		—			7			4			14
	Gain (loss) on sale of assets (note 3)		(46	)		3			(49	)		4
	Other		(18	)		5			(22	)		(28	)

			(69	)		(46	)		(130	)		(132	)

Income (loss) before foreign exchange on long-term monetary items and income taxes			(765	)		16			(1,180	)		(230	)
Foreign exchange on long-term monetary items			205			19			337			40

Income (loss) before income taxes			(560	)		35			(843	)		(190	)
Recovery of (provision for) income taxes			(6	)		(5	)		7			1

Income (loss) for the period		$	(566	)	$	30		$	(836	)	$	(189	)

Deficit, beginning of period									(3,280	)		(2,452	)

Deficit, end of period								$	(4,116	)	$	(2,641	)

Income (loss) per share
	— Basic	$	(4.70	)	$	0.25		$	(6.96	)	$	(1.58	)

	— Diluted	$	(4.70	)	$	0.23		$	(6.96	)	$	(1.58	)

The accompanying notes are an integral part of the consolidated financial statements

AIR CANADA

Consolidated Statement of Financial Position
(Under Creditor Protection as of April 1, 2003 — note 1)
(in millions) (unaudited)

		June 30 2003			December 31 2002
ASSETS
Current
	Cash and cash equivalents	$	838		$	558
	Accounts receivable		683			760
	Spare parts, materials and supplies		290			367
	Prepaid expenses		177			86

			1,988			1,771
Property and equipment			2,105			2,279
Deferred charges			1,745			1,781
Goodwill			510			510
Other assets			971			1,071

		$	7,319		$	7,412
LIABILITIES
Liabilities not subject to compromise
Current
	Accounts payable and accrued liabilities	$	1,760		$	1,713
	Advance ticket sales		639			506
	Current portion of long-term debt and capital lease obligations		340			373

			2,739			2,592
Long-term and subordinated perpetual debt and capital lease obligations			222			4,314
Future income taxes			12			28
Other long-term liabilities			1,468			1,405
Deferred credits			1,106			1,361

			5,547			9,700
Liabilities subject to compromise (note 4)			4,896			—

			10,443			9,700

SHAREHOLDERS' EQUITY
Share capital and other equity (note 7)			977			977
Contributed surplus			15			15
Deficit			(4,116	)		(3,280	)

			(3,124	)		(2,288	)

		$	7,319		$	7,412

The accompanying notes are an integral part of the consolidated financial statements

AIR CANADA

Consolidated Statement of Cash Flow
(Under Creditor Protection as of April 1, 2003 — note 1)
(in millions) (unaudited)

			Three Months Ended June 30						Six Months Ended June 30
			2003			2002			2003			2002
Cash flows from (used for)
Operating
	Income (loss) for the period		$	(566	)	$	30		$	(836	)	$	(189	)
	Adjustments to reconcile to net cash provided by operations
		Reorganization items (note 5)		412			—			412			—
		Depreciation, amortization and obsolescence		92			94			183			184
		(Gain) loss on sale of assets		46			(3	)		49			(4	)
		Foreign exchange on long-term monetary items		(205	)		(19	)		(337	)		(40	)
		Future income taxes		3			2			(14	)		(7	)
		Employee future benefit funding less than expense		71			53			141			119
		Decrease (increase) in accounts receivable		(36	)		(105	)		71			(100	)
		Decrease (increase) in spare parts, materials and supplies		7			(1	)		53			(5	)
		Increase (decrease) in accounts payable and accrued liabilities		194			(18	)		217			(58	)
		Increase in advance ticket sales		57			127			134			323
		Aircraft lease payments less than (in excess of) rent expense (note 1)		255			(66	)		195			(116	)
		Other		(142	)		(13	)		(136	)		(55	)

				188			81			132			52

Financing
	Reduction of long-term debt			—			(97	)		(68	)		(149	)
	Proceeds from sale and leaseback of assets			—			—			—			33
	CIBC credit facility (note 1)			315			—			315			—
	DIP financing fees (note 1)			(62	)		—			(62	)		—
	Other			2			1			16			(32	)

				255			(96	)		201			(148	)

Investing
	Additions to property and equipment			(23	)		(14	)		(69	)		(75	)
	Proceeds from sale of assets			4			6			14			9
	Investments and advances			—			(4	)		2			(8	)

				(19	)		(12	)		(53	)		(74	)

Increase (decrease) in cash and cash equivalents				424			(27	)		280			(170	)
Cash and cash equivalents, beginning of period				414			924			558			1,067

Cash and cash equivalents, end of period			$	838		$	897		$	838		$	897

Cash payments of interest			$	1		$	88		$	70		$	170

Cash payments of income taxes			$	1		$	2		$	2		$	4

The accompanying notes are an integral part of the consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(currencies in millions)

SECOND QUARTER 2003

1. Creditor Protection and Restructuring

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~~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 Limited Partnership ("Aeroplan"), Touram Inc. ("Air Canada Vacations") and Destina.ca Inc. ("Destina") are not included in the filings.

The Court order ~~and~~provides ~~U.S. proceedings provide~~ for a general stay period that expires on ~~June~~September 30, 2003, subject to further 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. Progress has been made in these discussions as further explained below.

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~~A ~~the~~ plan of arrangement, ~~claims~~would ~~against~~establish, ~~and~~among ~~interests~~other things, in the ~~Applicants~~settlement ~~will be divided into classes according to their seniority or similarity~~ of ~~interests and each class of creditors will vote on~~ the ~~plan~~Applicants' ofcompromised ~~arrangement~~liabilities asand ~~it pertains to that class. No rulings have yet been made on~~ the ~~classification~~reorganized ofentity's ~~affected~~capital ~~creditors~~structure.

The filings 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. As a result of the stay, the Applicants have ceased making payments of interest and principal on debt. As previously stated, Air Canada's restructuring plan contemplates that all unsecured debt will be converted into equity of the restructured entity. The order also grants the Applicants with the authority to, among other things, a) to pay outstanding and future employee wages, salaries and employee benefits and other employee obligations; b) to honour obligations related to airlines tickets and Aeroplan redemptions; and c) to honour obligations related to the Applicants' interline, clearing house, code sharing and other similar agreements.

Concurrent with the filing on April 1, 2003, the Corporation declared a moratorium on aircraft lease payments. Pursuant to such moratorium, contractual payments of approximately $326 were not paid during the quarter. The Corporation is currently in negotiations with its lessors to restructure its lease obligations.

Basis of Presentation

While the ~~Company~~Corporation has filed for creditor protection, these financial statements continue to be prepared using ~~the~~Canadian generally accepted accounting principles applied by the ~~Company~~Corporation prior to its filings for creditor protection. Accordingly, the financial statements presented have been prepared using the same principles as those for a going concern. The creditor protection proceedings provide for a period of time for the ~~Company~~Corporation to stabilize its operations and develop a plan of reorganization. As noted below, the debtor-in-possession ("DIP") financing has been approved by the ~~courts~~Courts. Management is currently developing a plan to restructure the operations under creditor protection expecting a plan to continue the operations as a going concern. During this period, ~~management~~Management will continue to operate the businesses within the constraints of the ~~court~~Court orders. The plan is targeted to be filed with the ~~courts~~Courts in the ~~third~~fall ~~quarter~~ of 2003. Management believes that these actions make the going concern basis appropriate, however, it is not possible to predict the outcome of these matters and there is substantial doubt about the Corporation's ability to continue as a going concern. There can be no assurance that the results of these actions will improve the financial condition of the Corporation. If the going concern basis is not appropriate, adjustments may be necessary in the carrying amounts and/or classification of assets, liabilities, revenues and expenses in these financial statements.

~~Page~~ Since filing 10for creditor protection, the Corporation has reclassified certain amounts within its financial statements to reflect the financial evolution of the operations during the proceedings to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. In addition, allowed claims under the proceedings have been recorded as liabilities. If the restructuring and reorganization is successful and there is a substantial realignment of the non-equity and equity interests in the Corporation, the Corporation will be required to adopt "fresh start" reporting. Fresh start reporting requires a comprehensive revaluation of the assets and liabilities of the Corporation based on the reorganization value established and confirmed in the plan. These financial statements do not give effect to any adjustments that may be required as a result of fresh start reporting.

not possible to predict the outcome of these matters and there is substantial doubt about the Corporation's ability to continue as a going concern. There can be no assurance that the results of these actions will improve the financial condition of the Corporation. If the going concern basis is not appropriate, adjustments may be necessary in the carrying amounts and/or classification of assets, liabilities, revenues and expenses in these financial statements. These financial statements do not reflect any adjustments related to subsequent events related to conditions that arose subsequent to March 31, 2003.

During the periods while the Company is under creditor protection, the Company will reclassify certain amounts within its financial statements to reflect the financial evolution of the operations during the proceedings to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. In addition, allowed claims under the proceedings may be recorded as liabilities. If the restructuring and reorganization is successful and there is a substantial realignment of the non-equity and equity interests in the Corporation, the Corporation will be required to adopt "fresh start" reporting. Fresh start reporting requires a comprehensive revaluation of the assets and liabilities of the Corporation based on the reorganization value established and confirmed in the Plan. These financial statements do not give effect to any adjustments that may be required during the period in which the Company is under creditor protection or as a result of fresh start reporting.

Financing During CCAA Proceedings

GE DIP Financing

~~In conjunction~~ As ~~with~~of ~~the~~April 1, ~~filing~~2003, the Corporation ~~has~~had arranged for ~~debtor-in-possession ("~~DIP") secured financing. On May 1, 2003, the Court approved the Credit Agreement between Air Canada, as Borrower, and General Electric Canada Finance Inc., as Administrative Agent, Collateral Agent and Revolving Lender. The Credit Agreement also includes the Air Canada ~~subsidiaries~~ subsidiaries included in the filing, as well as Aeroplan, Air Canada Vacations and Destina, as credit parties to the agreement. The facility will be secured by all of the unencumbered present and future assets of Air Canada and its direct and indirect subsidiaries, with the exception of the security provided under the CIBC facility, as described below, until the CIBC facility is repaid in full. Each of the credit parties to the agreement has guaranteed payment of the Borrower's obligations.

The Credit Agreement is made up of a Credit Advance facility and a Letter of Credit facility, with a maximum aggregate borrowing under the Credit Agreement of US$700. The Credit Agreement can be drawn in either US or Canadian funds and will be available in stages. The initial funding period is a Credit Advance and Letter of Credit obligation in an aggregate amount of up to US$400. The second funding period is a Credit Advance and Letter of Credit obligation in an aggregate amount of up to US$700, including amounts drawn under the initial funding period. The availability of funds under the initial funding period is subject to certain conditions, including the maintenance of a loan collateral ratio. The availability of funds under the second funding period is subject to the conditions of the initial funding period and additional conditions, including the maintenance of a minimum EBITDAR (earnings (operating income) before depreciation, amortization, obsolescence and aircraft rent); minimum cash balance requirements and; the approval of the business plan by the lender. As at ~~May~~June 2830, the Corporation was within the initial funding period as described above. In July, the conditions of the second funding period were met. As at August 6, 2003, no funds have been drawn against this facility and the full US$700 facility was available, based on the funding formula described below.

Under the Credit Agreement, availability of funds is determined by a formula based on a percentage of eligible assets. The eligible assets consist of certain previously unencumbered aircraft, equipment, spare parts, real estate, takeoff and landing slots, gates and routes, and accounts receivable. The underlying value of the eligible assets may fluctuate periodically and such fluctuations in value may have an impact on the availability of funds under the Credit Agreement.

The Credit Agreement ~~will~~has ~~have~~ a term of up to the earliest of (a) the effective date of a plan of arrangement in the CCAA proceeding and (b) the prepayment in full by the Corporation of all amounts outstanding under the Credit Agreement and the termination of the lender's commitments under the agreement. The Credit Agreement may be accelerated upon the occurrence of an event of default under the Credit Agreement and contains customary mandatory prepayments including, among other things, the occurrence of certain asset sales and the issuance of certain debt or equity securities.

Page 11

default under the Credit Agreement and contains customary mandatory prepayments including, among other things, the occurrence of certain asset sales and the issuance of certain debt or equity securities.

US dollar borrowings under the Credit Advance bear interest at rates per annum equal to either the US index rate plus 5% or the LIBOR rate plus 6.5%, at the borrower's option. Canadian dollar borrowings under the Credit Advance bear interest at rates per annum equal to either the Canadian Index rate plus 5% or the BA rate plus 6.5% at the borrower's option.

Closing and commitment fees under the Credit Agreement ~~are~~were US$40. An unused facility fee is payable at 0.5% on unused facility less than US$100, at 0.75% for unused facility between US$100 and US$200 and 1.0% for unused facility greater than US$200. Outstanding letters of credit draw a fee of 4%. An annual collateral monitoring fee of US$0.5 is payable up until the effective date of a plan of arrangement.

CIBC Financing

~~On April 17,~~ During ~~2003~~the second quarter, the Corporation reached an agreement with CIBC on a new contract with respect to the CIBC Aerogold Visa card program. AsUnder ~~part of~~ the new contract, ~~CIBC~~which ~~would~~extends ~~make~~the aCorporation's ~~miles prepayment~~agreement ofwith ~~$350~~CIBC to ~~the~~2013, ~~Corporation~~CIBC ~~and~~will pay aan ~~higher~~additional ~~price~~24 percent ~~per~~for each Aeroplan Mile ~~acquired~~purchased. ~~The~~In ~~terms~~addition, of the new contract ~~also~~enables ~~call~~Air ~~for~~Canada to complete a definitive agreement with an ~~extension~~additional card provider, subject to ~~2013~~Court approval (see American Express below).

The ~~Corporation~~new ~~received~~CIBC oncontract ~~April 28,~~also ~~2003,~~provides ~~an unsolicited and non-binding expression of interest~~ for a secured credit ~~card~~facility. ~~agreement~~During ~~with~~the ~~Aeroplan~~second ~~from~~quarter, athe ~~third~~Corporation ~~party~~received ~~who~~financing ~~has~~of ~~requested~~$315 ~~that its~~($319 ~~identity~~net ~~not~~of betransaction ~~disclosed.~~fees ~~Following the Monitor's review~~ of ~~the~~$4). ~~proposal,~~The principal ~~the~~on ~~Monitor~~this ~~issued~~secured acredit ~~report~~facility inmay ~~which~~be itrepaid ~~recommended~~through ~~that~~ the ~~motion~~purchase toof ~~approve~~Aeroplan ~~the~~Miles by CIBC ~~credit card agreement~~ and ~~related financing~~shall ~~facility~~ be ~~adjourned~~repaid in ~~order~~full tono ~~provide~~later ~~the~~than ~~Monitor~~October 1, ~~with~~2004. ~~additional~~The ~~time~~facility tobears ~~conduct~~interest aat ~~process~~prime inand ~~which~~is ~~additional~~secured ~~expressions~~by ofthe ~~interest~~new ~~from alternative~~ credit card ~~providers~~agreement ~~could~~and beall ~~obtained.~~of ~~The~~the ~~Court~~present ~~granted~~and ~~the~~future ~~Monitor's~~licenses ~~request~~and totrademarks ~~adjourn~~of ~~the~~Aeroplan ~~motion~~Limited toPartnership ~~approve~~used ~~the~~by CIBC ~~agreements~~ ~~and~~in ~~approved~~connection ~~the~~with ~~bid process recommended by~~ the ~~Monitor.~~Aerogold ~~The bid process ended May 10, 2003~~program. ~~Several financial institutions submitted their bids for a credit card agreement with Aeroplan.~~

~~On May 14,~~American 2003, the Corporation announced that it had reached an agreement with CIBC that provided for certain improvements to the contract renewal previously announced. The Monitor supported the Corporation's acceptance of the CIBC proposal and recommended court approval based on an improved price per mile to be received from CIBC and the availability of the $350 prepayment. Further supporting the Monitor's recommendation, the new agreement has been amended to enable the Corporation to complete a definitive agreement with an additional card provider. On May 14, 2003, the Court granted approval of the amended new contract between the Corporation and CIBC. As at May 28, 2003, no funds have been drawn against the prepayment financing facility. Express

~~Contributing~~ On ~~Factors~~ June 3, 2003 Air Canada announced that it had signed a letter of intent with American Express with respect to a new co-branded consumer and corporate charge card program and Aeroplan's participation in American Express' Canadian and International Membership Rewards Programs. Under the terms of the letter of intent, American Express will provide Air Canada with a one-time cash advance related to Aeroplan Miles purchased. The letter of intent provides American Express with an exclusive right to negotiate a definitive agreement relating to a new charge card program for Aeroplan. This exclusive right was originally agreed to end on July 31, 2003, however negotiations are on-going and accordingly, the Corporation has agreed to an extension of the exclusivity period. The new contract will be subject to Court approval in the CCAA proceedings. There are no assurances that the letter of intent will result in a definitive agreement.

~~During 2002~~Lease ~~and~~Restructuring ~~continuing in 2003, the airline industry has suffered from a weak economic environment~~ and ~~competitive~~Other 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 outlook for the industry remains uncertain reflecting decreasing demand for air travel caused 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, two major North American airlines commenced bankruptcy proceedings. The current situation and potential future adverse events will likely result in continued financial difficulties for airlines. Financing

~~The Corporation~~General ~~became~~Electric ~~significantly~~Capital ~~leveraged~~Aviation in recent years. The 1999 share buy back which used $1,100 of cash, before partner contributions and other funding arrangements of $705, and the unfavourable market conditions affecting all major North American airlines resulting from the September 11, 2001 terrorists attacks were contributing factors. The Corporation had significant debt as Services

~~Page~~ On 12July 3, 2003, the Corporation announced that it has reached a tentative agreement with General Electric Capital Aviation Services ("GECAS") on the restructuring of all GECAS financed and managed aircraft as well as on new exit and aircraft financing totaling approximately $1,800. As part of this tentative agreement, Air Canada recommenced payment of aircraft rent to GECAS in July 2003.

~~outlined~~ The inrestructuring ~~notes 7 through 9~~ of ~~its~~the ~~2002~~GECAS ~~annual~~aircraft ~~financial~~leases ~~statements.~~involves Ata ~~March 31,~~combination ~~2003, the aggregate carrying value~~ of ~~the~~lease ~~Corporation's~~rate ~~debt~~reductions, ~~was~~lease ~~$4,431.~~payment ~~Further~~deferrals, ~~the Corporation~~early ~~had~~lease ~~significant~~terminations ~~commitments related to operating leases~~ and ~~purchase commitments and employee benefit plans. Also contributing to~~ the ~~liquidity~~cancellation ~~concerns,~~of onfuture ~~March 21, 2003, the~~aircraft ~~Office~~delivery ofcommitments. ~~the~~The ~~Superintendent~~tentative ofagreement ~~Financial~~encompasses ~~Institutions~~106 ~~issued~~Air aCanada ~~Temporary~~and ~~Direction instructing~~ Air Canada toJazz ~~make~~aircraft ~~pension~~including ~~contributions~~operating, inparked anand ~~amount~~undelivered ~~equal~~aircraft. toIt ~~the~~also ~~contribution~~includes ~~holidays~~leases ~~taken~~on incertain ~~2002~~of the ~~and~~106 toaircraft ~~cease~~that ~~taking~~were ~~contribution~~cross-collateralized ~~holidays (see further discussion~~ under ~~Pension~~the ~~Plans~~terms ~~below).~~of ~~In addition,~~ the ~~Corporation~~DIP ~~had fully utilized its existing credit lines~~financing.

In As ~~recent~~part ~~years~~of the tentative agreement, ~~liquidity~~GECAS ~~requirements~~has ~~were~~agreed ~~met~~to inextend ~~part~~to byAir ~~certain~~Canada as debt financing ~~transactions~~for ~~involving~~emergence ~~unencumbered~~from ~~assets~~the CCAA a secured loan of US$425 to be secured by a fixed and floating charge over the ~~sale~~unencumbered assets of Air Canada and ~~leaseback~~its ofdirect ~~aircraft~~and indirect subsidiaries. ~~These~~This ~~transactions~~will ~~had~~largely constitute the ~~impact~~same ofcollateral pool against which the current DIP financing is secured. ~~increasing~~This ~~future~~new ~~charges~~loan ~~such~~would ascome ~~lease~~into effect upon Air Canada's exit from CCAA proceedings and ~~interest~~would ~~expense~~be used for general corporate purposes to improve the Corporation's cash position.

~~Beginning~~ GECAS inhas ~~2002,~~also ~~Management~~tentatively ~~undertook~~agreed ~~a plan designed~~ to ~~improve~~provide ~~liquidity, increase revenues and reduce costs including: (~~a~~) increased~~ ~~participation~~maximum ~~and~~of ~~more~~approximately ~~effective~~US$950 ~~competition~~to infinance ~~the~~up ~~low fare~~to ~~market~~43 ~~through~~regional ~~the~~aircraft, ~~expansion~~for ofwhich ~~Tango~~financing ~~and~~is ~~the~~expected ~~launch~~to ofoccur ~~ZIP, (b) reducing distribution costs~~ through ~~the~~a ~~use~~series of transactions. ~~new~~This ~~distribution~~regional ~~models~~aircraft ~~and~~financing ~~(c) the~~is ~~launch~~subject ~~of a Six Sigma program~~to, ~~focusing~~ onamong ~~cost~~other ~~reduction~~things, ~~cash~~maintaining ~~flow~~a ~~improvement~~specified ~~and~~credit ~~process~~rating ~~re-design.~~following ~~However~~Air ~~these~~Canada's ~~initiatives~~emergence ~~were~~from ~~not enough to overcome the significant cost and liquidity challenges faced by the Corporation~~CCAA.

~~Ancillary~~ GECAS' financing ~~Impacts~~commitment ofand ~~CCAA~~ the tentative agreement are subject to various conditions including the following:

•: completion of definitive documentation;
•: conversion of all Air Canada unsecured debt into equity under the Plan of Arrangement;
•: substantial restructuring of Air Canada in accordance with the Restructuring Plan presented by the airline;
•: GECAS' satisfaction with the amount of the overall exit financing and key terms of the equity investment;
•: GECAS' satisfaction with the Air Canada business plan, ownership structure, capital structure and governance structure under the Corporation's Plan of Arrangement; and,
•: No defaults under any existing GECAS-related entity transaction.

~~Associated~~ The ~~with~~detailed ~~the~~terms ~~restructuring and the filings as described above, the Applicants are reviewing the operational, commercial, financial and corporate structure~~ of the ~~Corporation~~tentative ~~and~~agreement will propose a plan of reorganization. Certain disclosures in these notes and in the Corporation's annual consolidated financial statements for the year ended December 31, 2002 contain forward looking information that may no longer be applicable and the status of which will be determined by the outcome of the restructuring process under the filings. Amongst other things, this uncertainty applies to disclosures regarding commitments to purchase aircraft and other purchase commitments, the status of the lease deposits and aircraft lease payments in excess of rent expense, the funding requirements of the Corporation's pension plans and the status of the Corporation's outstanding derivative hedging instruments. In addition, financing commitments previously available related to aircraft deliveries may no longer be available. Financing commitments related to the sale and leaseback of cargo facility related equipment are ~~no longer available~~confidential.

~~Goodwill is~~International ~~tested~~Lease ~~annually~~Finance for impairment unless an event or circumstance occurs that more likely than not reduces the fair value of a reporting unit below its carrying amount. Under Canadian generally accepted accounting principles, goodwill should continue to be reported while an entity is under creditor protection, subject to no impairment having occurred in the fair value of goodwill. The filing of the CCAA is an event, in management's view, that triggers a requirement to test the goodwill balance for impairment as of the date of the filing. Consistent with current accounting practice of other entities under creditor protection, the impairment test was done based on current and projected discounted cash flows using a going concern assumption. The cash flow analysis was prepared based on a number of assumptions as to the Corporation's ability to achieve targeted cost reductions and its ability to achieve a sustainable capital structure. Based on the results of this assessment, no impairment loss has been recorded. As discussed above, the application of fresh start accounting on the successful completion of a restructuring will result in the write off of any goodwill balance and may materially impact the value of other reported assets and liabilities.

On July 21, 2003 the Corporation announced that it had reached an agreement with International Lease Finance Corporation (ILFC), the airline's second largest operating lessor, on restructured lease terms for 12 aircraft. The renegotiated terms apply to nine Airbus narrow body aircraft consisting of six A319s and three A320s as well as one A340 and two Boeing 767-300 aircraft. As part of this agreement, Air Canada recommenced payment of aircraft rent to ILFC in July 2003.

Other Leases

In addition to the restructured lease terms with GECAS and ILFC as discussed above, the Corporation is in discussions with the remaining lessors of all of its fleet with a view to rejecting aircraft which are surplus to its restructuring business plan and reducing its fleet costs to current market rates. As and when such restructuring agreements are finalized, the Corporation expects to resume the payment of rent at restructured rates.

Labour Cost Reductions

On June 30, 2003 the Corporation announced the ratification of all of Air Canada's Canadian based labour agreements, including those of its subsidiary Jazz Air Inc. In addition, by the end of July 2003, all non Canadian based labour groups have agreed to new labour agreements.

Non-Unionized Cost Reductions

The workforce reduction plan pertaining to the Corporation's non-unionized workforce has been finalized. Implementation of the plan began in May 2003 and is expected to continue until the end of 2003. The Corporation has recorded a reorganization charge of $57 in the second quarter pertaining to the involuntary severance costs associated with the non-unionized workforce reduction plan. Amounts paid against this severance provision were nominal during the quarter.

Unionized Cost Reductions

Implementation of the workforce reduction plan emanating from the ratified agreements commenced in the second quarter, 2003 and is expected to be complete by mid 2004. Based on the contractual termination benefits contained in the agreements, an accrual of $16 was recorded as a reorganization charge in the second quarter 2003. Amounts paid against this severance provision were nominal during the quarter.

Some of the unionized workforce reduction included above will also be achieved through voluntary separation packages ("VSP"). The total expected cost of this plan is approximately $73 and will be recorded as a reorganization charge once the affected employees accept the offer. The contractual severance based on the planned reductions for the employee group being offered the VSP was accrued in June and the incremental cost of the VSP will be accrued as the packages are accepted.

Accrued but unpaid merger bonuses to certain employee groups were cancelled as part of the new agreements. A credit of $32 was recorded against reorganization items. In addition, a credit of $20 was recorded against reorganization items related to an adjustment to accrued vacation liabilities as a result of lower wage rates and reduced vacation entitlements.

Pension Plans

On March 21, 2003, the Office of the Superintendent of Financial Institutions (OSFI) issued a ~~Temporary~~direction ~~Direction~~of ~~instructing~~compliance ordering Air Canada to make contributions in excess of the minimum ordinarily required ~~under~~ ~~the~~by ~~regulations and legislation~~law. Specifically, Air Canada was requested to remit an amount approximately equal to the contribution holidays taken in 2002 amounting to $105, and to cease taking contribution holidays.

~~Page~~ Pursuant to 13Air Canada's filing for court protection from its creditors under the Companies' Creditors Arrangement Act (CCAA), the Court Order currently in effect requires Air Canada to suspend its contributions to funded pension plans, pending further order of the Court. Pension benefit payments from the registered pension plans continue to be paid.

~~approximately~~ Subsequent ~~equal~~ to June 30, the ~~contribution~~Corporation ~~holidays~~has ~~taken~~entered ininto ~~2002,~~discussions ~~and~~with toits ~~cease~~stakeholders ~~taking~~on ~~contribution~~alternative ~~holidays~~funding scenarios. The funding requirements vis-à-vis the pension plans will largely depend on the outcome of these discussions.

Pursuant to Air Canada's filing for court protection from its creditors under the Companies' Creditors Arrangement Act (CCAA), the Court Order currently in effect allows Air Canada to cease making contributions to funded pension plans, pending further order of the Court. Pension benefit payments from the registered pension plans continue to be paid.

Following these events, Air Canada conducted an update on the financial position of its pension plans as of January 1, 2003 to determine the funded status of its pension plans. Due to the impact of the negative stock market returns and declining interest rates, the financial update reports revealed solvency deficits equal to approximately $1,300 for all domestic registered pension plans on a combined basis.

The Company intends to discuss the future of the pension plans with its stakeholders. It is uncertain at this time what the outcome of these discussions will be. The funding requirements as well as the accounting implications vis-à-vis the pension plans will largely depend on the outcome of these discussions.

2. Accounting Policies

The unaudited consolidated interim financial statements are based upon accounting policies consistent with those used and described in the annual financial statements. In accordance with Canadian generally accepted accounting principles, the interim financial statements do not include all of the financial statement disclosures included in the annual financial statements. These interim financial statements should be read in conjunction with the most recent annual financial statements.

As further described in note 1, these consolidated interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles applicable to a going concern, which assumes that the Corporation will be able to realize its assets and discharge its liabilities in the normal course of business in the foreseeable future.

Effective ~~January~~for disposal activities initiated after May 1, 2003, the Corporation adopted ~~Accounting~~the ~~Guideline~~new 14Canadian Institute of Chartered Accountants standard No. 3475 — ~~Disclosure~~Disposal of ~~Guarantees~~Long-lived Assets and Discontinued Operations (~~note~~"CICA 43475"). AGCICA 3475 14establishes ~~requires~~standards afor ~~guarantor to~~the ~~disclose~~recognition, ~~significant~~measurement, ~~information~~presentation ~~about~~and ~~certain~~disclosure ~~types~~ of ~~guarantees~~long-lived itassets. ~~has~~The ~~provided,~~new ~~including~~standard ~~certain~~requires ~~types~~that long-lived assets to be disposed of ~~indemnities~~by ~~and~~sale ~~the~~be ~~indirect~~presented ~~guarantees~~separately on the statement of ~~indebtedness~~financial position, subject to ~~others,~~the ~~without~~asset ~~regard~~meeting ~~to whether~~the itcriteria ~~will~~of ~~have~~held tofor ~~make~~sale. ~~any~~Long ~~payments~~lived ~~under~~assets ~~the~~classified ~~guarantees.~~as AGheld 14for issale inare ~~addition~~recorded toat the ~~existing~~lower ~~disclosure~~of ~~required~~its bycarrying ~~Contingencies,~~amount ~~CICA~~or fair ~~Section 3290.~~value ~~The~~less ~~disclosure~~cost ~~requirements~~to ofsell ~~AG 14~~and are ~~effective~~no ~~for~~longer ~~financial~~amortized. There was no impact on the statements of ~~interim~~operations ~~and~~or ~~annual~~financial ~~periods~~position ~~beginning~~in the second quarter 2003 on orthe ~~after~~adoption ~~January 1,~~of ~~2003~~CICA 3475.

Effective ~~for~~January 1, ~~first quarter~~ 2003, the Corporation isadopted noAccounting ~~longer~~Guideline ~~reporting~~14 — Disclosure ~~cash~~of ~~flow~~Guarantees ~~per~~(note 7). ~~share~~AcG 14 requires a guarantor to disclose significant information about certain types of guarantees it has provided, ~~consistent~~including ~~with~~certain types of indemnities and the ~~upcoming~~indirect guarantees of indebtedness to others, without regard to whether it will have to make any payments under the guarantees. Disclosures under AcG 14 are in addition to the existing disclosure required by Contingencies, CICA ~~amendments~~Section 3290. The disclosure requirements of AG 14 are effective for ~~reporting~~financial statements of interim and annual periods ~~ending~~beginning on or after ~~June~~January 301, 2003.

~~Accounting~~ Consistent with ~~Policies~~the ~~Applicable~~amendments to anCICA 1540 — Cash ~~Entity~~Flow ~~Under~~Statements, ~~Creditor~~the ~~Protection~~ Corporation is no longer reporting cash flow per share information.

~~As a~~Accounting ~~result~~Policies ofApplicable ~~the filings as described in note 1, the Corporation will follow accounting policies, including disclosure items, applicable~~ to entities that are under creditor protection. In addition to generally accepted accounting principles applicable in Canada ("GAAP"), the Corporation will apply, to a large extent, the guidance in the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (SOP90-7). While SOP 90-7 refers specifically to Chapter 11 in the US, its guidance, to a large extent, is also applicable to an ~~entity~~Entity ~~restructuring~~ under ~~CCAA.~~Creditor Protection

~~Consistent~~ As a result of the filings as described in note 1, the Corporation will follow accounting policies, including disclosure items, applicable to entities that ~~with~~are ~~Canadian~~under creditor protection. In addition to generally accepted accounting principles applicable in Canada ("GAAP"), ~~generally~~the ~~SOP~~Corporation will apply the guidance in the American Institute of Certified Public Accountants Statement of Position 90-7, ~~does~~"Financial ~~not~~Reporting ~~change~~by ~~the~~Entities ~~manner~~ in ~~which~~Reorganization ~~financial~~under ~~statements~~the ~~are~~Bankruptcy ~~prepared~~Code" (SOP90-7). ~~However,~~While itSOP 90-7 ~~does~~refers ~~require~~specifically ~~that~~to Chapter 11 in the ~~financial~~US, ~~statements~~its ~~for periods~~guidance, ~~subsequent~~in tomanagement's ~~the~~view, ~~filing~~is ~~distinguish~~also ~~transactions~~applicable ~~and~~to ~~events~~an ~~that~~entity ~~are~~restructuring ~~directly~~under CCAA, ~~associated~~where ~~with~~it ~~the~~does ~~reorganization~~not ~~from~~conflict with Canadian GAAP.

~~Page~~ Consistent with 14Canadian GAAP, SOP 90-7 does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business are reported separately as reorganization items (note 5). The timing of the recognition of reorganization items is consistent with generally accepted accounting principles and is based on recent guidance issued by the Emerging Issues Committee ("EIC") in EIC 134 — Accounting for Severance and Termination Benefits and EIC 135 — Accounting for Costs Associated with Exit and Disposal Activities (Including Costs Incurred in a Restructuring).

~~the~~ Interest ~~ongoing~~expense ~~operations~~has ofbeen ~~the~~reported ~~business.~~only ~~Revenues,~~to ~~expenses~~the ~~(including~~extent ~~professional~~that ~~fees),~~it ~~gains~~will ~~and~~be ~~losses,~~paid ~~and~~under ~~provisions~~the ~~for~~plan ~~losses~~or that ~~can~~it beis ~~directly~~probable ~~associated~~that ~~with~~it ~~the~~will ~~reorganization and restructuring of the business must~~ be ~~reported~~an ~~separately~~allowed ~~as reorganization items~~claim. The consolidated statement of financial position ~~must~~distinguishes ~~distinguish~~ pre-filing liabilities subject to compromise from both those pre-filing liabilities that are not subject to compromise and from post-filing liabilities (note 4). Liabilities that may be affected by the plan ~~must~~have be been reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. Cash ~~provided~~flows byrelated to reorganization items ~~must~~have bebeen disclosed separately in the consolidated statement of cash flows. Consolidated financial statements that include one or more entities in reorganization proceedings and one or more entities not in reorganization proceedings ~~should~~ include disclosure of condensed combined financial statements of the entities in reorganization proceedings, including disclosure of the amount of intercompany receivables and payables therein (note 6).

~~The Canadian GAAP guidance applicable to an entity under creditor protection and~~ SOP 90-7 has isbeen applied effective beginning April 1, 2003 and for subsequent reporting periods while the Corporation continues to operate under creditor ~~protection. For disclosure purposes, as at March 31, 2003, approximately $6,900 of the total consolidated assets are recorded in the accounts of~~ ~~the entities under creditor~~ protection~~, including intercompany receivables of $240~~. ~~Management is currently assessing the amount of compromised pre-filing liabilities and will segregate those items as outlined above for all reporting periods subsequent to the filing date.~~

3. ~~Share~~Asset ~~Capital~~Write ~~and Other Equity~~Down

During the second quarter 2003, the Corporation recorded a provision of $49 related to the write down of a B747-400 aircraft. The provision reflects the excess of net book value over the expected net recoverable amount.

4. Liabilities Subject to Compromise

Liabilities subject to compromise refers to liabilities incurred prior to the filing date that will be dealt with as claims under the CCAA. The amounts below are the Corporation's estimate of known and potential compromised claims and are subject to future adjustment as a result of negotiations, actions of the Court, proofs of claim and other events. Resulting adjustments may be material and will be recorded as a reorganization adjustment. The Plan of Arrangement will determine how a particular class of claims will be settled, including payment terms if applicable. As interest ceases to accrue on unsecured debt that is subject to compromise subsequent to the filings, interest expense is not reported on unsecured debt of the Applicants subsequent to April 1, 2003. Interest expense of approximately $64 would have been recorded on unsecured debt in the period had the filings not occurred.

Long-term and subordinated perpetual debt, including accrued interest to March 31, 2003	$	4,000
Accounts payable and accrued liabilities		477
Claim for repudiated leases and other aircraft related accruals		210
CIBC Aerogold contractual termination accrual		209

Liabilities subject to compromise	$	4,896

5. Reorganization Items

Reorganization items represent revenues, expenses, gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business. The cash flows used for operating activities related to reorganization items amounted to $14 and related mainly to the payment of professional fees.

Repudiated leases, net (a)	$	178
Amortization of DIP financing fees		21
Write off of deferred financing costs on compromised debt		59
Professional fees		14
Labour related items (b)		21
CIBC Aerogold contractual termination accrual (c)		49
Hedging adjustments (d)		65
Interest income on accumulated cash		(3	)
Other		22

Reorganization items, net	$	426

(a): The cost of repudiated leases represents the estimated allowable claim resulting from aircraft that have been returned to the lessor as at June 30, 2003. The amount is shown net of the write off of all balance sheet accounts related to the repudiated leases.
(b): Labour related items of $21 represents the charge for contractual termination benefits and the cost of involuntary separation payments ($73), less the reversal of previously accrued bonus payments that are no longer payable as a result of the ratified agreements ($32) and the adjustment to accrued vacation liabilities as a result of lower wage rates and reduced vacation entitlements ($20).
(c): As described in note 1, the Corporation reached an agreement with CIBC on a new contract with respect to the CIBC Aerogold Visa card program. As a consequence of the Corporation's repudiation of the agreement in place prior to the filings, CIBC is entitled to a contractual termination payment in the amount of $209. The charge of $49 is the adjustment of the unamortized portion of the deferred revenues related to the contribution received in exchange for the contract extension in 1999 to the claim amount of $209. CIBC's damages will be an unsecured claim in the CCAA proceedings.
(d): As a result of the CCAA filing, all outstanding derivative contracts were terminated. In addition, certain of the anticipated cash flows or transactions that were being hedged are no longer expected to occur. Accordingly, any deferred hedging gains and losses related to cash flows or transactions not expected to occur as anticipated, principally interest payments, have been taken into income.

6. Condensed Combined Financial Statements

As described in note 2, consolidated financial statements that include one or more entities in reorganization proceedings and one or more entities not in reorganization proceedings should include disclosure of condensed combined financial statements of the entities in reorganization proceedings, including disclosure of the amount of intercompany receivables and payables therein. The following is the condensed combined financial statements of the Applicants as at June 30, 2003. Included in current assets are intercompany receivables with non-Applicants of $32. Included in current liabilities are intercompany payables with non-Applicants of $201. Included in Other Assets are long-term receivables of $203 from non-Applicants.

Condensed Combined Consolidated Statement of Operations
For the Three Months Ended June 30, 2003

	($ millions)
Operating revenues	$	1,888
Operating expenses		2,201

Operating loss before reorganization items		(313	)
Reorganization items (note 5)		(426	)
Net interest expense		(1	)
Loss on sale of assets		(46	)
Other non-operating income, including equity income of non-Applicants		21

Loss before foreign exchange on long-term monetary items and income taxes		(765	)
Foreign exchange on long-term monetary items		205

Loss before income taxes		(560	)
Recovery of (provision for) income taxes		(6	)

Loss for the period	$	(566	)

Condensed Combined Consolidated Statement of Financial Position
As at June 30, 2003

	($ millions)
ASSETS
Current assets	$	1,749
Property and equipment		2,048
Deferred charges		1,745
Goodwill		510
Other assets		1,455

	$	7,507

LIABILITIES
Current liabilities	$	2,860
Long-term and subordinated perpetual debt		221
Future income taxes		12
Other long-term liabilities		1,026
Deferred credits		1,106
Liabilities subject to compromise (note 4)		4,896
SHAREHOLDERS' DEFICIENCY		(2,614	)

	$	7,507

Condensed Combined Consolidated Statement of Cash Flow
For the Three Months Ended June 30, 2003

		($ millions)
Net cash provided by operating activities		$	172
Financing
	CIBC Credit facility		315
	DIP financing fees		(62	)
	Other		1

			254

Investing
	Additions to property and equipment		(14	)
	Proceeds from sale of assets		4
	Investments and advances		(15	)

			(25	)

Increase in cash and cash equivalents			401
Cash and cash equivalents, beginning of period			429

Cash and cash equivalents, end of period		$	830

7. Share Capital and Other Equity

The issued and outstanding common shares and Class A non-voting common shares ("Class A shares") of the Corporation along with securities convertible into common shares and Class A shares are as follows (in thousands):

		March 31, 2003	December 31, 2002
		June 30, 2003	December 31, 2002
Issued and outstanding
	Common shares	79,076	79,070
	Class A shares	41,115	41,115
Total issued and outstanding		120,191	120,185
Securities convertible into common shares and Class A shares
	Class A non-voting preferred shares	10,417	10,417
	Warrants	4,700	4,700
	Convertible subordinated debentures	9,375	9,375
	Stock options	9,805	9,785
Total potential common and class A shares		34,297	34,277
Total		154,488	154,462

As described in note 1, the Corporation has undertaken a restructuring under the CCAA. ~~The~~and, ~~impact~~as ofpreviously ~~the~~stated, ~~restructuring~~it onis ~~the~~highly ~~Corporation's~~likely that there will not be any meaningful recovery to existing ~~share~~equity. ~~capital~~However, ~~and~~the ~~convertible~~final ~~securities~~determination is not yet known.

48. Disclosure of Guarantees and Indemnities

Disclosure of Guarantees and Indemnities

As described in note 2, effective January 1, 2003, the Corporation adopted AG 14 which requires a guarantor to disclose information about certain types of guarantees it has provided.

~~The~~ A ~~Corporation~~guarantee ~~enters~~is ~~into~~an ~~real~~agreement ~~estate leases~~ or ~~operating~~contract ~~agreements,~~that ~~which~~contingently ~~grant~~requires ~~a license to~~ the Corporation to ~~use~~make ~~certain~~payments ~~premises,~~to ina ~~substantially~~third ~~all~~party ~~cities~~based ~~that~~on it(i) changes ~~serves.~~in Itan isunderlying ~~common~~variable in such ~~commercial lease transactions for the Corporation~~ as interest ~~the~~rates ~~lessee~~or toforeign ~~agree~~exchange tothat ~~indemnify~~is ~~the lessor and other~~ related ~~third~~to ~~parties~~an ~~for~~asset, ~~tort~~a ~~liabilities~~liability ~~that~~or ~~arise~~equity ~~out~~security of ~~or relate to~~ the ~~Corporation's~~ ~~use~~guaranteed orparty, ~~occupancy~~(ii) failure of ~~the~~another ~~leased~~entity orto ~~licensed~~perform ~~premises.~~under Inan ~~some~~obligating ~~cases~~agreement, (iii) failure ~~this~~of ~~indemnity~~another ~~extends~~entity to ~~related~~pay ~~liabilities~~its indebtedness when due.

~~Page~~Residual 15Value Guarantees

~~arising from~~ The ~~the~~Corporation ~~negligence~~discloses ofinformation ~~the~~related ~~indemnified~~to ~~parties,~~residual ~~but~~value ~~usually~~guarantees ~~excludes~~under ~~any~~certain ~~liabilities~~aircraft ~~caused~~operating byleases ~~their~~in ~~gross~~note 18-Contingencies ~~negligence~~in the orCorporation's ~~wilful~~2002 ~~misconduct~~annual financial statements and notes. ~~Additionally,~~Due ~~the~~mainly ~~Corporation~~to ~~typically~~the ~~indemnifies such~~repudiation ~~parties~~of ~~for~~two ~~any~~aircraft ~~environmental~~with ~~liability~~residual ~~that~~value ~~arises~~guarantees, ~~out~~the amount of orresidual ~~relates~~value support the Corporation may be required to ~~its~~provide ~~use~~will ornot ~~occupancy~~exceed of$470, ~~the~~a ~~leased~~reduction orof ~~licensed~~$163 ~~premises~~from December 31, 2002.

~~In aircraft~~Indemnification financing agreements, the Corporation typically indemnifies the financing parties, trustees acting on their behalf and other related parties against liabilities that arise from the manufacture, design, ownership, financing, use, operation and maintenance of the aircraft and for tort liability, whether or not these liabilities arise out of or relate to the negligence of these indemnified parties. In addition, in aircraft financing transactions, including those structured as leveraged leases, the Corporation typically indemnifies the lessor with respect to adverse changes in the applicable tax laws. Agreements

The Corporation ~~expects~~enters into real estate leases or operating agreements, which grant a license to the Corporation to use certain premises, in substantially all cities that it ~~would~~serves. beIt ~~covered~~is bycommon ~~insurance~~in ~~(subject~~such tocommercial ~~deductibles)~~lease transactions for ~~most~~the ~~tort~~Corporation ~~liabilities~~as the lessee to agree to indemnify the lessor and other related ~~indemnities~~third ~~described~~parties ~~above~~for ~~with~~tort ~~respect~~liabilities that arise out of or relate to ~~real~~the ~~estate~~Corporation's ~~leases~~use ~~and~~or ~~aircraft~~occupancy of the leased or licensed premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the itindemnified ~~operates~~parties, but usually excludes any liabilities caused by their gross negligence or wilful misconduct. Additionally, the Corporation typically indemnifies such parties for any environmental liability that arises out of or relates to its use or occupancy of the leased or licensed premises.

~~The~~ In aircraft financing agreements, the Corporation typically indemnifies ~~its~~the ~~directors~~financing parties, trustees acting on their behalf and ~~officers~~other related parties against ~~any~~liabilities ~~and~~that ~~all~~arise from ~~claims~~the ormanufacture, ~~losses~~design, ~~reasonably~~ownership, ~~incurred~~financing, inuse, operation and maintenance of the ~~performance~~aircraft and for tort liability, whether or not these liabilities arise out of ~~their~~or ~~service~~relate to the ~~Corporation~~negligence toof these ~~the~~indemnified ~~extent~~parties, ~~permitted~~except byfor ~~law. Air~~their ~~Canada~~gross ~~has~~negligence ~~acquired~~or ~~and~~wilful ~~maintains~~misconduct. ~~liability~~In ~~insurance~~addition, ~~for~~in ~~its~~aircraft ~~directors~~financing ~~and~~transactions, ~~officers~~including asthose ~~well~~structured as ~~those~~leveraged ofleases, ~~its~~the ~~subsidiaries~~Corporation typically asindemnifies athe ~~group~~lessor with respect to adverse changes in the applicable tax laws.

The Corporation ~~cannot~~has ~~estimate~~indemnification ~~the~~agreements ~~potential~~with ~~amount~~its ofdirectors ~~future~~and ~~payments~~officers. ~~under~~These agreements indemnify these individuals, to the ~~foregoing~~extent ~~indemnities~~permitted by law, against any and ~~guarantees~~all claims or losses (including amounts paid in settlement of claims) incurred as a result of their service to the Corporation.

The ~~Corporation~~maximum ~~discloses~~amount ~~information~~payable ~~related~~under tothe ~~residual~~foregoing ~~value~~indemnities ~~guarantees~~cannot ~~under~~be ~~certain~~reasonably ~~aircraft~~estimated. ~~operating~~The ~~leases~~Corporation inexpects ~~note 18~~that ~~"Contingencies"~~it inwould ~~the~~be ~~Corporation's~~covered ~~2002~~by ~~annual~~insurance ~~financial statements.~~(subject ~~There~~to ~~are~~deductibles) nofor ~~material~~most tort ~~updates~~liabilities asand atrelated ~~March 31,~~indemnities ~~2003~~described above.

59. Segment Information

		Three Months Ended March 31
		Three Months Ended June 30						Six Months Ended June 30
		2003		2002		%		2003		2002		%
Transportation revenue
Passenger
	Canada	$	~~712~~724	$	~~813~~975	(1226	)	$	1,436	$	1,788	(20	)
	US Transborder		~~475~~363		~~502~~500	(527	)		838		1,002	(16	)
	Atlantic		~~283~~361		~~285~~407	(111	)		644		692	(7	)
	Pacific		~~142~~76		~~148~~203	(463	)		218		351	(38	)
	Other		~~133~~73		~~109~~79	22(8	)		206		188	10
			1,745		1,857	(6	)
			1,597		2,164	(26	)		3,342		4,021	(17	)
Cargo revenue			~~144~~122		~~130~~141	11(13	)		266		271	(2	)
Total transportation revenue			1,~~889~~719		12,~~987~~305	(525	)		3,608		4,292	(16	)
Non-transportation revenue
	Aeroplan		9069		9075	—(8	)		159		165	(4	)
	Technical Services		4653		58	(219	)		99		116	(15	)
	Other		~~186~~111		~~151~~114	23(3	)		297		265	12
Total non-transportation revenue			~~322~~233		~~299~~247	8(6	)		555		546	2
Total operating revenue		$	21,~~211~~952	$	2,~~286~~552	(324	)	$	4,163	$	4,838	(14	)

For passenger, the allocation to service is determined based on flight destination. Previously the Corporation segregated mainline passenger revenues from regional passenger revenues. Based on the current management of mainline and regional capacity, the revenues from mainline and regional service are combined. Cargo revenues are not allocated by service as the amounts are not significant. Non-transportation revenues are almost exclusively attributable to Canada.

~~Page~~Property 16and Equipment

are combined. Cargo revenues are not allocated by service as the amounts are not significant. Non-transportation revenues are almost exclusively attributable to Canada.

Property and equipment

Air Canada is a Canadian based domestic and international carrier and while the Corporation's flight equipment is used on various routes internationally, for purposes of segment reporting, the Corporation attributes the location of flight equipment to Canada. As a consequence, substantially all of the Corporation's property and equipment and goodwill are related to operations in Canada.

610. Comparative Figures

Certain comparative figures have been reclassified to conform ~~with~~to the financial statement presentation adopted in the current period.

711. Seasonal Nature of Business

The Corporation has historically experienced considerably greater demand for its services in the second and third quarters of the calendar year and significantly lower demand in the first and fourth quarters of the calendar year. This demand pattern is principally a result of the high number of leisure travelers and their preference for travel during the spring and summer months, however, in the current operating environment, these historical patterns may no longer be applicable.

The Corporation has substantial fixed costs in its cost structure that do not meaningfully fluctuate with passenger demand in the short-term. Seasonally low passenger demand normally results in significantly lower operating cash flow and margins in the first and fourth quarters of each calendar year compared to the second and third quarters.

8. Workforce Reduction

During the first quarter and consistent with the challenges faced by the Corporation as described in note 1, Air Canada announced its intention to reduce its workforce by 3,600. This workforce reduction was to reduce the Corporation's non-unionized workforce by 20% and the unionized workforce by 10%. Subsequent to this announcement, and in conjunction with the CCAA filing, the Corporation is undertaking a restructuring, which may increase the workforce reductions over those previously announced.

The workforce reduction plan pertaining to the Corporation's non-unionized workforce has been drafted. Implementation of the plan began in May 2003 and is expected to continue until the third quarter. The Corporation will record a charge of approximately $45 in the second quarter pertaining to the severance costs associated with the non-unionized workforce reduction plan. This amount will be recorded as a reorganization charge in non-operating expenses.

As part of its restructuring plan, the Corporation has established a labour cost reduction target of $770, before the impact of pension and benefit program changes. On May 9, 2003, the Court appointed a facilitator in an effort to work with the parties to bring resolution to this issue and the process is ongoing.

9. Subsequent Event

Operating Environment

In its May 13, 2003 press release, Air Canada reported that the downturn experienced in the first quarter intensified in April 2003 primarily as a result of the SARS outbreak in Toronto, Air Canada's main hub, which had a severe negative impact on revenues for the month. The April 2003 preliminary unaudited operating loss is estimated to be $152 or $123 worse than the corresponding period last year. At the time of the May 13 release, traffic on Asian routes was experiencing a decline of approximately

Page 17

60 per cent and Toronto enplanements were significantly down. This environment is translating into reduced forward bookings on a network-wide basis.

As a result of this deteriorating revenue and traffic expectation, on May 13, Air Canada announced the implementation of a number of actions to reduce operating costs until traffic levels stabilize:

The Corporation is planning for the implementation of the grounding of the aircraft as noted above and is reviewing the potential impact this may have on any aircraft impairment or provision for leased aircraft.

Page 18

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~AIR CANADA~~			AIR CANADA
~~Registrant:~~			Registrant:
~~By:~~	~~/s/ JOHANNE DRAPEAU~~	By:	(Signed)
	Johanne Drapeau Deputy Secretary
			Johanne Drapeau Deputy Secretary Dated: August 11, 2003
	Dated:	May 29, 2003

Page 19

QuickLinks

CONTENTS
HIGHLIGHTS
(Under Creditor Protection as of April 1, 2003. Refer to Note 1 to the Consolidated Financial Statements.)
AIR CANADA Consolidated Statement of Operations and Retained Earnings (Deficit) (Under Creditor Protection as of April 1, 2003 — note 1) (in millions except per share figures) (unaudited)
AIR CANADA Consolidated Statement of Financial Position (Under Creditor Protection as of April 1, 2003 — note 1) (in millions) (unaudited)
AIR CANADA Consolidated Statement of Cash Flow (Under Creditor Protection as of April 1, 2003 — note 1) (in millions) (unaudited)
SIGNATURES

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