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Operations management (MBA 706)

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Lagos State University

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Third Quarter 2021

Management’s Discussion and Analysis

of Results of Operations and Financial

Condition

November 2, 2021

Results of Operations and Financial Condition

1. HIGHLIGHTS TABLE OF CONTENTS
1. INTRODUCTION
1. ABOUT AIR CANADA
1. OVERVIEW
1. RESULTS OF OPERATIONS....................................................................................................
1. FLEET
1. FINANCIAL AND CAPITAL MANAGEMENT
- 7 LIQUIDITY
- 7 FINANCIAL POSITION
- 7 NET DEBT
- 7 WORKING CAPITAL
- 7 CASH FLOW MOVEMENTS
- 7 CAPITAL EXPENDITURES AND RELATED FINANCING ARRANGEMENTS
- 7 PENSION FUNDING OBLIGATIONS
- 7 CONTRACTUAL OBLIGATIONS
- 7 SHARE INFORMATION
1. QUARTERLY FINANCIAL DATA..............................................................................................
1. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
1. ACCOUNTING POLICIES AND CONTROLS..............................................................................
1. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS.........................................................
1. OFF-BALANCE SHEET ARRANGEMENTS
1. RELATED PARTY TRANSACTIONS
1. RISK FACTORS
1. NON-GAAP FINANCIAL MEASURES

Results of Operations and Financial Condition

2. INTRODUCTION

In this Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”), the “Corporation” refers, as the context may require, to Air Canada and/or one or more of Air Canada’s subsidiaries, including its wholly owned operating subsidiaries, Touram Limited Partnership, doing business under the brand name Air Canada Vacations® (“Air Canada Vacations”), Air Canada Rouge LP, doing business under the brand name Air Canada Rouge® (“Air Canada Rouge”) and Aeroplan Inc. (“Aeroplan”). This MD&A provides the reader with a review and analysis, from the perspective of management, of Air Canada’s financial results for the third quarter of 2021. This MD&A should be read in conjunction with Air Canada’s interim unaudited condensed consolidated financial statements and notes for the third quarter of 2021, as well as Air Canada’s 2020 annual audited consolidated financial statements and notes and Air Canada’s 2020 MD&A, each dated February 12, 2021. All financial information has been prepared in accordance with generally accepted accounting principles in Canada (“GAAP”), as set out in the CPA Canada Handbook – Accounting (“CPA Handbook”), which incorporates International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), except for any non-GAAP measures and any financial information specifically denoted otherwise. Except as otherwise noted, monetary amounts are stated in Canadian dollars. Except as otherwise noted or where the context may otherwise require, this MD&A is current as of November 1, 2021. Forward-looking statements are included in this MD&A. See “Caution Regarding Forward-Looking Information” below for a discussion of risks, uncertainties and assumptions relating to these statements. For a description of risks relating to Air Canada, refer to section 14 “Risk Factors” of this MD&A. Air Canada issued a news release dated November 2, 2021 reporting on its results for the third quarter of 2021. This news release is available on Air Canada’s website at aircanada and on SEDAR’s website at sedar. For further information on Air Canada’s public disclosures, including Air Canada’s Annual Information Form, consult SEDAR at sedar. Caution Regarding Forward-Looking Information Air Canada’s public communications may include forward-looking statements within the meaning of applicable securities laws. Such forward-looking statements are included in this MD&A and may be included in other communications, including filings with regulatory authorities and securities regulators. Forward- looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may involve, but are not limited to, comments relating to guidance, strategies, expectations, planned operations or future actions. Forward- looking statements are identified using terms and phrases such as “preliminary”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and similar terms and phrases, including references to assumptions. Forward-looking statements, by their nature, are based on assumptions including those described in this MD&A and the documents incorporated by reference herein and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, among other things, changing external events and general uncertainties of the business of Air Canada. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including those discussed below. Air Canada, along with the global airline industry, continues to face a significant decrease in traffic, as compared to the year 2019, and a corresponding decline in revenue and cash flows as a result of the COVID-19 pandemic and the travel restrictions imposed in many countries around the world. While it is improving, there is limited visibility on travel demand given changing government restrictions in place around the world and the severity of the restrictions which have only recently begun to ease in Canada. Air Canada cannot predict the full impact or the timing for when conditions may improve. Air Canada is actively monitoring the situation and will respond as the impact of the COVID-19 pandemic evolves, which will

Results of Operations and Financial Condition depend on a number of factors including the course of the virus, availability of rapid, effective testing, vaccinations and treatments for the virus, government actions, and passenger reaction, the complexities of restarting an industry whose many stakeholders must act in coordination with each other as well as timing and extent of a recovery in international and business travel which are important segments of Air Canada’s markets, none of which can be predicted with certainty. Other factors that may cause results to differ materially from results indicated in forward-looking statements include economic and geopolitical conditions, Air Canada’s ability to successfully achieve or sustain positive net profitability, industry and market conditions and the demand environment, Air Canada’s ability to pay its indebtedness and maintain or increase liquidity, competition, energy prices, Air Canada’s dependence on technology, cybersecurity risks, Air Canada’s ability to successfully implement appropriate strategic and other important initiatives (including Air Canada’s ability to manage operating costs), other epidemic diseases, terrorist acts, war, Air Canada’s dependence on key suppliers, casualty losses, changes in laws, regulatory developments or proceedings, Air Canada’s ability to successfully operate its new loyalty program, climate change and environmental factors (including weather systems and other natural phenomena and factors arising from man-made sources), interruptions of service, Air Canada’s dependence on regional and other carriers, Air Canada’s ability to preserve and grow its brand, employee and labour relations and costs, Air Canada’s dependence on Star Alliance® and joint ventures, limitations due to restrictive covenants, pending and future litigation and actions by third parties, currency exchange, risks generally relating to the grounding of aircraft fleet types, pension plans, Air Canada’s ability to attract and retain required personnel, insurance issues and costs, as well as the factors identified in Air Canada's public disclosure file available at sedar and, in particular, those identified in section 17 “Risk Factors” in Air Canada’s 2020 MD&A and in section 14 “Risk Factors” of this MD&A. The forward-looking statements contained or incorporated by reference in this MD&A represent Air Canada's expectations as of the date of this MD&A (or as of the date they are otherwise stated to be made) 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 because of new information, future events or otherwise, except as required under applicable securities regulations. Intellectual Property Air Canada owns or has rights to trademarks, service marks or trade names used in connection with the operation of its business. In addition, Air Canada’s names, logos and website names and addresses are owned or licensed by Air Canada, as applicable. Air Canada also owns or has the rights to copyrights that also protect the content of its products and/or services. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this MD&A may be listed without the ©, ® and TM symbols, but Air Canada reserves all rights to assert, to the fullest extent under applicable law, its rights, or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights. This MD&A may also include trademarks, service marks or trade names of other parties. Air Canada’s use or display of other parties’ trademarks, service marks, trade names or products is not intended to, and does not imply a relationship with, or endorsement or sponsorship of Air Canada by, the trademark, service mark or trade name owners or licensees.

Results of Operations and Financial Condition

4. OVERVIEW

Air Canada, along with the global airline industry, continues to face a significant drop in traffic and a corresponding decline in revenue and cash flow, as compared to the year 2019, due to the COVID- pandemic and the travel restrictions imposed in many countries around the world, including in Canada. However, the demand environment showed meaningful signs of improvement during the third quarter of 2021. As further explained in section 5 “Results of operations” of this MD&A, total capacity and traffic increased 86% and 214%, respectively, versus the third quarter of 2020. When compared to the third quarter of 2019, capacity and traffic were down 65% and 71%, respectively. Air Canada’s vision for recovery is predicated on leveraging the solid foundation it has built over the past several years to restore and rebuild towards its global champion ambition. This involves rebuilding a strong global network with a focus on hub-to-hub flying providing seamless connectivity with Air Canada’s partners, delivering consistent and superior customer service, and diversifying its revenue base, including through Aeroplan and Air Canada Cargo. For additional information on Air Canada’s strategy and measures it has deployed in response to the pandemic, refer to section 4 “Strategy and COVID-19 Mitigation and Recovery Plan” of Air Canada’s 2020 Annual MD&A. Recent Developments Easing of Certain Travel Restrictions and Quarantine Measures In Canada, certain travel restrictions and quarantine measures were lifted over the course of the third quarter of 2021. The changes included: - Since July 5, 2021, fully vaccinated travellers who are permitted to enter Canada have not been subject to the federal requirement to quarantine or take a COVID-19 test on day eight after arrival. - Since August 9, 2021: o Fully vaccinated United States (“U.”) citizens and permanent residents, residing in the U., are permitted to enter Canada for non-essential travel. o The obligation to quarantine at a government-approved hotel ceased for all travellers. o Five Canadian airports (Halifax Stanfield International Airport, Québec City Jean Lesage International Airport, Ottawa Macdonald–Cartier International Airport, Winnipeg James Armstrong Richardson International Airport, and Edmonton International Airport) were allowed to receive scheduled international commercial passenger flights in addition to the four Canadian airports that were already open for international commercial passenger operations. - Since September 7, 2021, fully vaccinated foreign nationals have been allowed to enter Canada for non-essential travel. Foreign nationals who do not meet the requirements to be considered fully vaccinated are not able to enter Canada unless they meet an exemption set out in the Orders made under the Quarantine Act. Unvaccinated children under the age of 12 who enter Canada with their fully vaccinated parents, stepparents, guardians or tutors, are not required to quarantine upon entering Canada, but must adhere to strict public health measures including testing rules (save for certain exceptions) and limit contact with others for 14 days. All travellers, regardless of vaccination status, still require a negative pre-entry COVID-19 PCR test result taken within 72 hours of departure. Effective August 9, 2021, the Government of Canada adjusted its post- arrival testing requirements for fully vaccinated travellers, moving from testing all passengers to randomly testing passengers for COVID-19 upon arrival. Unvaccinated or partially vaccinated travellers allowed to

Results of Operations and Financial Condition enter Canada, remain subject to the federal requirement to quarantine and take a COVID-19 test at the time of arrival and on day eight after arrival. While Air Canada is encouraged by the progress in the easing of travel restrictions, any benefits will take time to materialize into current period revenues. In addition, the travel restrictions that remain in effect, which vary from country to country, continue to impact demand for air travel. Safety First, Always On August 13, 2021, the Government of Canada announced that by no later than the end of October 2021, it would require employees in the federally regulated air, rail, and marine transportation sectors to be vaccinated against COVID-19. On August 25, 2021, Air Canada announced and introduced a new health and safety policy to further protect employees and customers. The policy makes it mandatory for all employees of the airline to be fully vaccinated against COVID-19 (subject to certain limited exceptions required by law) by October 30, 2021, and to report their vaccination status. In addition, the airline made full vaccination a condition of employment for any individual hired by the company. On October 6, 2021, the Government of Canada announced that effective October 30, 2021, all air passengers 12 years of age or older departing from airports in Canada on domestic, transborder or international flights, will need to be fully vaccinated in order to board a flight. There will be a short transition period for travellers who are in the process of being vaccinated, where they will be able to travel if they can show a valid COVID-19 molecular test within 72 hours of travel. By November 30, 2021, the Government of Canada will require all travellers to be fully vaccinated, with very limited exceptions to address specific situations such as emergency travel, children under the age of 12 are not able to receive a COVID-19 vaccine, and those medically unable to be vaccinated. Air Canada is committed to working with the Government of Canada to implement this new policy in an effective manner with the aim of increasing safety of its employees, customers, and all Canadians. On October 25, 2021, Air Canada announced the introduction of new testing products, including portable self-administered COVID-19 molecular and antigen test kits, through a partnership with Switch Health, a Canadian-based healthcare company. Using the Switch Health COVID-19 RT-LAMP Kit, customers can test themselves while travelling abroad prior to their flight to Canada to meet Government of Canada testing entry requirements. Customer Experience On April 13, 2021, Air Canada announced it was offering refunds to passengers who purchased a non- refundable fare but whose flights were cancelled or who voluntarily cancelled their travel due to the COVID- 19 pandemic between February 1, 2020, and April 13, 2021. The policy allowed eligible customers to submit a request for a refund online or with their travel agent until July 12, 2021. Eligible refunds processed and paid during the third quarter of 2021 amounted to $211 million. As at September 30, 2021, the total value of refunds processed was $1,208 million. In addition, for new tickets purchased on or after April 13, 2021, Air Canada provides its customers an option for a refund to the original form of payment in instances where Air Canada cancels their flight or reschedules the departure time by more than three hours, irrespective of the reason. Air Canada customers also have the option of accepting Aeroplan points with a 65% bonus or an Air Canada Travel Voucher. On September 7, 2021, Air Canada unveiled its expanded Travel Ready hub, an interactive online tool to help customers plan and prepare for upcoming trips. Air Canada continues to develop practical solutions to help its customers be travel-ready, wherever they want to go. This includes assisting them in navigating the changing COVID-19 related entry requirements across its global network by making all relevant information available in one convenient place. The easy-to-use Travel Ready hub is designed to make it simple for customers to choose where to go next by showing the countries that are open to visitors through an interactive map.

Results of Operations and Financial Condition

Planned summer schedule for Europe, Africa, the Middle East and India. In addition to its established year-round services, Air Canada announced its return to key summer seasonal destinations such as Barcelona, Venice, Nice, Manchester, Edinburgh, and Reykjavik.
Expansion of services to India with increased frequency to Delhi from Toronto, since October 15, 2021, and a new year-round service to Delhi from Montreal that started on October 31, 2021.
New daily service between Toronto Island and Ottawa which started on October 31, 2021. As travel restrictions ease around the world, Air Canada remains committed to rebuilding its international network and to continue as a global carrier to connect Canada to the world, while also developing additional markets and targeting new opportunities. In anticipation of expected travel demand, during the third quarter of 2021, Air Canada recalled over 6,500 employees. In the first nine months of 2021, Air Canada recalled more than 10,000 employees. ESG On August 3, 2021, Air Canada published its 2020 Corporate Sustainability Report Citizens of the World. The report provides a fulsome view of Air Canada’s efforts, governance, and management approaches, which are articulated through three sustainability pillars: Business, People, and Planet. The report is available at aircanada/citizensoftheworld. Financing and Liquidity On August 11, 2021, Air Canada closed a private offering of $2 billion of 4% senior secured notes due 2029 (the "Canadian Dollar Notes") and US$1 billion of 3% senior secured notes due 2026 (the "US Dollar Notes", and together with the Canadian Dollar Notes, the "Notes"). Air Canada also closed a US$2 billion new senior secured credit facility, consisting of a US$2 billion new term loan B maturing in 2028 (the "Term Loan"), together with a new undrawn US$600 million revolving credit facility maturing in 2025 (the "Revolving Facility" and, together with the Term Loan, the "Senior Secured Credit Facilities"). Air Canada received aggregate gross proceeds of approximately $7 billion from the sale of the Notes and from the Senior Secured Credit Facilities. Air Canada applied the proceeds from the sale of the Canadian Dollar Notes, together with the proceeds from the Term Loan, to (i) satisfy and discharge all of Air Canada’s outstanding $200 million aggregate principal amount of its 4% senior secured notes due 2023 and redeem all of Air Canada’s outstanding $840 million aggregate principal amount of its 9% second lien notes due 2024, (ii) repay all of Air Canada’s US$1,178 million of indebtedness outstanding under the loan agreement dated as of October 6, 2016, which comprised a syndicated secured US dollar term loan B facility and a syndicated secured US dollar revolving credit facility and (iii) satisfy applicable transaction costs, fees and expenses. The balance of the proceeds is being retained for working capital and other general corporate purposes. The Revolving Facility is undrawn as of September 30, 2021, and any future borrowings thereunder are also intended to fund working capital and other general corporate purposes. The Notes and Air Canada's obligations under the Senior Secured Credit Facilities are senior secured obligations of the Company, secured on a first-lien basis, subject to certain permitted liens, by certain collateral comprised of substantially all of Air Canada’s international routes, airport slots and gate leaseholds. In August 2021, Air Canada repaid in full its $200 million revolving credit facility which remains available and undrawn.

Results of Operations and Financial Condition As a result of the above referenced financing transactions completed during the third quarter of 2021, Air Canada’s liquidity, net of related transaction fees, increased $4,419 million, including available and undrawn lines of credit. Debt and Equity Financing Agreements with the Government of Canada On April 12, 2021, Air Canada entered into a series of debt and equity financing agreements with the Government of Canada (acting through its subsidiary, Canada Enterprise Emergency Funding Corporation) which allows Air Canada to access up to $5 billion in liquidity through the Large Employer Emergency Financing Facility (LEEFF) program. The financial package provides for fully repayable loans that Air Canada will only draw down if and as required, as well as an equity investment, and is comprised of:

Gross proceeds of $500 million for 21,570,942 Air Canada shares at a price of $23 per share (net proceeds of approximately $480 million).
$1 billion in the form of a secured revolving credit facility maturing in April 2026 and bearing interest at the Canadian Dollar Offered Rate (CDOR) plus 1%; the facility is secured on a first lien basis by the assets of Aeroplan, Air Canada's shares in Aeroplan as well as certain assets of Air Canada, including certain intellectual property relating to the Aeroplan loyalty program. No amount has been drawn by Air Canada under this facility.
$2 billion in the form of three unsecured non-revolving credit facilities of $825 million each with: the first, five-year tranche maturing in April 2026, at CDOR plus 1% per annum; the second, six-year tranche maturing in April 2027, at 6% per annum (increasing to 7% after 5 years); and the third, seven-year tranche maturing in April 2028, at 8% per annum (increasing to 9% after 5 years). No amount has been drawn under these facilities.
As consideration for the Government making the above secured and unsecured credit facilities available to Air Canada, Air Canada issued an aggregate of 14,576,564 warrants initially exercisable for the purchase of an equal number of Air Canada shares, subject to customary adjustments, at an exercise price of $27 per share during a 10-year term, representing an aggregate exercise price equal to 10% of the total commitment available under the above secured and unsecured credit facilities; 50% of the warrants vested concurrently with the implementation of the credit facilities and the remaining 50% of the warrants will vest on a proportional basis to the amounts that Air Canada draws, if any, under the above unsecured credit facilities; the warrants are subject to a one-time call right in favour of Air Canada, pursuant to which Air Canada may, upon repayment of all indebtedness, if any, outstanding under the above secured and unsecured credit facilities and termination thereof, repurchase for cancellation all outstanding warrants at a price per warrant equal to its fair market value determined by third-party valuators. The vested warrants are exercisable by the holder either by paying the exercise price or by using a cashless exercise option.
Up to $1 billion in the form of an unsecured credit facility tranche to support customer refunds of non-refundable tickets. The facility has a seven-year term maturing in April 2028 and carries an annual interest rate of 1%. Draws under this facility are made monthly based on the amount of refunds processed and paid during the period. As at September 30, 2021, $1 billion has been drawn under this facility to support customer refunds of non-refundable tickets, and a further $3 million is being drawn for refunds paid up until September 30, 2021. Draws under this facility may continue up until November 30, 2021 as eligible refunds are paid. As part of the financial package, Air Canada agreed to a number of commitments related to customer refunds, service to certain regional communities, restrictions on the use of the funds provided, employment levels and capital expenditures. Such commitments include:

Results of Operations and Financial Condition internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic. As a result, Air Canada and Transat agreed to terminate the Arrangement Agreement with Air Canada paying Transat a termination fee of $12 million and Transat no longer under any obligation to pay Air Canada any fee should Transat be involved in another acquisition or similar transaction in the future. Consolidation of Air Canada Express flying with Jazz On March 1, 2021, Air Canada announced an agreement to revise its CPA with Jazz, and consolidated all its regional flying with Jazz. As a result of the CPA revisions and consolidation of regional flying, Air Canada expects to realize $400 million in cost reductions over the 15-year term of the agreement ($43 million per year until 2026 and $18 million per year thereafter). In addition, the revised CPA will lower future contractual capital expenditures and leasing costs through a restructured CPA fleet, avoiding an estimated $193 million in future capital expenditures. The amended CPA is effective on a retroactive basis to January 1, 2021.

Results of Operations and Financial Condition

5. RESULTS OF OPERATIONS....................................................................................................

The table and discussion below provide and compare results of Air Canada for the periods indicated. (Canadian dollars in millions, except where indicated) Third Quarter First Nine Months 2021 2020 $ Change % Change 2021 2020 $ Change % Change Operating revenues Passenger $ 1,636 $ 507 $ 1,129 223 $ 2,457 $ 3,907 $ (1,450) (37) Cargo 366 216 150 69 1,005 634 371 59 Other 101 34 67 197 207 465 (258) (55) Total operating revenues 2,103 757 1,346 178 3,669 5,006 (1,337) (27) Operating expenses Aircraft fuel 472 175 297 170 911 1,135 (224) (20) Wages, salaries, and benefits 592 475 117 25 1,617 1,735 (118) (7) Regional airlines expense, excluding fuel 312 198 114 58 700 841 (141) (17) Depreciation and amortization 400 423 (23) (5) 1,217 1,414 (197) (14) Aircraft maintenance 153 45 108 240 430 496 (66) (13) Airport and navigation fees 166 97 69 71 373 438 (65) (15) Sales and distribution costs 74 30 44 147 142 226 (84) (37) Ground package costs 23 5 18 360 29 236 (207) (88) Catering and onboard services 52 26 26 100 94 146 (52) (36) Communications and information technology 85 66 19 29 271 292 (21) (7) Special items (103) (192) 89 46 (157) 44 (201) (457) Other 241 194 47 24 588 776 (188) (24) Total operating expenses 2,467 1,542 925 60 6,215 7,779 (1,564) (20) Operating loss (364) (785) 421 (2,546) (2,773) 227 Non-operating income (expense) Foreign exchange gain (loss) (136) 88 (224) (74) (381) 307 Interest income 17 32 (15) 54 106 (52) Interest expense (197) (196) (1) (538) (474) (64) Interest capitalized 4 6 (2) 13 20 (7) Net financing expense relating to employee benefits (1) (6) 5 (10) (26) 16 Gain (loss) on financial instruments 114 46 68 (114) (28) (86) Loss on debt settlements and modifications (110) - (110) (129) - (129) Other (6) (6) - (20) (22) 2 Total non-operating expense (315) (36) (279) (818) (805) (13) Loss before income taxes (679) (821) 142 (3,364) (3,578) 214 Income tax recovery 39 136 (97) 255 92 Net loss $ (640) $ (685) $ 45 $ (3,109) $ (3,486) $ 377 Diluted loss per share $ (1) $ (2) $ 0 $ (8) $ (12) $ 3. EBITDA (excluding special items) (1) $ (67) $ (554) $ 487 $ (1,486) $ (1,315) $ (171) Adjusted pre-tax loss (1) $ (649) $ (1,141) $ 492 $ (3,194) $ (3,099) $ (95) (1) EBITDA (excluding special items) and adjusted pre-tax income (loss) are non-GAAP financial measures. Refer to section 15 "Non-GAAP Financial Measures" of this MD&A for additional information.

Results of Operations and Financial Condition The table below provides passenger revenue by geographic region for the first nine months of 2021 versus the first nine months of 2020. (Canadian dollars in millions) First Nine Months 2021 2020 $ Change % Change Canada $ 1,276 $ 1,378 $ (102) (7) U. transborder 352 793 (441) (55) Atlantic 546 819 (273) (33) Pacific 163 440 (277) (63) Other 120 477 (357) (74) System $ 2,457 $ 3,907 $ (1,450) (37) The table below provides year-over-year percentage changes in passenger revenues and operating statistics by geographic region for the first nine months of 2021 versus the first nine months of 2020. First Nine Months 2021 vs First Nine Months 2020 Passenger Revenue % Change Capacity (ASMs) % Change Traffic (RPMs) % Change Passenger Load Factor pp Change Yield % Change PRASM % Change Canada (7) (3) (6) (1) (1) (3) U. transborder (55) (64) (66) (3) 31 23. Atlantic (33) (28) (28) 0 (7) (6) Pacific (63) (60) (75) (26) 52 (7) Other (74) (76) (81) (16) 33 5. System (37) (39) (45) (6) 14 3. The table below provides, by market, Air Canada’s revenue passenger miles (RPMs) and available seat miles (ASMs) for the periods indicated. Third Quarter First Nine Months 2021 2020 2021 (millions) RPMs ASMs RPMs ASMs RPMs ASMs RPMs ASMs Canada 3,418 4,483 1,413 2,504 5,050 7,991 5,393 8, U. transborder 974 1,336 97 250 1,163 1,824 3,444 5, Atlantic 2,575 3,647 694 2,306 3,776 6,541 5,277 9, Pacific 541 1,076 182 658 808 1,961 3,321 4, Other 407 574 131 231 636 1,010 3,372 4, System 7,915 11,116 2,517 5,949 11,433 19,327 20,807 31,

Results of Operations and Financial Condition Domestic Passenger Revenues In the third quarter of 2021, on a capacity increase of 78%, Domestic passenger revenues of $771 million increased $455 million or 144% from the third quarter of 2020. The year-over-year increase resulted from a better operating environment in the Canadian market as Canadian provinces and territories gradually rolled out reopening plans. U. Transborder Passenger Revenues In the third quarter of 2021, on a five-fold capacity increase, U. Transborder passenger revenues of $291 million, increased by $263 million or more than 10 times from the third quarter of 2020. In the third quarter of 2021, Air Canada re-started several U. destinations. Atlantic Passenger Revenues In the third quarter of 2021, on a capacity increase of 58%, Atlantic passenger revenues of $384 million increased by $273 million or more than triple from the third quarter of 2020. The year-over-year growth in passenger revenues was primarily driven by an increase in traffic of 270%, which resulted in a passenger load factor increase of 40 percentage points, was partially offset by weaker yield. In the third quarter of 2021, Air Canada restarted flights to certain European destinations that had been suspended, and close to the end of the quarter, resumed its service to India. In addition, Air Canada continued to operate its flights to Doha and Cairo, which were launched in the fourth quarter of 2020 and the second quarter of 2021, respectively. Pacific Passenger Revenues In the third quarter of 2021, on a capacity increase of 63%, Pacific passenger revenues of $112 million, increased by $82 million or more than triple from the third quarter of 2020. The variance was driven by a three-fold increase in traffic from the same period of 2020, mainly on China and Hong Kong. Other Passenger Revenues In the third quarter of 2021, on a capacity increase of 148%, Other passenger revenues of $78 million increased by $56 million (or about 2 times) year-over-year. The impact of the COVID-19 pandemic on passenger revenues started being felt in March 2020. As such, a further discussion of passenger revenues and of factors influencing year-over-year changes by geographic region would not be meaningful and is therefore not provided. While Air Canada saw significant progress on revenues and advance ticket sales in the third quarter of 2021, including from point of origin U. and international, the remaining travel restrictions imposed by various countries, including the Government of Canada, continue to have an impact on demand for certain customer segments. Most notably, in Canada, from families travelling with children under the age of 12 who are not able to be administered COVID-19 vaccines. In addition, the 72-hour prior to departure negative PCR COVID-19 test requirement from the Canadian government continues to adversely impact demand for international travel. Cargo Revenues Cargo revenues of $366 million in the third quarter of 2021 increased by $150 million or 69% from the third quarter of 2020. In the first nine months of 2021, Air Canada Cargo surpassed the billion-dollar mark and achieved record cargo revenues of $1,005 million, an increase of $371 million or 58% from the same period in 2020. In the third quarter of 2021, traffic and yield increased by 59% and 6%, respectively, compared to the third quarter of 2020. A total of 2,101 cargo-only flights were operated in the third quarter of 2021 and represented revenues of $183 million or 50% of cargo revenues in the quarter. In the first nine months of

Results of Operations and Financial Condition Aircraft Fuel In the third quarter of 2021, fuel expense of $472 million increased $297 million from the third quarter in 2020. The increase reflected the higher volume of fuel litres consumed due to increased flying year-over- year which accounted for an increase of $153 million. In addition, the impact of a 39%-increase in fuel cost per litre resulted in an increase of $149 million when compared to the third quarter of 2020, net of a favourable $31 million foreign exchange variance due to the strengthening of the Canadian dollar year- over-year. The variance was partially offset by lower handling costs year-over-year. In the first nine months of 2021, fuel expense of $911 million decreased $224 million or 20% compared to the first nine months of 2020 due to a lower volume of flying compared to the first nine months of 2020 as the impact of the COVID-19 pandemic began to be felt in March 2020. The decline was partially offset by an 18% increase in fuel cost per litre, partially offset by a favourable foreign exchange variance due to the strengthening of the Canadian dollar year-over-year. Wages, Salaries and Benefits In the third quarter of 2021, wages, salaries, and benefits of $592 million increased $117 million or 25% from the third quarter of 2020. Compared to the third quarter of 2020, wages and salaries of $439 million increased $104 million or 31% primarily on higher block hours and a 24% increase in FTE employees as Air Canada recalled employees to support the growth of its operations during the third quarter of 2021. In the third quarter of 2021, benefits expense of $153 million increased $13 million or 9% driven primarily by the increase in employees. In the first nine months of 2021, wages, salaries, and benefits of $1,617 million decreased $118 million or 7% from the first nine months of 2020. Wages and salaries of $1,147 million and benefits of $470 million declined $63 million or 5% and $55 million or 10%, respectively, compared to the first nine months of 2020. The decline in both line items was primarily driven by the decline in the number of employees compared to the first nine months of 2020 as a result of the impact of the COVID-19 pandemic. Regional Airlines Expense In the third quarter of 2021, regional airline expense (excluding fuel) of $312 million increased $114 million or 58% from the third quarter of 2020. The increase was primarily driven by higher expenses as a result of the higher volume of flying compared to the same period last year. A net operating expense reduction of $26 million recorded in the third quarter of 2020 (adjusting for end-of-lease costs for aircraft that were returned in the fourth quarter of 2020), discounts made available to Air Canada in the third quarter of 2020 as a result of the COVID-19 pandemic, and lower Canada Emergency Wage Subsidy (“CEWS”) received during the quarter also contributed to the variation. The increase was partially offset by savings resulting from the consolidation of regional flying with Jazz. In the first nine months of 2021, regional airline expense (excluding fuel) of $700 million decreased $ million or 17% from the first nine months of 2020, as a result of the lower volume of flying compared to the first nine months of 2020 due to the impact of the COVID-19 pandemic which began to be felt in March 2020. The decline was partially offset by a net operating expense reduction of $26 million recorded in the third quarter of 2020 as an adjustment for end-of-lease costs for aircraft that were returned in the fourth quarter of 2020. Depreciation and Amortization Depreciation and amortization expense of $400 million in the third quarter of 2021 and of $1,217 million in the first nine months of 2021, declined $23 million or 5%, and $197 million or 14%, respectively, from the same periods in 2020. The declines reflected the retirement of certain older aircraft from the fleet, partially offset by the addition of new Airbus A220-300 aircraft to the fleet, and of spare engines.

Results of Operations and Financial Condition Aircraft Maintenance In the third quarter of 2021, aircraft maintenance expense of $153 million increased $108 million from the third quarter of 2020. The increase was mainly due to maintenance provision reductions of $72 million recorded in the third quarter of 2020 reflecting updated end-of-lease cost estimates. The remaining increase is mainly due to the higher volume of flying year-over-year. In the first nine months of 2021, aircraft maintenance expense of $430 million decreased $66 million or 13% from the first nine months of 2020. The decline is mainly due to the lower volume of maintenance activities as a consequence of reduced flying compared to the first nine months of 2020 as a result of the impact of the COVID-19 pandemic, which began to be felt in March 2020. Special Items In the third quarter of 2021, Air Canada recorded special items amounting to a net operating expense reduction of $103 million. The table below provides a breakdown of these special items. Third Quarter First Nine Months (Canadian dollars in millions) 2021 2020 2021 Impairments (impairment reversal) $ (12) $ (3) $ 14 $ 327 Canada Emergency Wage Subsidy, net (103) (189) (424) (391) Workforce reduction provisions 4 - 163 112 Benefit plan amendments 8 - 76 - Other - - 14 (4) Special Items $ (103) $ (192) $ (157) $ 44 Impairments In response to capacity reductions related to the impact of the COVID-19 pandemic, Air Canada accelerated the retirement of certain older aircraft from its fleet. As a result, a non-cash impairment charge of $ million was recorded in 2020 ($295 million in the nine months ended September 30, 2020), reflecting the write-down of right-of-use assets for leased aircraft and the reduction of carrying values of owned aircraft to expected disposal proceeds. In addition, Air Canada recorded an impairment charge of $32 million in the nine months ended September 30, 2020 related to previously capitalized costs incurred for the development of technology based intangible assets which are now cancelled. In the third quarter of 2021, an impairment reversal of $12 million was recorded due to expected costs to meet lease return conditions being lower than originally estimated. In the nine months ended September 30, 2021, an additional impairment charge of $14 million, net of impairment reversals, was recorded as a result of reductions to the estimates of the expected disposal proceeds on owned aircraft, as partially offset by lower-than-expected costs to meet contractual return conditions on lease returns. Further changes to these estimates may result in additional adjustments to the impairment charge in future periods. Canada Emergency Wage Subsidy In 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) in order to help employers retain and/or return Canadian-based employees to payrolls in response to challenges posed by the COVID-19 pandemic. Air Canada has recorded a total gross subsidy under the CEWS program of $103 million in the third quarter of 2021 ($429 million for the nine months ended September 30, 2021; $197 million and $492 million for

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