Presentation to
Canadian Club of Montreal
Montreal, Quebec


Robert Milton
Chairman, President & CEO,
ACE AVIATION HOLDINGS INC

CHANGE IS IN THE AIR
How ACE Aviation is working to meet the
expectations of consumers and investors in 2005, changing the way
Canadians travel and building a better airline experience for its
stakeholders.

April 18, 2005

Bonjour mesdames et messieurs. Good afternoon ladies and gentlemen.

Thank you for that kind introduction Russell and I hope you don't mind being upstaged by Céline -- but then there isn't anyone she doesn't upstage. From my standpoint there is no better known and successful Canadian or Canadian symbol around the world than Céline. And we certainly do benefit from the buzz she generates. I was in New York last week and almost everyone I encountered commented on how much they loved the Air Canada ads on prime time television there.

I love their reaction, as these are, in fact, not our ads, but ads promoting tourism to Canada which feature Céline singing our song and a beautiful shot of one of our aircraft.

C'est toujours un plaisir pour moi de m'adresser au Cercle Canadien de Montréal, non seulement pour les nombreux amis que je vois dans la salle mais aussi pour le sentiment que je ressens quand je m'adresse au gens de ma propre ville.

Montrealers have always been a source of strength for Air Canada.

Through thick and thin - through the challenges that have befallen the worldwide airline industry, Air Canada has always been able to count on the people of this city for support and encouragement and I thank you for that. Because, as you all know, things have not been all that easy in the airline industry.

At this time last year there were more than a few people who thought that Air Canada was down for the count.

With the ongoing intense coverage of the massive challenges faced during our restructuring - after having battled our way through 9/11 and SARS, there were more than a few armchair quarterbacks predicting our demise. There were more than a few who said we would never make it, or if we did, that we couldn't do it without a massive government bailout.

Well, its 12 months later, and it's clear that those stories of our impending demise were greatly exaggerated.

More than that, Air Canada has succeeded against all odds: without government bailouts, without disrupting service to customers and without selling out the future of this country's airline industry.

We successfully completed our restructuring last September and we have emerged as an airline that is rewriting the rules about how old line carriers must sell their product, serve their customers and fill their aircraft seats profitably in today's airline industry.

And I believe that with ACE Aviation we have a corporate structure that will allow us to sustain profitability in the new environment. ACE is the parent holding company of Air Canada and other subsidiaries including Aeroplan, Jazz Air and Air Canada Technical Services. The formation of ACE was an important part of our response to the post 9/11 airline industry landscape. And the market likes what it's seeing.

The share price of ACE has risen from $20 to $36 in the past 6 months making it North America's second most valuable airline in terms of market capitalization -- behind only Southwest.

ACE is now worth more than the world's largest airline, American, and the second largest, United, and Delta, and Northwest and US Airways…combined! --- The ACE cash balance today of $2 billion represents $20 per share of that $36 share price. And some analysts are saying Aeroplan is worth more than $2 billion, or $20 a share.

Plus some say that Air Canada Technical Services may be worth a billion dollars, and Jazz, our regional carrier, the second largest airline in the country, another billion. WHY, that would add up to $60 a share, and we still have other great businesses, like Air Canada Vacations. But wait a minute, I know I'm forgetting another one of our businesses in this picture, I know I haven't factored it in, it's, it's, oh yes - Air Canada!

It was a long time coming and it wasn't always fun, but it feels great to be back. To give you an idea of Air Canada's momentum, let me just focus on what happened last month and in the first two weeks of April. It's been a standout period for ACE and Air Canada on many fronts.

We've had good financial results, great operational performance, more and more satisfied customers, and happy investors.

Early in March, we announced very encouraging financial results for the fourth quarter of last year - a net income of $15 million against a backdrop of massive losses throughout the North American airline industry.

We reported a better operating margin than any of our major North American competitors and achieved solid year-over-year traffic growth in the Canadian market despite the significant growth in capacity deployed by our competitors.

That's a solid indication that our customers are responding positively to our new way of doing business and that our cost restructuring has paid off in spades. Despite record fuel prices, we are right on track and exceeded our forecasts for 2004, and we're on track in 2005 as well.

While crude oil prices are at all time highs, we remain committed to achieving our earnings targets for 2005, as we forecast that greater revenues and additional cost savings will offset hundreds of millions of dollars in higher fuel expenses.

Let me give you a few short examples of how the new Air Canada is taking shape.

Last month, Air Canada Technical Services (ACTS) signed an agreement with Delta Air Lines worth about $300 million US for the maintenance of 200 Boeing 757 and 767 aircraft. It's one of the largest outsourcing contracts in the aircraft maintenance industry's history and an incredible opportunity for ACTS.

Here again our cost competitiveness as a result of the restructuring, was a factor although we won that contract because of our quality of work and approach to safety and not because we were the least expensive option.

Two weeks ago, Air Canada reported a full year of record load factors - that means the percentage of available Air Canada seats filled by customers has never been higher. It's proof that more and more customers are coming back to Air Canada and they like what they see.

But perhaps the most tangible proof of the distance we've come in the past year was the unqualified success of our financial offerings. Earlier this month we raised $792 million in new capital in the form of equity and a convertible note offering.

Due to strong demand, we raised almost $200 million more than we originally sought.

That new capital coupled with the equity raised following our restructuring means that ACE has raised over $1.9 billion over the span of just a little over six months - a figure which is unrivalled in today's airline industry, and we believe, over any similar period, by any airline anywhere…ever. With the new equity raised since last October, ACE now has one of the strongest balance sheets in the industry and our only debt is essentially aircraft related.

Our new way of doing business also means good news for consumers, like you, who are now increasingly looking for value and low fares. And the new Air Canada has rapidly gained recognition from consumers as the best place to shop for air fares.

I'm sure you all remember without any nostalgia or fondness, the old days of shopping for an air fare. The advance purchase restrictions, Saturday night stay-over restrictions and return purchase restrictions.

Well, Air Canada has stopped telling you when to buy your tickets, how long to stay, when to come back or even where to spend your Saturday night.

We've simplified fares, eliminated old-style ticketing restrictions and introduced one-way options for maximum travel flexibility. We offer simple, easy to understand ticket choices - just five - from the cheap and cheerful Tango to the top-of-the-line Executive Class.

Along the way, we have turned the painful process of shopping for an airline ticket on its head with our online store called aircanada.com.

Low fares are here to stay.

We want consumers to keep on shopping and buying with us and we are committed to always being competitive with low cost carriers. Our intent is that we will always match fares in the marketplace so you will always be able to count on Air Canada to offer low fares.

The new pricing model and lower prices mean that we must have an even more disciplined approach to managing the number of seats on every route. Too many seats and we lose money. Too few seats and we lose customers.

Finding that fine line between supply and demand is critical so we must have the right aircraft to do the job and execute our new business plan.

In the airline business today, one size no longer fits all. Personally, I love Boeing 747s. They're fabulous aircraft, but they don't suit the needs of our customers or the consumers we want to serve in new markets.

Starting next month, Air Canada Jazz begins taking delivery of our new 75-seat Bombardier 705s.

And in the summer, the 73-seat Embraer 175s join the Air Canada fleet followed by the 93 seat Embraer 190s in November. These new planes are the next generation of small jet aircraft and I am convinced that they will be a 'game changer' in the North American marketplace.

They will not only offer airlines superior economics but they will offer customers the enhanced space and comfort levels previously only available on large jets.

We'll use these aircraft to more profitably operate flights on routes where we can increase frequencies in business markets and also by-pass hubs and offer non-stop service at competitive fare levels on routes where there is insufficient traffic to profitably operate larger jet aircraft.

That's the beauty of these new jets - their lower operating costs will allow us to match fares on thinner routes - something we could not previously do profitably.

Here in Montreal we'll first introduce the new Embraer jets on key transborder routes and we'll also look at starting non-stop service bypassing the Toronto hub to cities like Denver, Palm Beach and Regina.

The new regional jets will feature the state-of-the art in-flight entertainment system we will be introducing fleet-wide. With the new system, Air Canada will be the first airline in North America to offer fully interactive, personalized entertainment choices to all customers on television screens at each seat on all of its aircraft.

We also intend to lead North American carriers with an imminent aircraft order that will ensure the right complement of efficient wide body aircraft -like the A340- 500, the world's longest range airliner which is already in our fleet. This effectively brings Asia hours closer to Eastern Canadians and customer response has been enthusiastic.

Starting in June we'll offer non-stop service from Toronto to Beijing and Seoul in addition to existing non-stop service to Hong-Kong, Delhi and Tokyo.

We're excited about the Asian market's potential for Air Canada, especially in light of the recently achieved Canada-China bilateral agreement. This follows an earlier announcement that Canada will be granted Approved Destination Status by China which is expected to lead to significant growth in Chinese visitors to Canada. We intend to take full advantage of this newly increased access for both passenger and cargo services to what is one of the world's largest and fastest growing economies.

Many more opportunities exist for profitable growth in the international market and we're tightly aligning aircraft availability to markets to ensure maximum profitability and responsiveness to customer demand. We're now in the final stages of making a decision on our wide-body aircraft order to meet our replacement and growth needs.

But as Airbus and Boeing are both likely to be listening I'll say no more on the subject today except that the outcome will be exciting and welcome news for customers and employees alike.

Of course, all this activity at Air Canada is not happening in a vacuum. On the contrary, there have been great changes in the industry environment over the past 12 months. The government accountability and leadership that was so sorely missing for Canada's airline industry just a couple of years ago has been replaced by a dynamic new Minister of Transport, Jean Lapierre, who is rolling up his sleeves and tackling the malaise of this industry head on.

Again, what a difference a year makes. The new minister realizes that the challenges for the airline industry haven't gone away.

The price of oil keeps rising, and more and more North American carriers are struggling to stay flying in the new low-fare world.

That means we have to ensure that the environment in which airlines operate in provides an incentive to grow -- not a burden to bear. This is a challenge which extends to airports, airlines, air traffic control and government.

Each has a stake in the success of Canada's airline industry, and the ability of Canadians to move freely throughout the country at a reasonable cost. There has to be clarity and fairness throughout the system: in the rents which airports are paying to the federal government; in the way airports are managed; and, in the levels of fees and taxes levied on airlines.

All these elements are interconnected and these various entities must no longer be allowed to treat airlines and their customers as cash cows.

Unfortunately, Canada has become a world leader, not in creating an environment where airlines can flourish but, in charging some of the world's highest airport fees, security fees and other fees and charges. The damage inflicted by the lack of government leadership in the airline sector a couple of years ago will be felt for many years to come. Other than fuel, this category of costs is the only Air Canada item which keeps going up and up.

It's the uncontrollable aspect of our cost structure. - EACH YEAR, for about the last five years, fees have gone up over $100 million a year - every year.

In the fourth quarter of 2004 alone, Air Canada's airport and navigation fees rose 30 million dollars or 18 per cent.

To make matters worse, there is an abysmal lack of governance over air traffic control and airports. Again, accountability and leadership must be brought into this situation. Even though Canada's airports are governed by local, autonomous, non-profit authorities, Ottawa continues to collect rent from airports - $268 million this year going up to almost $500-million by 2010. AND we just happen to be the unlucky tenant caught in the middle. Every year, the airports put the squeeze on us - and you -- for more money to cover the rent.

Here in Montreal, we are fortunate to have a great example of how airports can work with airlines to create a better experience for customers and an environment for industry growth.

Jim Cherry and the team at Aéroports de Montréal have done a good job, not just with the expansion project at Montreal-Trudeau - WHICH, he has a habit of reminding us, is on budget and on time. But also in the way the airport authority works with airlines to design cost-effective facilities which meet the needs of customers, airlines and the airport authority.

ADM's rent paid to Transport Canada increased by over 300% in 2004 and so I know Jim also agrees that the current airport rent formula is in urgent need of an overhaul.

Minister Lapierre is taking a long, hard look at the problems of the industry from all angles. He has recently talked about reviewing the rents at airports in connection with governance changes at the airports - something that would see airlines finally getting a say in how airports are run. That's a step in the right direction and we support it 100%.

But the cost of using Canada's airports is just half of the equation.

The government must also pay attention to the damage being caused by inefficient immigration, customs and security processes which are hampering our ability to make Montreal, Toronto and Vancouver truly attractive and competitive hubs through which international customers can connect. The fact is: Canada's location in the world makes it a natural transit point for the world to the Americas and for the Americas to the world. We simply need the government leadership to make it happen.

If Canada is to be a world leader in aviation, the costs and infrastructure must be in place to support that objective.

These are indeed exciting times for ACE Aviation, Air Canada and, also for Montreal. As a cornerstone of the Montreal aviation industry, ACE will continue to play a leading role in the growth of air service in this city and be a key player in the transformation of the airline industry worldwide.

ACE Aviation may be a new kid in town, but we have a lot of old friends and we have a strong heritage in this city through Air Canada. We are proud at ACE and at Air Canada to be a Montreal-based company and we hope to be the source of more good news for Montreal in the months ahead.

Je vous remercie. Thank you.