Canadian Helicopters reports record results in 2006



    
    /NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN
    THE U.S./

    Highlights

    - Revenue +9.8% year over year
    - Adjusted EBITDA +27.7% over last year
    - Adjusted EBITDA margins rise to 17.3% from 14.9%
    - Flight hours + 4.6% year over year
    - Continued monthly cash distributions with 73% annual payout ratio
    

    MONTREAL, March 15 /CNW Telbec/ - Canadian Helicopters Income Fund (TSX:
CHL.UN), the largest helicopter transportation services company operating in
Canada, today announced financial and operating results for the fourth quarter
and year ending December 31, 2006.
    "In its first full year as a public fund, Canadian Helicopters set a
record pace while consistently providing cash distributions to unitholders at
a conservative 73 per cent payout ratio," said Jean-Pierre Blais, President,
Canadian Helicopters. "We have achieved this by our consistent pursuit of
excellence in our operations and services."
    The Fund generated $18.9 million in distributable cash or $1.43 per unit
for the year ended December 31, 2006 and declared distributions of 
$13.9 million or $1.05 per unit for the 12-month period ended December 31,
2006. The distributable cash generated in 2006 exceeded actual distributions
by $5.0 million. As a result, the Fund's 73% payout ratio, defined as
distributions declared as a percentage of distributable cash generated, was
lower than the 100% ratio indicated in the Fund's prospectus at its IPO. The
excess distributable cash provides the Fund with additional flexibility in
financing expansion initiatives and maintaining the stability of future
distributions.

    2006 Year-end results((*))

    Canadian Helicopters revenue for the year ended December 31, 2006 rose
9.8 per cent or $12.1 million to $135.7 million from $123.6 million for the
comparable (unaudited) period in 2005. The increase in revenue was achieved
even though there were reductions in revenues resulting from the scheduled
termination of paramedic services in Ontario. Flying hours for the year ended
December 31, 2006 increased 4.6 per cent or 3,332 hours, to 76,470 hours from
73,138 hours in the comparable period last year. Adjusted EBITDA increased
27.7 per cent or $5.1 million to $23.5 million from $18.4 million. Adjusted
EBITDA margins improved to 17.3% in 2006 from 14.9% last year.
    "The 9.8 per cent increase in revenue surpassed the 4.6 per cent advance
in flying hours, reflecting both a strong business environment and solid
operational practices," Blais commented.
    This revenue growth for the 12-month period is explained primarily by a
$6.9 million increase in revenue from Visual Flight Rules (VFR), arising from
higher rates and utilization of light and medium aircraft in the resource
sectors, and an increase of $6.5 million in ancillary revenue including the
Canadian Forces Contracted Flying Training and Support (CFTS) sub-contract.
Revenues from Instrument Flight Rules (IFR) activities increased in operations
other than emergency medical services (EMS), largely offsetting the loss of
EMS revenue related to the scheduled termination of paramedics.
    Net earnings before controlling interest rose to $18.7 million from 
$11.9 million, an increase of $6.8 million.

    2006 Q4 results

    "Canadian Helicopters takes advantage of the Q4 and Q1 off-season periods
to conduct airframe repair and maintenance on its aircraft and provide
training to its crews as a strategy to minimize downtime during the peak
season," added Blais. "This shift in activity, necessitated by seasonality,
significantly reduces distributable cash generated during the quarters ending
December 31 and March 31. As a consequence, results for any single quarter may
not be indicative of those expected for the full year."
    For the quarter ended December 31, 2006 Canadian Helicopters flying
activities decreased 10.7 per cent or 1,430 hours to 11,902 hours from 13,332
in the comparable period in 2005. As a result, revenue decreased 10 per cent
or $2.7 million to $24.2 million from $26.9 million for the same period last
year. This variation is explained primarily by decreases of $1.2 million in
VFR revenues, $1.4 million from IFR and $0.1 million in ancillary revenue.
Decreased IFR revenue mainly resulted from the scheduled termination of
paramedics and associated revenues in 2006, while decreased VFR revenue is due
primarily to a single customer's reduced activity in Eastern Canada.
    Adjusted EBITDA loss for the three-month period ended December 31, 2006
was $1.2 million or $0.4 million higher than the $0.8 million EBITDA loss for
the same period in 2005.
    While Q4 year-over-year costs fell by $2.2 million, many costs are fixed
and did not fall as rapidly as revenue declined. Costs declined by
$1.5 million primarily due to a reduction in crew costs arising from the
scheduled termination of paramedics as well as a $0.9 million reduction in
selling, general and administrative expenses primarily due to lower insurance
costs.
    While the Fund generates the majority of its annual distributable cash in
the second and third quarters, unitholder distributions are maintained at a
constant amount throughout the year. For the quarter ended December 31, 2006,
the Fund distributed $0.2625 per unit compared with negative $0.2676 per unit
of distributable cash. Fourth quarter distributions were funded by cash
generated in prior quarters of 2006. As previously noted, given the seasonal
nature of the Fund's operations, it is important to view distributable cash on
an annual basis.
    As fuel costs are passed through to customers, increases in fuel prices
do not materially affect Canadian Helicopters' financial performance. As a net
buyer of U.S. dollars, Canadian Helicopters also insulates itself against
currency fluctuations primarily on aircraft parts and insurance expenses
through hedging.
    Blais stated, "2006 was clearly a strong year, generating strong
operating results and a healthy cash position. These factors, combined with
low debt levels and significant credit facilities, position us well for 2007."

    Audit Committee Members

    Following the resignation of Mr. Bédard from the Board of Trustees and
the Audit Committee in December 2006, the Board announces that it has
appointed Randall J. Findlay as interim member of the Audit Committee.

    ((*))Note to editors:

    To provide investors with a more meaningful assessment of its
performance, the Fund has included in its Management's Discussion and Analysis
of Financial Condition and Results of Operations, results for the three-month
and full-year periods ended December 31, 2005. Financial information for the
period January 1, 2005 to September 8, 2005 is derived from the unaudited
financial statements of Canadian Helicopters and is provided for reference
only.

    Conference call:

    Management will host a conference call at 11:00 a.m. Eastern Time,
    March 16, 2007 to discuss the results. Please call:

    Local Number: 514-807-8791 (Montreal)
    Toll Free Number: 800-732-0232

    Please state that you are participating in the Canadian Helicopter Income
Fund call. Should you be unable to participate, an instant replay will be
available until March 23, 2007 by dialing:

    Local Number: 416-640-1917 (Toronto)
    Toll Free Number: 877-289-8525
    Access code: 21222719 followed by the (pound) # sign.

    Forward-Looking Statements

    This press release contains forward-looking statements relating to the
future performance of the Fund. Forward-looking statements, specifically those
concerning future performance, are subject to certain risks and uncertainties,
and actual results may differ materially. Consequently, readers should not
place any undue reliance on such forward-looking statements. In addition,
these forward-looking statements relate to the date on which they were made.
The Fund disclaims any intention or obligation to update or revise any
forward- looking statement, whether as a result of new information, future
events or otherwise unless being required by applicable laws.

    Definition of EBITDA, Adjusted EBITDA, Distributable Cash and Non-GAAP
    Measures

    References to "EBITDA" are to Earnings (loss) before interest, income
taxes, depreciation and amortization, gain on disposal of property, plant and
equipment, change in operating lease credit and non-controlling interest.
References to "Adjusted EBITDA" are to EBITDA adjusted for the effects of a
non-recurring item, which represents a non-recurring employee compensation
costs associated with the purchase for cancellation of employee stock options
outstanding under the former corporate structure which was completed in
connection with the initial public offering.
    Management views distributable cash as an operating performance measure,
as it is a measure generally used by Canadian income funds as an indicator of
financial performance. Distributable cash is defined as cash flows related to
operating activities plus the net change in non-cash working capital balances
and less the net maintenance capital expenditures. The long term incentive
plan ("LTIP") funding eligibility for a year in connection with the Fund
exceeding its annual distributable cash target is deducted in determining the
annual distributable cash of that year while the LTIP compensation expense
will be added back. Distributable cash is important as it summarizes the funds
available for distribution to unitholders. As the Fund will distribute a
significant portion of its cash on an on-going basis and since EBITDA and
Adjusted EBITDA are metrics used by many investors to compare issuers on the
basis of the ability to generate cash from operations, management believes
that, in addition to net earnings or loss, EBITDA and Adjusted EBITDA are
useful supplementary measures from which to make adjustments to determine
distributable cash.
    EBITDA, Adjusted EBITDA and distributable cash are not earnings measures
recognized under GAAP and do not have standardized meanings prescribed by
GAAP. Therefore, EBITDA, Adjusted EBITDA and distributable cash may not be
comparable with similar measures presented by other entities. Investors are
cautioned that EBITDA, Adjusted EBITDA and distributable cash should not be
construed as an alternative to net earnings (loss) determined in accordance
with GAAP as indicators of the Fund's performance, or to cash flows from
operating, investing and financing activities as measures of liquidity and
cash flows.

    Profile

    Through Canadian Helicopters Limited, Canadian Helicopters Income Fund is
the largest helicopter transportation services company operating in Canada and
one of the largest in the world based on the size of its fleet. From over 40
bases across Canada, and more than 120 aircraft operating across Canada,
Canadian Helicopters provides helicopter services to a broad range of sectors,
including emergency medical services, infrastructure maintenance, utilities,
oil and gas, forestry, mining and construction. In addition to helicopter
transportation services, Canadian Helicopters operates three flight schools
and provides third party repair and maintenance services. With almost 60 years
of experience, Canadian Helicopters is an industry leader in establishing
safety standards and operating procedures.

    
    Attachments:

    - Q4 and Year-End Financial Statements
    - Management's Discussion and Analysis of Financial Condition and Results
      of Operations



    Consolidated Financial Statements

    Canadian Helicopters Income Fund
    December 31, 2006


                               AUDITORS' REPORT

    To the Unitholders of
    Canadian Helicopters Income Fund

    We have audited the consolidated balance sheets of Canadian Helicopters
Income Fund (the "Fund") as at December 31, 2006 and 2005 and the consolidated
statements of earnings and retained earnings (deficit) and cash flows for the
year ended December 31, 2006 and for the period from September 9, 2005 to
December 31, 2005. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
    We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
    In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Fund as at December 31,
2006 and 2005 and the results of its operations and its cash flows the year
ended December 31, 2006 and for the period from September 9, 2005 to December
31, 2005 in accordance with Canadian generally accepted accounting principles.

    Montréal, Canada                                Ernst & Yound LLP
    February 23, 2007                               Chartered Accountants


    Canadian Helicopters Income Fund

                         CONSOLIDATED BALANCE SHEETS

    As at December 31

                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    ASSETS (note 8)
    Current
    Cash and cash equivalents                        9,988,849     3,370,553
    Accounts receivable (note 4)                    12,277,351    11,501,581
    Inventory                                       14,946,409    13,483,826
    Prepaid expenses                                   909,423       878,998
    -------------------------------------------------------------------------
    Total current assets                            38,122,032    29,234,958
    -------------------------------------------------------------------------
    Property, plant and equipment (note 5)         123,762,406   124,033,136
    Deferred financing costs, net (note 6)              81,329       130,125
    Intangible assets (note 7)                      23,164,875    24,027,375
    Goodwill (note 2)                               23,500,000    23,500,000
    -------------------------------------------------------------------------
                                                   208,630,642   200,925,594
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities        19,583,541    17,050,619
    Distributions payable (note 12)                  1,162,000     1,162,000
    Deferred revenue                                 3,052,276       644,497
    -------------------------------------------------------------------------
    Total current liabilities                       23,797,817    18,857,116
    -------------------------------------------------------------------------
    Term credit facility (note 8)                   19,000,000    21,000,000
    Future income taxes liabilities (note 10)       32,145,530    32,746,092
    Non-controlling interest (note 11)              27,723,741    26,598,606
    -------------------------------------------------------------------------

    Unitholders' equity
    Fund units (note 11)                           104,012,290   104,012,290
    Retained earnings (deficit)                      1,951,264    (2,288,510)
    -------------------------------------------------------------------------
                                                   105,963,554   101,723,780
    -------------------------------------------------------------------------
                                                   208,630,642   200,925,594
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Commitments and contingencies (note 9)
    See accompanying notes

    On behalf of the Trustees:
                                     Jean Guertin          Larry M. Pollock
                                     ------------          ----------------
                                        Trustee                 Trustee


    Canadian Helicopters Income Fund

                     CONSOLIDATED STATEMENTS OF EARNINGS
                       AND RETAINED EARNINGS (DEFICIT)

                                                                 Period from
                                                                 September 9
                                                    Year ended            to
                                                   December 31,  December 31,
                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    Revenue                                        135,666,940    36,475,904
    Operating expenses                             112,317,024    33,621,762
    -------------------------------------------------------------------------
    Earnings before undernoted items                23,349,916     2,854,142
    -------------------------------------------------------------------------
    Amortization of property, plant
     and equipment                                   3,173,513       940,862
    Amortization of intangible assets                  862,500       272,625
    Gain on disposal of property, plant
     and equipment                                    (558,358)            -
    Net financing charges (note 8)                   1,279,561       448,193
    Foreign exchange gain                             (115,647)      (36,333)
    -------------------------------------------------------------------------
                                                     4,641,569     1,625,347
    -------------------------------------------------------------------------
    Earnings before income taxes and
     non-controlling interest                       18,708,347     1,228,795
    -------------------------------------------------------------------------
    Income taxes (recovery) (note 10)
      Current                                                -        89,103
      Future                                          (600,562)     (324,224)
    -------------------------------------------------------------------------
                                                      (600,562)     (235,121)
    -------------------------------------------------------------------------
    Earnings before non-controlling interest        19,308,909     1,463,916
    Non-controlling interest (note 11)              (4,014,411)     (312,827)
    -------------------------------------------------------------------------
    Net earnings for the period                     15,294,498     1,151,089

    Deficit, beginning of the period                (2,288,510)            -
    Distribution declared                          (11,054,724)   (3,439,599)
    -------------------------------------------------------------------------
    Retained earnings (deficit), end of the period   1,951,264    (2,288,510)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted net earnings per Unit               1.45          0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of Units
     outstanding (note 11)                          10,528,311    10,528,311
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes


    Canadian Helicopters Income Fund

                     CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                 Period from
                                                                 September 9
                                                    Year ended            to
                                                   December 31,  December 31,
                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net earnings for the period                     15,294,498     1,151,089
    Items not affecting cash
      Non-controlling interest                       4,014,411       312,827
      Amortization of property, plant and
       equipment                                     3,173,513       940,862
      Amortization of intangible assets                862,500       272,625
      Gain on disposal of property, plant and
       equipment                                      (558,358)            -
      Amortization of deferred financing costs          48,796        15,966
      Future income taxes recovery                    (600,562)     (324,224)
    Net change in non-cash working
     capital balances                                2,671,923    15,268,878
    Net changes in helicopter rotables                 162,174       417,341
    -------------------------------------------------------------------------
    Cash flows related to operating activities      25,068,895    18,055,364
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Acquisition of Canadian Helicopters Limited,
     net of cash acquired (note 2)                           -   (63,771,051)
    Additions to property, plant and equipment      (4,371,972)  (18,308,428)
    Proceeds from disposal of property, plant
     and equipment                                   1,865,373             -
    -------------------------------------------------------------------------
    Cash flows related to investing activities      (2,506,599)  (82,079,479)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Decrease of term credit facility                (2,000,000)   (9,000,000)
    Distributions paid on Fund Units               (11,054,724)   (2,518,372)
    Distributions paid on Class B LP Units          (2,889,276)     (658,204)
    Issuance of trust units on initial
     public offering (note 2)                                -   100,779,610
    Expenses related to initial issuance of
     trust units (note 2)                                    -    (2,451,000)
    Financing costs incurred                                 -      (146,091)
    Term credit facility initial proceeds                    -    30,000,000
    Long-term debt repayments                                -   (28,940,875)
    Repayment of promissory note to
     senior managers                                         -    (1,879,564)
    Repayment of unsecured subordinated debenture            -   (18,305,371)
    Repayment of loans to shareholders of
     Canadian Helicopters Limited                            -       514,535
    -------------------------------------------------------------------------
    Cash flows related to financing activities     (15,944,000)   67,394,668
    -------------------------------------------------------------------------

    Net increase in cash and cash equivalents        6,618,296     3,370,553
    Cash and cash equivalents, beginning of period   3,370,553             -
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period         9,988,849     3,370,553
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information
    Interest paid                                    1,230,765       432,227
    Income taxes paid                                        -        89,103
    -------------------------------------------------------------------------
    See accompanying notes


    Canadian Helicopters Income Fund

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    1. NATURE OF BUSINESS

    Canadian Helicopters Income Fund (the "Fund") is an unincorporated
open-ended trust established under the laws of the Province of Québec pursuant
to a declaration of Trust dated July 25, 2005, as may be amended, supplemented
or restated from time to time. The Fund was created to indirectly acquire and
hold 79.3% of the outstanding limited partnership units of Canadian
Helicopters Limited Partnership ("Canadian Helicopters LP"). Canadian
Helicopters LP was formed to acquire, directly and indirectly, and hold all of
the shares of Canadian Helicopters Limited ("Canadian Helicopters"). The Fund
remained inactive until it indirectly acquired all of the shares of Canadian
Helicopters on September 9, 2005 (note 2).
    The Fund activity consists of helicopter charter and related operations.
The Fund also provides helicopter repair and maintenance and flight training.
    The business of Canadian Helicopters follows a seasonal pattern with the
lowest revenue occurring from November to April. In addition, repair and
maintenance on flying assets are not incurred evenly during a year and the
timing of such expenses within a year may vary from one year to another. 
Therefore, the Fund's results for the comparative period from September 9,
2005 to December 31, 2005 are not necessarily indicative of the results that
may be expected for a full year.

    2. INITIAL PUBLIC OFFERING AND ACQUISITION

    On September 9, 2005, the Fund completed an initial public offering and
the sale of 10,077,961 trust units (the "Units") for $10.00 per Unit, for
total net proceeds of $98,328,610 after deducting $2,451,000, which represents
the Fund's share of the underwriters' total fees of $6,046,777 and the Fund's
share of other issuance expenses of $2,850,000.
    On September 9, 2005, in conjunction with the initial public offering, the
Fund acquired through a newly constituted wholly owned trust, 79.3% of the
limited partnership units of Canadian Helicopters Limited Partnership
("Canadian Helicopters LP") in exchange for cash consideration of
$100,779,610. Canadian Helicopters LP itself acquired all of the outstanding
shares of Canadian Helicopters for a consideration comprised of $69,399,881
cash, units of the Fund with a value of $4,503,500 and Class B limited
partnership units (the "Class B LP Units") exchangeable into units of the Fund
with a value of $27,516,890.
    The acquisition was accounted for by the purchase method with the results
of Canadian Helicopters' operations included in the Fund's earnings from the
date of acquisition. These consolidated financial statements reflect the
assets and liabilities of Canadian Helicopters at assigned fair values as
follows:

                                                                           $
    -------------------------------------------------------------------------

    Cash and cash equivalents                                      5,628,830
    Accounts receivable                                           27,637,017
    Inventory                                                     12,934,544
    Prepaid expenses                                                 813,171
    Property, plant and equipment                                107,082,911
    Intangible assets                                             24,300,000
    Goodwill                                                      23,500,000
    Accounts payable and accrued liabilities                     (17,078,734)
    Advance payments from customers                                 (867,831)
    Current portion of long-term debt                             (2,903,641)
    Long-term debt                                               (26,037,234)
    Promissory notes to senior managers                           (1,879,564)
    Unsecured subordinated debenture                             (18,305,371)
    Loans to shareholders                                            514,535
    Future income tax liabilities                                (33,918,362)
    -------------------------------------------------------------------------
                                                                 101,420,271
    Less non-controlling interest                                 27,516,890
    -------------------------------------------------------------------------
    Net assets acquired                                           73,903,381
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consideration
    Cash                                                          69,399,881
    Units                                                          4,503,500
    -------------------------------------------------------------------------

    3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    These consolidated financial statements have been prepared by management
in accordance with Canadian generally accepted accounting principles which
require management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. By their nature,
these estimates are subject to measurement uncertainty. The effect on the
financial statements of changes in such estimates in future periods could be
material and would be accounted for in the period the change occurs.
    The financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the framework of
the accounting policies summarized below:

    Consolidation

    The consolidated financial statements include the accounts of the Fund and
its subsidiaries. All significant intercompany transactions and balances were
eliminated upon consolidation.

    Net earnings per Unit

    Net earnings per unit is calculated by dividing net earnings by the
weighted average number of units outstanding during the period. For the
purpose of the weighted average number of units outstanding, units are
determined to be outstanding from the date they are issued.

    Cash and cash equivalents

    Cash and cash equivalents include cash and highly liquid investments with
an initial term of three months or less and are stated at cost, which
approximates market value.

    Inventory

    Inventory, consisting primarily of aircraft parts, is valued at the lower
of cost, determined using the first-in, first-out method, and replacement
cost.

    Property, plant and equipment

    Property, plant and equipment are recorded at cost and amortized over
their estimated useful lives, taking into consideration their estimated
residual value, using the following methods and annual rates:

                                            Method                      Rate

    Buildings                               Declining balance             5%
    Flying assets                           Straight-line                 4%
    Ground equipment                        Straight-line                20%
    Furniture and fixtures                  Straight-line                20%
    Rolling stock                           Straight-line                20%
    Leasehold improvements - buildings      Straight-line        Lease terms

    Flying assets

    Flying assets are comprised of helicopter airframes, rotables and related
equipment. The recoverability of the book value of the flying assets is, in
part, dependent on the estimates used in determining the expected period of
future benefits over which to amortize flying assets. This takes into
consideration the Fund's policy regarding the overhaul and maintenance of the
flying assets which is to maintain them, on a group basis, at least at the
mid-time of their useful life. In addition, such recoverability is dependent
on market conditions including demand for certain types of aircraft and
changes in technology arising from the introduction of newer, more efficient
aircraft.

    Helicopter overhaul and maintenance costs

    The helicopter airframes and components are inspected, repaired and
overhauled at pre-specified intervals. Such overhaul and maintenance costs are
expensed as incurred under the direct expensing method and, as such, may vary
from one period and one year to another.

    Deferred financing costs

    Financing costs related to credit facilities are capitalized and amortized
over the three-year term of the credit facilities.

    Goodwill

    Goodwill represents the excess of the acquisition cost over the fair value
of net assets of business acquired. Goodwill is tested for impairment annually
or more often if events or changes in circumstances indicate that it might be
impaired. The impairment test consists of a comparison of the fair value of
the reporting unit to which goodwill is assigned with its carrying amount. Any
impairment loss in the carrying amount compared with the fair value is charged
to earnings in the year in which the impairment occurs. The Fund uses the
discounted cash flows method to determine the fair value of its reporting
unit.

    Intangible assets

    Intangible assets are assets acquired that lack physical substance and
that meet the specified criteria for recognition apart from goodwill.
Intangible assets acquired comprise mainly of trade name and customer
relationships. The customer relationships are amortized on a straight-line
basis over eight years, while the trade name has an indefinite life and,
therefore, is not amortized.
    The Fund reviews the carrying value of its indefinite life intangible
assets annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The customer relationships are
tested for recoverability whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. When the carrying value of
customer relationships is higher than its net recoverable value as determined
on an undiscounted cash flow basis, an impairment loss is recognized to the
extent that fair values, measured as the discounted cash flows over the life
of the assets, when quoted market prices are not readily available, are below
the asset carrying value.

    Environmental costs

    The Fund accrues environmental costs when it becomes probable that such
costs will have to be incurred in the future in order to conform to existing
or anticipated laws and regulations, and when it is possible to make a
reasonable estimate of these costs.

    Long-lived assets

    Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Impairment is assessed by comparing the carrying amount of an
asset with its expected future net undiscounted cash flows together with its
residual value. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the
assets exceeds their fair value.

    Revenue recognition

    Revenues from helicopter operations are recognized based on the terms of
customer contracts which generally provide for revenue on the basis of hours
flown at contract rates or fixed monthly charges or a combination of both.
    Revenues from long-term contracts where the Fund provides on site
maintenance and airworthiness support are recognized based on the percentage
of completion method. The Fund uses the cost-to-cost method to measure
progress towards completion on contracts. Estimated losses on contracts are
recognized when they become known. Amounts billed under contracts entered into
with clients for services not yet rendered are recognized as deferred revenue.

    Income taxes

    The Fund corporate subsidiaries are subject to corporate income taxes and
use the liability method of accounting for income taxes. Under the liability
method, future income tax assets and liabilities are determined based on
temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using tax rates substantially enacted at the
balance sheet date. The effect of changes in income tax rates on future income
tax assets and liabilities is recognized in income in the period that the
change becomes substantially enacted.
    Under the terms of the Income Tax Act (Canada), the Fund is not subject to
income taxes to the extent that its taxable income in a year is paid or
payable to a unitholder. Accordingly, no provision for current income taxes
for the Fund is made. In addition, the Fund is not subject to the
recommendations of CICA Section 3465, as the Fund is contractually committed
to distribute to its unitholders all or virtually all of its taxable income
and taxable capital gains that would otherwise be taxable in the Fund. The
Fund intends to continue to meet the requirements under the Income Tax Act
(Canada) applicable to such trusts, and there is no indication that the Fund
will fail to meet those requirements.
    On October 31, 2006, the Minister of Finance (Canada) announced proposed
changes to the taxation of publicly traded income trusts. The proposed
changes, if enacted, will result in the taxation, at the rate of 31.5%, of
distributions made by the Fund beginning in the year 2011. Even though there
is uncertainty as to the final precise legislation that could eventually be
enacted, the possible impact of the proposed legislation has been taken into
consideration in the year-end review for impairment of goodwill and the Fund
concluded that no goodwill impairment was required. However, the goodwill
impairment test involves significant estimates and assumptions that, by
nature, are subject to measurement uncertainty. The effect of changes in such
estimates and assumptions in future periods could result in a goodwill
impairment that could be significant.

    Pension costs

    The Fund has a defined contribution pension plan covering substantially
all of its permanent employees. Under the plan, employees must contribute a
percentage of their annual salaries and the employer contribution is based on
the employee contribution. The employer's contribution is expensed as
incurred.

    Long-term incentive plan

    The Fund has adopted a long-term incentive plan ("LTIP"). Bonuses, in the
form of Units of the Fund purchased on the Toronto Stock Exchange at
prevailing market rates, will be provided to eligible employees if the
distributable cash exceeds certain specified threshold amounts. The Units will
vest over a three-year period. The total LTIP cost is treated as an expense in
the consolidated statement of earnings in the period during which the Units
vest. Since the creation of the Fund no units were purchased by the Fund under
the LTIP.

    Foreign currency translation

    Transactions denominated in foreign currency are translated at the rate of
exchange in effect at the beginning of the month in which the transaction
occurred. Monetary assets and liabilities are translated at the consolidated
balance sheet date rate. Non-monetary items are translated at historical
exchange rates. All exchange gains and losses are included in earnings.

    Financial instruments

    The fair values of the Fund's cash and cash equivalents, restricted cash,
accounts receivable, accounts payable and distributions payable approximate
their carrying values due to their short-term maturity. The fair value of term
debt approximates its carrying value based on market rates available to the
Fund for financial instruments with similar risks, terms and maturities.
    The Fund uses derivative instruments, including forward contracts and
interest rate swaps, to hedge certain exposures. The Funds objective is to
offset gains and losses resulting from foreign currency or interest rate
exposures with losses and gains on the derivative contracts used to hedge
them. The Fund does not use derivative contracts for speculative purposes. To
qualify as a hedge, the hedge relationship is designated and formally
documented at inception detailing the particular risk management objective and
strategy for the hedge, which includes the item and risk that is being hedged,
as well as how effectives is being hedge. The derivative used must be highly
effective in accomplishing the objective of offsetting either changes in fair
value or cash flows for the risk being hedged. If a hedge relationship is
found to be ineffective, it no longer qualifies as a hedge and any excess gain
or losses attributable to such ineffectiveness, as well as subsequent changes
in fair value, are recognized in income.
    The Fund has designated its forward foreign exchange contracts as hedges
against the fluctuation in cash flows related to U.S. dollar expenses caused
by changes in the U.S. Canadian dollar exchange rate. The Fund has also
designated its interest rate swap on its variable interest long-term debt as
hedge against the fluctuation in interest expense due to change in the
interest rate. Accordingly, the fair value of these financial instruments and
any changes thereto has not been recorded in the consolidated financial
statements, except when hedge relationship is found ineffective. Gains and
losses on financial instruments that qualify as a hedge are recognized at the
time the hedged expenses are incurred.
    The fair value of these financial instruments is disclosed in note 13.
Such fair value estimates are not necessarily indicative of the amounts, the
Fund might pay or receive in actual market transactions. Potential transaction
costs have also not been considered in estimating fair value.

    4. ACCOUNTS RECEIVABLE

                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    Trade                                           11,711,911    10,779,085
    Others                                             565,440       722,496
    -------------------------------------------------------------------------
                                                    12,277,351    11,501,581
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    5. PROPERTY, PLANT AND EQUIPMENT

                                                   Accumulated      Net book
                                            Cost  amortization         value
                                               $             $             $
    -------------------------------------------------------------------------

    2006
    Land                                 103,311             -       103,311
    Buildings                          7,690,954       471,788     7,219,166
    Flying assets                    117,696,515     3,072,036   114,624,479
    Ground equipment                   1,313,459       209,818     1,103,641
    Furniture and fixtures               732,478       173,729       558,749
    Rolling stock                        180,879        33,421       147,458
    Leasehold improvements -
     buildings                            13,756         8,154         5,602
    -------------------------------------------------------------------------
                                     127,731,352     3,968,946   123,762,406
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    2005
    Land                                 103,311             -       103,311
    Buildings                          7,587,969       103,535     7,484,434
    Flying assets                    115,421,171       702,703   114,718,468
    Ground equipment                   1,072,738        83,923       988,815
    Furniture and fixtures               638,766        37,321       601,445
    Rolling stock                        136,287         8,292       127,995
    Leasehold improvements -
     buildings                            13,756         5,088         8,668
    -------------------------------------------------------------------------
                                     124,973,998       940,862   124,033,136
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    6. DEFERRED FINANCING COSTS

                                                   Accumulated      Net book
                                            Cost  amortization         value
                                               $             $             $
    -------------------------------------------------------------------------

    2006
    Deferred financing costs             146,091        64,762        81,329
    -------------------------------------------------------------------------

    2005
    Deferred financing costs             146,091        15,966       130,125
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7. INTANGIBLES ASSETS

                                                   Accumulated      Net book
                                            Cost  amortization         value
                                               $             $             $
    -------------------------------------------------------------------------

    2006
    Trade name                        17,400,000             -    17,400,000
    Customer relationships             6,900,000     1,135,125     5,764,875
    -------------------------------------------------------------------------
                                      24,300,000     1,135,125    23,164,875
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    2005
    Trade name                        17,400,000             -    17,400,000
    Customer relationships             6,900,000       272,625     6,627,375
    -------------------------------------------------------------------------
                                      24,300,000       272,625    24,027,375
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8. SECURED CREDIT FACILITIES

    The Fund has senior secured credit facilities consisting of a revolving
operating credit facility of up to $15 million and a revolving term credit
facility of up to $35 million. Both facilities bear interest at a floating
rate based on the Canadian dollar prime rate, U.S. base rate, LIBOR or
bankers' acceptance rates plus an applicable margin to those rates. As at
December 31, 2006, the interest on the term credit facility was 4.34% (2005 -
3.33%). The Fund entered into an interest swap agreement for its term debt to
pay a fixed rate ranging between 4.67% and 5.17% which was 4.67% as at
December 31, 2006 (see note 13).
    The revolving operating credit facility may be used for general corporate
purposes, including the payment of distributions required due to cash flow
fluctuations, has a 364 day term expiring in September 2007 and may be renewed
at the lender's discretion. The revolving term credit facility is a three year
term facility which matures in September 2008. Interest is paid monthly and
there are no scheduled repayments of principal required prior to maturity.

    Amounts drawn under the revolving operating and term credit facilities are
as follows:

                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    Operating credit facility                                -             -
    Term credit facility                            19,000,000    21,000,000
    -------------------------------------------------------------------------
                                                    19,000,000    21,000,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Under the terms of these facilities, the Fund is required, amongst other
conditions, to meet certain financial covenants. The Fund was in compliance
with these covenants as at December 31, 2006 and 2005.
    The credit facilities are collateralized by a hypothec and a security
interest covering all present and future assets of the Fund and its
subsidiaries.

    Net financing charges

                                                                 Period from
                                                                 September 9
                                                    Year ended            to
                                                   December 31,  December 31,
                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    Interest on long-term debt                       1,260,615       404,621
    Other interest, net                                (29,850)       27,606
    Amortization of deferred financing costs            48,796        15,966
    -------------------------------------------------------------------------
                                                     1,279,561       448,193
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9. COMMITMENTS AND CONTINGENCIES

    Lease commitments

    Under operating leases, the Fund leases aircraft, buildings and equipment.
The future minimum annual lease payments under operating leases by fiscal year
are as follows:

                                                                           $
    -------------------------------------------------------------------------

    2007                                                           2,122,269
    2008                                                           1,449,619
    2009                                                             927,020
    2010                                                             484,340
    2011                                                              70,200
    Thereafter                                                       286,876
    -------------------------------------------------------------------------
                                                                   5,340,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contingencies

    In the normal course of business, the Fund is involved in various claims
and legal proceedings. Although, the resolution of these various cases,
pending as at December 31, 2006, cannot be determined with certainty, the Fund
believes that their outcome would not likely have a material adverse effect on
its financial position and operating results, in light of the provisions or
insurance covering a number of these items.

    10. INCOME TAXES

    Future tax assets consist of the following:

    (a) Future income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
    The tax effects of temporary differences that give rise to significant
portions of future tax assets and liabilities are as follows:

                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    Future income tax liabilities (assets)
    Property, plant and equipment                   26,441,066    26,360,107
    Intangible assets                                7,329,125     8,412,991
    Units issuance costs                              (673,401)     (858,198)
    Loss carry-forward                                (951,260)   (1,168,808)
    -------------------------------------------------------------------------
                                                    32,145,530    32,746,092
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The goodwill related to Canadian Helicopters acquisition is not deductible
for tax purposes.

    (b) The income tax expense differs from the expense that would be obtained
by applying the combined Canadian income tax rates (federal and provincial) as
a result of the following:

                                                                 Period from
                                                                 September 9
                                                    Year ended            to
                                                   December 31,  December 31,
                                                          2006          2005
                                                             $             $
    -------------------------------------------------------------------------

    Earnings before income taxes and
     non-controlling interest                       18,708,347     1,228,795
    -------------------------------------------------------------------------

    Income taxes at combined federal and
     provincial statutory rate of 34.45%
     (2005 - 34.74%)                                 6,444,095       426,883

    Impact of interest expense of the Company
     paid to the Fund, eliminated on consolidation  (3,683,531)   (1,150,260)
    Large Corporation tax                                    -        89,103
    Effect of change in enacted tax rate            (3,375,000)      380,000
    Tax exempt items and others                         13,874        19,153
    -------------------------------------------------------------------------
    Income tax recovery                               (600,562)     (235,121)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The May 2, 2006 Canadian Federal budget announced several general
corporate income tax rate reductions, which will gradually be reduced from
22.12% to 19% in 2010, and the acceleration of the elimination of the Large
Corporation Tax which was enacted on June 22, 2006. In addition, during the
second quarter of 2006 other provincial tax rate reduction became enacted. As
a result, at the end of the second quarter in 2006, the Trust has reassessed
its future income tax assets and liabilities in light of the new enacted tax
rates.

    11. UNITHOLDERS' EQUITY

    Fund units

    The Fund Declaration of Trust provides that an unlimited number of units
and an unlimited number of Special Voting Units of the Fund may be issued.
Each unit is transferable and represents an equal undivided beneficial
interest in any distributions of the Fund and in the net assets of the Fund.
All Units have equal rights and privileges. Each unit entitles the holder to
participate equally in all allocations and distributions and to one vote at
all meetings of unitholders for each whole unit held. The Special Voting Units
are only to be issued in connection with Canadian Helicopters Exchangeable
Class B LP units (the "Exchangeable Units") for the sole purpose of providing
voting rights at the Fund level to the holder of such securities. The Special
Voting Units entitle the holder to one vote per unit and do not participate in
any interest or share in the Fund.
    The Fund units are redeemable at any time at the option of the holder at a
price equal to the lesser of 90% of the average price of the Fund units during
the last ten trading days of the units on an open market and 100% of the
closing market price on the redemption date. All redemptions are subject to a
maximum of $50,000 in cash redemptions by the Fund in any particular month.
This limitation may be waived at the discretion of the Trustees of the Fund.
Redemptions in excess of this amount, assuming no waiving of the limitation,
shall be paid by way of a distribution in specie of the assets of the Fund.

    Fund units issued

                                                        Number        Amount
                                                                           $
    -------------------------------------------------------------------------

    Fund units
    Issued on initial public offering               10,077,961   100,779,610
    Issued to employees in exchange for
     Canadian Helicopters shares                       450,350     4,503,500
    -------------------------------------------------------------------------
                                                    10,528,311   105,283,110
    Issuance costs, net of future income
     taxes of $672,330                                       -    (1,270,820)
    -------------------------------------------------------------------------
    Balances at December 31, 2005                   10,528,311   104,012,290
    Change in Units in 2006                                  -             -
    -------------------------------------------------------------------------
    Balances at December 31, 2006                   10,528,311   104,012,290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Exchangeable Class B LP Units

    As part of the creation of the Fund, 2,751,689 Exchangeable Class B LP
Units were issued from a subsidiary of the Fund as partial consideration for
the acquisition of Canadian Helicopters. The Exchangeable Units are classified
as non-controlling interest in the consolidated financial statements of the
Fund as the holders have the ability to transfer Exchangeable Units before
conversion to units of the Fund. The exchangeable units are indirectly
exchangeable for units of the Funds on a one-for-one basis, subject to
customary anti-dilution adjustments, and may be exchanged at any time.
Exchangeable units have economic rights that are equivalent in all respects to
the economic rights of units of the Fund. Additionally, Exchangeable Units are
accompanied by Special Voting Units of the Fund which entitle the holders to
receive notice of, attend and vote at all meetings of the Fund.

    The change in non-controlling interest during the periods is as follows:

                                                        Number        Amount
                                                                           $
    -------------------------------------------------------------------------

    Exchangeable Units issued on acquisition of
     Canadian Helicopters - Class B LP Units         2,751,689    27,516,890
    Issuance costs, net of future income
     taxes of $175,716                                       -      (332,134)
    -------------------------------------------------------------------------
                                                     2,751,689    27,184,756
    Share of net earnings for the period from
     September 9 to December 31, 2005                        -       312,827
    Distributions declared for the period from
     September 9 to December 31, 2005                        -      (898,977)
    -------------------------------------------------------------------------
    Balances at December 31, 2005                    2,751,689    26,598,606
    -------------------------------------------------------------------------
    Share of net earnings for the year ended
     December 31, 2006                                       -     4,014,411
    Distributions declared for the year ended
     December 31, 2006                                       -    (2,889,276)
    -------------------------------------------------------------------------
    Balances at December 31, 2006                    2,751,689    27,723,741
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributions on exchangeable Class B LP units coincide in amount per unit
and timing with the Fund Units.

    Diluted net earnings per unit

    In computing diluted net earnings per unit, the diluted weighted average
units include the 2,751,689 of Exchangeable Class B LP units and the numerator
is earnings before non-controlling interest.

    Long-term incentive plan

    The Fund has adopted a long-term incentive plan ("LTIP") to enhance the
ability of the Fund to attract, retain and motivate key personnel and reward
officers and key employees for significant performance that results in the
Fund exceeding its distributable cash targets, for a twelve-month period
ending December 31. Bonuses, in the form of units, will be provided to
eligible employees annually where the distributable cash generated by the Fund
exceeds certain specified threshold amounts.
    If distributable cash per unit exceeds threshold amounts, a percentage of
the excess distributable cash is contributed by the Fund into the long-term
incentive pool. The funds in this pool are used to purchase units of the Fund
in the open market, to be provided to eligible employees as bonus
compensation. The units vest over a three-year period. Distributions in the
invested units held by long-term incentive pool are paid to the LTIP
participants.

    Threshold amounts and participation rates are as follows:

    Percentage by which distributable                     Participation rate
     cash per unit exceeds threshold                                       %
    -------------------------------------------------------------------------

    Less than 5%                                                           0
    Over 5% to 10%                                                        10
    Over 10% to 20%                                                       20
    Greater than 20%                                                      25
    -------------------------------------------------------------------------

    For the year ended December 31, 2006, the distributable cash per unit of
the Fund exceeded the threshold amount of $1.05 per unit and bonuses of
$910,046 were eligible under the plan. Therefore, the Fund is required to
contribute early in 2007 into the long-term incentive pool. For accounting
purpose, the compensation expense relating to these units will be recorded as
a compensation expense over the vesting period of three years beginning
January 1, 2007 and the unamortized cost of the related Fund's units will be
shown as a reduction of unitholders'equity.

    12. CUMULATIVE DISTRIBUTIONS

    The Fund makes monthly distributions to unitholders and, through Canadian
Helicopters LP, to Class B LP unitholders of record as of the last business
day of each month, payable on or about the 15th day of the following month. 
Distributions are recorded on an accrual basis.
    Distributions declared in 2006 and 2005 were as follows:

                                                    Distribution Amount
                                            ---------------------------------
                                      Per        Unit-   Class B
              Record    Payment      Unit     holders         LP       Total
    Period     date      date           $           $          $           $
    -------------------------------------------------------------------------

    i) Year ended December 31, 2006
    January   January   February
               31        15        0.0875     921,227    240,773   1,162,000
    February  February
               28       March 15   0.0875     921,227    240,773   1,162,000
    March     March 31  April 17   0.0875     921,227    240,773   1,162,000
    April     April 30  May 15     0.0875     921,227    240,773   1,162,000
    May       May 31    June 15    0.0875     921,227    240,773   1,162,000
    June      June 30   July 14    0.0875     921,227    240,773   1,162,000
    July      July 31   August 15  0.0875     921,227    240,773   1,162,000
    August    August    September
               31        15        0.0875     921,227    240,773   1,162,000
    September September October
               30        13        0.0875     921,227    240,773   1,162,000
    October   October   November
               31        15        0.0875     921,227    240,773   1,162,000
    November  November  December
               30        15        0.0875     921,227    240,773   1,162,000
    December  December  January
               31        15        0.0875     921,227    240,773   1,162,000
    -------------------------------------------------------------------------
                                   1.0500  11,054,724  2,889,276  13,944,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ii) Period from September 9, 2005 to December 31, 2005
    September 9
     to
     October  October   November
     31        31        15        0.1517   1,597,145    417,431   2,014,576
    November  November  December
               30        15        0.0875     921,227    240,773   1,162,000
    December  December  January
               31        16        0.0875     921,227    240,773   1,162,000
    -------------------------------------------------------------------------
                                   0.3267   3,439,599    898,977   4,338,576
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. FINANCIAL INSTRUMENTS

    Foreign currency risk

    As at December 31, 2006, the Fund had entered into forward exchange
contracts to buy fixed amounts of U.S. dollars as follows:

                                     U.S. dollar       Average      Canadian
    Fiscal                              notional      exchange        dollar
    year                                  amount          rate        amount
                                               $                           $
    -------------------------------------------------------------------------

    2007                               6,575,000        1.1719     7,705,563
    2008                               6,300,000        1.1240     7,080,975
    -------------------------------------------------------------------------
                                      12,875,000        1.1485    14,786,538
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Fund has also entered into foreign exchange collar contracts by
quarter. Under these collar contracts the Fund will either pay or receive at
the end of a quarter, the difference by which the average spot rate prevailing
during that quarter is outside of the collar limits. As at December 31, 2006,
the collar contracts outstanding are as follows:

                                                 Collar exchange rate limits
                                                -----------------------------
                                     U.S. dollar
    Fiscal                              notional       Minimum       Maximum
    year                                  amount          rate          rate
                                               $
    -------------------------------------------------------------------------

    2007                               4,000,000        1.1425        1.2050
    2008                               4,000,000        1.1163        1.1975
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As described in note 3, the Fund accounts for these financial instruments
as hedging derivative financial instruments. As at December 31, 2006, the
mark-to-market on the Fund's forward foreign exchange contracts and collar
contracts is a gain of $16,459 (2005 - loss of $318,000).

    Interest rate exposure

    The Fund is exposed to interest rate risk on its term credit facility and
operating facility. The Fund has entered into an interest rate swap agreement
for a notional amount of $30,000,000 for its long-term debt until maturity.
After considering this swap agreement, the long-term debt bears interest at a
fixed rate of ranging between 4.67% and 5.17% and which was 4.67% as at
December 31, 2006. As described in note 3, the Fund accounts for this
financial instrument as a hedge. As at December 31, 2006, the mark-to-market
on the Fund's interest rate swap is a gain of approximately $370,000 (2005 -
gain of $505,980).

    Credit risk

    The Fund performs ongoing credit evaluations of customer and provisions
have been set-up for potential credit losses. As at December 31, 2006, one
customer accounted for 10.5% of accounts receivable (2005 -one customer for
11.8%).

    Fair value

    The carrying value of the accounts receivable, accounts payable and
accrued liabilities, the distribution payable and advance payments from
customers are a reasonable estimate of their fair value because of their
short-term maturity.
    The carrying value of long-term debt approximates its fair value, because
of its floating rate nature.

    14. ECONOMIC DEPENDENCE

    For the year ended December 31, 2006, 34.3% (period from September 9 to
December 31 2005 - 40.4%) of total revenue was earned from two customers.

    15. EMPLOYEE DEFINED CONTRIBUTION PLAN

    The Fund's contribution to the defined contribution plan for the year
ended December 31, 2006 was $949,185 (period from September 9 to December 31
2005 - $240,853).

    16. SEGMENTED INFORMATION

    The Fund's activities are comprised of three reporting segments which,
consist of Canadian onshore helicopter transportation services, helicopter
repair and maintenance business and flight training. The repair and
maintenance business and the flight training represent less than 10% of the
Fund's overall activities. No assets are held outside of Canada.



         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS - FOR THE THREE AND TWELVE-MONTH PERIODS
                           ENDED DECEMBER 31, 2006

    The following management's discussion and analysis of financial condition
and results of operations, dated March 15, 2007, of Canadian Helicopters
Income Fund (the "Fund") should be read together with the audited consolidated
financial statements and related notes of the Fund for the year ended December
31, 2006. The financial statements of the Fund are prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"). The fiscal year of
the Fund ends on December 31. The Fund's reporting currency is the Canadian
dollar. Per unit amounts are calculated using the weighted average number of
units outstanding for year ended December 31, 2006. All financial information
for the period from January 1, 2005 to September 8, 2005 is derived from the
unaudited consolidated results of Canadian Helicopters Limited ("Canadian
Helicopters").

    This discussion contains forward-looking statements. Please see "Forward-
Looking Statements" for a discussion of the risks, uncertainties and
assumptions relating to these statements. This discussion also makes reference
to certain non-GAAP measures to assist in assessing the Fund's financial
performance. Non-GAAP earnings measures do not have any standard meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other issuers. See "Definition of EBITDA, Adjusted
EBITDA, distributable cash and Non-GAAP Measures" and "Selected Consolidated
Financial Information", for the reconciliation of EBITDA to earnings.

    Formation of the Fund

    On September 9, 2005, the Fund completed an initial public offering and
the sale of 10,077,961 trust units for $10.00 per unit, for total net proceeds
of $98,328,610 after deducting $2,451,000 which represents the Fund's share of
the underwriters' total fees of $6,046,777 and its share of other issuance
expenses of $2,850,000.
    On September 9, 2005, in conjunction with the initial public offering, the
Fund acquired through a newly constituted wholly-owned trust, 79.3% of the
limited partnership units of Canadian Helicopters Limited Partnership
("Canadian Helicopters LP") in exchange for cash consideration of
$100,779,610. Canadian Helicopters LP itself acquired all of the outstanding
shares of Canadian Helicopters for a consideration comprised of $69,399,881
cash, units of the Fund with a value of $4,503,500 and Class B limited
partnership units (the "Class B LP Units") exchangeable into units of the Fund
with a value of $27,516,890. The acquisition was accounted for by the purchase
method with the results of Canadian Helicopter's operations being included in
the Fund's earnings from the date of acquisition.
    The Fund's units trade on the Toronto Stock Exchange under the symbol
CHL.UN.
    The Fund is entirely dependant on distribution of Canadian Helicopters to
make its own distributions.

    Overview

    Canadian Helicopters, the largest helicopter transportation services
company operating in Canada, is also one of the largest in the world based on
the size of its fleet. With over 40 bases operating across Canada and in
excess of 120 aircraft, Canadian Helicopters provides helicopter services to a
broad range of sectors, including emergency medical services ("EMS"),
infrastructure maintenance, utilities, oil and gas, forestry, mining and
construction. In addition to helicopter transportation services, Canadian
Helicopters operates three flight schools and provides third party repair and
maintenance services. With over 50 years of experience, Canadian Helicopters
is an industry leader in establishing safety standards and operating
procedures.

    Key factors affecting the business

    The results of operations and financial condition of the Fund are subject
to a number of risks and uncertainties and are affected by a number of factors
outside management's control. See "Risk Factors" for a discussion of such
risks.

    Distributions

    The Fund makes monthly distributions to unitholders and, through Canadian
Helicopters LP, to holders of Class B LP units of record on the last business
day of each month, payable on or about the 15th day of the following month.
The current estimated distribution rate per unit is $0.0875 per month. The
December 2006 distribution in the amount of $1,162,000 was declared in
December 2006 and paid to unitholders and holders of Class B LP units on
January 15, 2007.

    Distributions declared from January 1, 2006 to December 31, 2006, were as
follows:

                                                         Distribution Amount
                                            ---------------------------------
                                      Per        Unit-   Class B
    Period    Record    Payment      Unit     holders         LP       Total
               date      date           $           $          $           $
    -------------------------------------------------------------------------
    January   January   February
               31        15        0.0875     921,227    240,773   1,162,000
    February  February  March
               28        15        0.0875     921,227    240,773   1,162,000
    March     March 31  April 17   0.0875     921,227    240,773   1,162,000
    April     April 30  May 15     0.0875     921,227    240,773   1,162,000
    May       May 31    June 15    0.0875     921,227    240,773   1,162,000
    June      June 30   July 14    0.0875     921,227    240,773   1,162,000
    July      July 31   August 15  0.0875     921,227    240,773   1,162,000
    August    August    September
               31        15        0.0875     921,227    240,773   1,162,000
    September September October
               30        13        0.0875     921,227    240,773   1,162,000
    October   October   November
               31        15        0.0875     921,227    240,773   1,162,000
    November  November  December
               30        15        0.0875     921,227    240,773   1,162,000
    December  December  January
               31        15        0.0875     921,227    240,773   1,162,000
    -------------------------------------------------------------------------
                                   1.0500  11,054,724  2,889,276  13,944,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Class B LP Units were issued upon the acquisition of Canadian
Helicopters and classified as non-controlling interest in the consolidated
financial statements. Distributions on such Class B LP Units coincide in
amount per unit and timing with distribution on the Fund units.
    With respects to distributions made during 2006, approximately 91% is
taxable as income in the hands of the unitholders while 9% represents a return
of capital that reduces the adjusted cost base of the units.

    Definition of EBITDA, Adjusted EBITDA, Distributable Cash and Non-GAAP
    Measures

    References to "EBITDA" are to earnings (Loss) before interest, income
taxes, depreciation and amortization, gain on disposal of property, plant and
equipment, change in operating lease credit and non-controlling interest.
References to "Adjusted EBITDA" are to EBITDA adjusted for the effects of a
non-recurring item, which represents a non-recurring employee compensation
costs associated with the purchase for cancellation of employee stock options
outstanding under the former corporate structure which was completed in
connection with the initial public offering.
    Management views distributable cash as an operating performance measure,
as it is a measure generally used by Canadian income funds as an indicator of
financial performance. Distributable cash is defined as cash flows related to
operating activities plus the net change in non-cash working capital balances
and less the net maintenance capital expenditures. The long term incentive
plan ("LTIP") funding eligibility for a year in connection with the Fund
exceeding its annual distributable cash target is deducted in determining the
annual distributable cash of that year while the LTIP compensation expense
will be added back. Distributable cash is important as it summarizes the funds
available for distribution to unitholders. As the Fund will distribute a
significant portion of its cash on an on-going basis and since EBITDA and
Adjusted EBITDA are metrics used by many investors to compare issuers on the
basis of the ability to generate cash from operations, management believes
that, in addition to net earnings or loss, EBITDA and Adjusted EBITDA are
useful supplementary measures from which to make adjustments to determine
distributable cash.
    EBITDA, Adjusted EBITDA and distributable cash are not earnings measures
recognized under GAAP and do not have standardized meanings prescribed by
GAAP. Therefore, EBITDA, Adjusted EBITDA and distributable cash may not be
comparable with similar measures presented by other entities. Investors are
cautioned that EBITDA, Adjusted EBITDA and distributable cash should not be
construed as an alternative to net earnings (loss) determined in accordance
with GAAP as indicators of the Fund's performance, or to cash flows from
operating, investing and financing activities as measures of liquidity and
cash flows.

    Distributable cash

    Distributable cash for the three-month and twelve-month periods ended
    December 31, 2006 is calculated as follows:

                                                         Three        Twelve
                                                  months ended  months ended
    ($000's except for units and                   December 31,  December 31,
    per unit amounts)                                     2006          2006
    -------------------------------------------------------------------------
    Cash flows related to operating activities          18,701        25,069
    Net change in non-cash working capital(1)          (19,881)       (2,672)
    Net maintenance capital expenditures                (2,374)       (2,507)
    LTIP funding requirement for 2006(2)                     -          (910)
    Distributable cash (Fund units and Class B
     LP units)                                          (3,554)       18,980
                                                 ----------------------------
    Distributions declared                               3,486        13,944
                                                 ----------------------------
    Weighted average number of trust units and
     Class B LP units                               13,280,000    13,280,000
    Distributable cash per unit and Class B LP unit    (0.2676)         1.43
    Distributions declared per unit and
     Class B LP unit                                    0.2625          1.05
    Payout ratio                                           (98%)          73%
    -------------------------------------------------------------------------

    (1) The Fund has excluded the impact of the net change in non-cash
        working capital balances as the changes in non-cash working capital
        components are often temporary by nature and due to the Fund's
        seasonality and can be financed, if needed, with the Fund's operating
        line of credit, which is available up to a maximum of $15 million.

    (2) The Fund deducted the impact of LTIP funding requirement in the
        annual distributable cash calculation since it becomes known only at
        year-end.

    For the quarter ended December 31, 2006, the Fund distributed $0.2625 per
unit compared with negative $0.2676 per unit of distributable cash per unit
per the above calculation. This difference reflects the Fund's seasonal
fluctuation in earnings since the Funds generates the majority of its
distributable cash in the second and third quarters. Fourth quarter
distributions were funded by distributable cash generated in prior quarters of
2006. Given the seasonal nature of the Fund's operations, it is important to
view distributable cash on an annual basis.
    The distributable cash generated in 2006 exceeded actual distributions by
$5.0 million. As a result, the Fund's payout ratio, defined as distributions
declared as a percentage of distributable cash generated, was 73%.
    The Fund does not currently anticipate increasing distribution to
unitholders despite the low payout ratio. The excess of distributable cash
generated over distributions to unitholders provides additional flexibility to
the Fund in financing expansion initiatives and maintaining stable future
distributions.

    Review of Operations

    This is the Fund's first full year since its inception and the acquisition
of Canadian Helicopters on September 9, 2005. As a result, the audited
consolidated financial statements cover the twelve-month period ended December
31, 2006 as compared to the period from September 9, 2005 to December 31,
2005. To provide meaningful disclosure to the reader, this management
discussion and analysis covers the three and twelve-month period ended
December 31, 2006 compared to the three and twelve-month period ended December
31, 2005. As the period ended September 8, 2005 is prior to the Fund's
indirect acquisition of Canadian Helicopters, this information is derived from
the unaudited consolidated results of Canadian Helicopters and is provided for
reference purposes only.

    Summary of Revenue and Operating Expenses

    Revenue

    Canadian Helicopters' revenue is primarily generated from its helicopter
transportation services. Canadian Helicopters also provides ancillary
services, such as flight training and third party repair and maintenance
services. For the three and twelve-month periods ended December 31, 2006,
89.2% and 89.6% respectively of Canadian Helicopters' revenue was derived from
helicopter transportation services, with the remainder derived from ancillary
services. Canadian Helicopters operates IFR (helicopters services operated
under instrument flight rules) and VFR (helicopters services operated under
visual flight rules) helicopters, which respectively accounted for 57.4% and
42.6% of helicopter transportation services revenue for the period of three
months ended December 31, 2006 and 44.1% and 55.9% respectively for the twelve
months ended December 31, 2006.
    IFR helicopters operate with the aid of instruments and they are capable
of operating in poor visibility environment. IFR helicopters are used
primarily to provide emergency medical services ("EMS") and infrastructure
support to governmental and quasi-governmental entities. Contracts are usually
longer-term in nature and revenues are, to a large extent, earned evenly
throughout the year. The most significant IFR contracts include those with
Ornge, an organization providing EMS in Ontario, and the United States Air
Force ("USAF"), accounting together for 42.2% of Canadian Helicopters' total
revenue for the three-month ended December 31, 2006 and 34.3% respectively for
the twelve months ended December 31, 2006.
    VFR helicopters are primarily used to provide services to utility
companies and resource-based industries. Contracts are usually for a short
period or a season. Revenues from VFR operations are influenced by weather and
daylight hours and are significantly reduced from November through April.

    Operating Expenses

    Operating expenses consist of fixed and variable expenses, including:
(i) crew, maintenance cost and cost of goods sold, (ii) selling, general and
administrative expenses and (iii) other expenses.
    Crew and maintenance costs are the largest expense categories,
representing in the aggregate 82% of revenue for the period of three months
ended December 31, 2006 and 61% for the period of twelve months ended
December 31, 2006. Crew costs are comprised of wages, benefits and training
for pilots, engineers and paramedics. While a significant portion of these
costs are fixed, a portion of pilots' and engineers' compensation is based on
flight hours. In addition, due to the seasonality of Canadian Helicopters' VFR
& IFR operations, additional crews are hired on a contractual basis to ensure
that summer operational requirements are met. Maintenance costs consist of
repair of engine, major components, airframes and accessories, which are
normally replaced based on their calendar lives or number of flight hours. As
such, Canadian Helicopters has been able to estimate its annual maintenance
costs based on the expected number of flight hours. Canadian Helicopters' Mid-
Time Policy(1) has historically resulted in fairly stable annual maintenance
expenses, although significant variability occurrs on a quarterly basis.
However, as Canadian Helicopters attempts to perform most airframe repair and
refurbishment during the slower season, variations in maintenance costs within
a year do not depend solely on flight hours. Cost of goods sold consists of
cost associated with revenues from third party repairs and maintenance
contracts and miscellaneous parts sales.
    Selling, general and administrative expenses represented in the aggregate
22% of revenue for the period of three months ended December 31, 2006 and 20%
for the period of twelve months ended December 31, 2006. Selling, general and
administrative expenses are mainly comprised of support wages, base costs,
insurance costs and other overhead costs. Base costs, which include base
facility costs, travel, room and meals, contain a fixed and variable portion,
while insurance costs are negotiated annually and are fixed through the term.

    ------------------------
    (1) "Mid-Time Policy" means the policy of Canadian Helicopters to
        maintain its flying assets, on a group basis, at any given moment in
        time, at least at the mid-time of the useful life of such assets.


    Summary of Selected Consolidated Financial Information


                              Three-month period         Twelve-month period
                               ended December 31           ended December 31
                            -------------------------------------------------
    (in thousand of dollars)  2006          2005          2006        2005(1)
                                 $             $             $             $
    -------------------------------------------------------------------------
    Revenue                 24,167        26,926       135,667       123,606
    Operating expenses      25,550        27,703       112,317       105,346
    Foreign exchange loss
     (gain)                   (146)           15          (116)         (125)
    -------------------------------------------------------------------------
    Adjusted EBITDA(2)      (1,237)         (792)       23,466        18,385
    -------------------------------------------------------------------------
    Non recurring item(3)
      Employee compensation      -             -             -        (1,880)
    -------------------------------------------------------------------------
    EBITDA(2)               (1,237)         (792)       23,466        16,505
    -------------------------------------------------------------------------
    - Amortization           1,008         1,001         4,036         2,907
    - Loss (gain) on
       disposal of property,
       plant and equipment      21             -          (558)          (25)
    - Net financing charges    217           354         1,280         3,182
    - Elimination of
       deferred charges          -             -             -           878
    - Change in operating
       lease deferred credit     -             -             -        (2,331)

    Earnings (loss) before
     income taxes and
     non-controlling
     interest               (2,483)       (2,147)       18,708        11,894
    -------------------------------------------------------------------------
    Net earnings (loss)(4)    (579)         (748)       15,294           n/a
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings (loss)
     per unit basic and
     diluted(4)             (0.055)       (0.071)         1.45           n/a
    Distributions declared
     per unit               0.2625        0.3267          1.05        0.3267
    Total assets                                       208,631       200,926
    Term credit facility                                19,000        21,000
    -------------------------------------------------------------------------
    (1) Derived from the unaudited consolidated results of Canadian
        Helicopters for the period from January 1, 2005 to September 8, 2005
        and from the Fund consolidated results for the period from
        September 9, 2005 to December 31, 2005.
    (2) See "Definition of EBITDA, Adjusted EBITDA, Distributable Cash and
        Non-GAAP Measures". EBITDA, Adjusted EBITDA and Distributable Cash
        are not recognized measures under GAAP and do not have standardized
        meanings prescribed by GAAP. As such, they may not be comparable to
        similar measures presented by other issuers.
    (3) Represent non-recurring employee compensation costs associated with
        the purchase for cancellation of employee stock options outstanding
        under the former corporate structure completed in connection with the
        initial public offering.
    (4) Net earnings or loss in total and on a per unit basis, for the
        twelve-month period ended December 31, 2005 have not been presented
        as they are not comparable due to changes to the capital structure of
        Canadian Helicopters and the Fund in connection with the initial
        public offering on September 9, 2005.

    Summary of quarterly results

    Certain of Canadian Helicopters' operations are subject to seasonal
fluctuations due to variations in daylight hours and changes in weather
conditions, with the highest demand generally occurring from May to October.
While some of Canadian Helicopters' operations are dependent on flight hours
and are managed to mitigate the impact of seasonality, a significant portion
of operating costs are associated with its crew and fleet and are fixed.
Canadian Helicopters takes advantage of the off-season period to conduct
repairs and maintenance on its aircraft and provide training to its crews in
order to minimize downtime during the peak season. This strategy, necessitated
by seasonality, significantly reduces profits during the quarters ending
December 31 and March 31 and has historically resulted in losses. Therefore,
results for any single quarter may not be indicative of the results that may
be expected for the full year.

    The following table presents a summary of operating results of the Fund
and Canadian Helicopters on a quarterly basis from January 1, 2005 to
December 31, 2006.

    (in thousand of dollars except for per unit amounts)

                Dec     Sep    June     Mar      Dec     Sep     Jun     Mar
                 31,     30,     30,     31,      31,     30,     30,     31,
               2006    2006    2006    2006     2005    2005    2005    2005
                                                          (1)     (1)     (1)
                  $       $       $       $        $       $       $       $
    -------------------------------------------------------------------------
    Revenues 24,167  51,310  36,332  23,857   26,926  44,265  31,601  20,814
    EBITDA
     (2)     (1,237) 20,511   7,835  (3,643)    (792) 15,268   4,589  (2,560)
    Adjusted
     EBITDA
     (2)     (1,237) 20,511   7,835  (3,643)    (792) 17,148   4,589  (2,560)
    Net
     earnings
     (loss)    (579) 11,479   6,267  (1,872)    (748)    n/a     n/a     n/a
    Net
     earnings
     (loss)
     per unit
     basic
     and
     dilu-
      ted   (0.0550) 1.0903  0.5952 (0.1778) (0.0710)    n/a     n/a     n/a
    -------------------------------------------------------------------------

    --------------
    Notes:

    (1) Derived from the unaudited consolidated results of Canadian
        Helicopters for 2005 first two quarters and for the period from
        July 1, 2005 to September 8, 2005 comprised in the third quarter of
        2005.
    (2) See "Definition of EBITDA, Adjusted EBITDA, Distributable Cash and
        other Non-GAAP Measures". EBITDA and Adjusted EBITDA are not
        recognized measure under GAAP and does not have standardized meanings
        prescribed by GAAP. EBITDA and Adjusted EBITDA may not be comparable
        to similar measures presented by other issuers.

    Earnings or losses before non controlling interest and net earnings or
losses have not been presented for each of the quarter prior to the indirect
acquisition of Canadian Helicopters by the Fund as they are not comparable due
to the change to the capital structure of Canadian Helicopters and the Fund in
connection with the initial public offering completed on September 9, 2005.

    Results of operations

    Three-month period ended December 31, 2006 compared to three-month period
    ended December 31, 2005.

    Revenue

    Canadian Helicopters flew 11,902 hours over the three-month period ended
December 31, 2006 compared to 13,332 hours in the same period in 2005,
representing a decrease of 1,430 hours or 10.7%. Revenue was $24.2 million
compared to $26.9 million for the comparable period in 2005, representing a
decrease of $2.7 million or 10%. This variation is primarily explained by a
decrease of $1.2 million in revenue from VFR, a decrease of $1.4 million in
revenue from IFR and a decrease of $0.1 million in ancillary revenue. Decrease
in IFR revenue is primarily explained by the scheduled termination of
paramedics in 2006 and its associated revenues. Decrease in VFR revenue is due
primarily to reduced activity by a single customer in Eastern Canada and is
not viewed to be permanent in nature.

    Operating Expenses

    Operating expenses amounted to $25.4 million for the three-month period
ended December 31, 2006 compared to $27.7 million in the comparable period in
2005, representing a decrease of $2.3 million or 8.3%.
    Maintenance costs increased by $0.7 million during the period over the
comparable period of 2005, primarily explained by timing differences. Costs
associated with ancillary revenues, including repair and maintenance
contracts, were commensurate with revenues earned during the quarter. Finally,
crew costs decreased by $1.5 million in the three-month period ended
December 31, 2006 over the comparable period in 2005, primarily due to the
scheduled termination of paramedic services in Ontario, partially offset by
inflation.

    Selling, general and administrative expenses decreased by $0.9 million in
the three-month period ended December 31, 2006 compared to the same period in
2005. This decrease is primarily due to the decreases in insurance costs and
capital taxes.

    Expenses related to operating leases during the three-month period ending
December 31, 2006 and 2005 amounted to $0.4 million.

    Adjusted EBITDA

    As a result of the changes described above, the adjusted EBITDA loss for
the three-month period ended December 31, 2006 was $1.2 million, which is
higher by $0.4 million over adjusted EBITDA loss of $0.8 million for the same
period in 2005.

    Net Financing Charges

    Net financing charges amounted to $0.2 million for the three-month period
ended December 31, 2006, compared to $0.4 million in the same period lest
year, representing a decrease of $0.2 million. This reduction was due to a
decrease in average outstanding long-term debt when compared to last year
fourth quarter.

    Other Items

    The aggregate amortization expense for the three-month period ended
December 31, 2006 amounted to $1.0 million compared to $1.0 million for the
same period in 2005.

    Loss before income taxes and non-controlling interest

    Due to the changes in revenue and expenses described herein, the loss
before income taxes and non- controlling interest increased by $0.3 million
over the comparable period in 2005. The loss before income taxes and non-
controlling interest was $2.5 million for the three-month period ended
December 31, 2006.

    Income taxes

    For the three-month period ended December 31, 2006, the Fund recorded an
income tax recovery of $1.8 million of which $0.9 million is attributable to
the impact of interest income earned by the Fund and paid by Canadian
Helicopters.

    Net loss

    As a result of the above, net loss for the three-month period ended
December 31, 2006 was $0.6 million while net loss for the three-month period
ended December 31, 2005 was $0.5 million.

    Twelve months ended December 31, 2006 compared to twelve months ended
    December 31, 2005.

    Revenue

    Canadian Helicopters flew 76,470 hours over the twelve-month period ended
December 31, 2006 compared to 73,138 hours in the same period in 2005,
representing an increase of 3,332 hours or 4,6%. Revenue was $135.7 million
compared to $123.6 million for the comparable period in 2005, representing an
increase of $12.1 million or 9.8%. This variation is primarily explained by an
increase of $6.9 million in revenue from VFR, due to higher rates and
utilization of light and medium aircraft in the resource sectors, and an
increase of $6.5 million in ancillary revenue including the CFTS sub-contract.
Revenue from IFR activities increased in operations other than EMS, largely
offsetting the loss of EMS revenue related to the scheduled termination of
paramedics.

    Operating Expenses

    Operating expenses amounted to $112.3 million for the twelve-month period
ended December 31, 2006 compared to $105.3 million for the comparable period
in 2005, representing an increase of $7.0 million or 6.2%.
    Maintenance costs increased by $5.6 million over the comparable period in
2005. This is due to higher flying activities and a return to normalized
maintenance expenses incurred in the first quarter of 2006 over the comparable
period in 2005 due to timing differences. Costs associated with ancillary
revenues, including repair and maintenance contracts, increased in connection
with the additional revenues earned during the year. Finally, crew costs
decreased by $2.2 million in the twelve-month period ended December 31, 2006
over the comparable period in 2005, primarily due to the scheduled termination
of paramedic services offset by inflation and greater flying activities.
    The increase of $2.2 million in selling, general and administrative
expenses is primarily due to an increase of $0.9 million in public entity
expenses, rebranding expenses of $0.3 million and an higher activity level in
our remote base of $0.3 million in addition to inflation and higher bonuses
related to increased profitability.
    Expenses related to operating leases during the twelve-month period ending
December 31, 2006 declined to $1.9 million from $3.9 million in the 2005
comparable period, representing a decrease of $2.0 million primarily explained
by lower rental expense as a result of the September 2005 acquisition of 14
leased aircraft following the initial public offering.

    Adjusted EBITDA

    As a result of the changes described above, the adjusted EBITDA for the
twelve-month period ended December 31, 2006 was $23.5 million, which is higher
by $5.1 million over adjusted EBITDA of $18.4 million for the same period in
2005. Adjusted EBITDA margins improved from 14.9% to 17.3%.

    Net Financing Charges

    Net financing charges amounted to $1.3 million for the twelve-month period
ended December 31, 2006 compared to $3.2 million in the 2005 comparable
period, representing a decrease of $1.9 million. This reduction was due to
lower average outstanding long-term debt compared to the same period in 2005
as a result of the change in the financing structure associated with the
initial public offering.

    Other Items

    The aggregate amortization expense for the twelve-month period ended
December 31, 2006 amounted to $4.0 million compared to $2.9 million for the
same period in 2005, an increase of $1.1 million. This is explained by
amortization of 14 leased aircraft acquired in September 2005 and the
amortization of intangible assets recorded on the acquisition of Canadian
Helicopters by the Fund.

    Earnings before income taxes and non-controlling interest

    Due to the changes in revenue and expenses described herein, the earnings
before income taxes and non-controlling interest has increased by $6.8 million
over the comparable period in 2005. The earnings before income taxes and non-
controlling interest are $18.7 million for the twelve-month period ended
December 31, 2006.

    Income taxes

    During the twelve-month period ended December 31, 2006, the Fund recorded
an income tax recovery of $0.6 million after taking into consideration a
reduction of $3.4 million attributable to the impact of the Federal and
Provincial future income tax rates reductions enacted in June 2006 and a
reduction of $3.7 million attributable to the impact of the interest income
earned by the Fund and paid by Canadian Helicopters.

    Earnings before non-controlling interest and net earnings

    As a result of the above, earnings before non-controlling interest for the
twelve-month period ended December 31, 2006 were $19.3 million while net
earnings were $15.3 million.

    Economic dependence

    For the three-month period ended December 31, 2006, 42.2% of total revenue
was earned from two customers compared to 45.4% for the comparable period of
2005. For the twelve-month period ended December 31, 2006, 34.3% of total
revenue was earned from two customers compared to 40.4% for the comparable
period of 2005.

    Segmented information

    The Fund's activities are divided into three reporting segments:
helicopter transportation services; helicopter repair and maintenance and
flight training. Each of the repair and maintenance business and the flight
training represents less than 10% of the Fund's overall activities. No assets
are held outside of Canada.

    Liquidity and Financial Resources

    For the twelve-month period ended December 31, 2006, cash increased by
$6.6 million to $10.0 million. The Fund has two principal sources of
liquidity: (i) cash provided by operations; and (ii) amounts available under
its revolving term credit facility. The Fund has an operating line of credit
of $15 million, which may be used to finance seasonal increases in temporary
non-cash working components. On the other hand, when these increases are
subsequently converted into cash, the Fund may use this cash in whole or in
part to reduce temporarily the amount drawn on the revolving term credit
facility in order to reduce its financing charges. As described in the
prospectus at IPO, the Fund was expecting a draw down on its revolving term
credit facility of $30 million while an additional amount of $5 million is
available mainly to finance growth expansion initiatives.
    As at December 31, 2006, $19 million was drawn under the revolving term-
credit facility while no amount was drawn on the operating credit facility.
Management believes that the Fund sources of liquidity will be sufficient to
meet its ongoing seasonal activities, planned growth and meet its distribution
target. (See"Forward-looking statements").

    Operating activities

    Cash flows from operating activities (before net change in non-cash
working capital balances) was $22.4 million for the twelve-month period ended
December 31, 2006 while the $2.7 million net decrease in non-cash working
capital balances was primarily due to timings in collections and
disbursements. As a result, accounts receivable increased by $0.8 million,
inventory increased by $1.5 million, accounts payable and accrued liabilities
increased by $2.5 million and deferred revenue increased by $2.4 million.

    Investing activities

    Cash flows used for investing activities totalled $2.5 million during the
twelve-month period ended December 31, 2006 and were related to net
maintenance capital expenditures.

    Financing activities

    Cash flows used for financing activities totalled $15.9 million for the
twelve-month period ended December 31, 2006. During the year, distributions
paid on trust units and Class B LP units amounted to $13.9 million. The Fund
also used its excess cash to reduce temporarily its revolving term credit
facility by $2 million.

    Financial position highlights

                                                   December 31   December 31
                                                          2006          2005
    (in thousand of dollars)                                 $             $
    -------------------------------------------------------------------------
    Working capital                                     14,324        10,378
    Total assets                                       208,631       200,926
    -------------------------------------------------------------------------
    Total long-term debt                                19,000        21,000
    -------------------------------------------------------------------------
    Unitholders' equity                                105,964       101,724
    -------------------------------------------------------------------------
    Long-term debt to equity ratio                        17.9%         20.6%
    -------------------------------------------------------------------------

    The Fund's long-term debt to equity ratio has decreased since December
2005 due to Fund results in 2006 in excess of distributions and because of the
temporary reduction of the long-term debt. The Fund was in compliance with the
covenants of its credit facilities as at December 31, 2006.
    Finally, during the third quarter 2006, the Fund renewed its revolving
operating credit facility of $15 million, now expiring in September 2007.

    Contractual Obligations

    The following chart outlines the Fund's contractual obligations as at
December 31, 2006.

    Payments due by period
    (in $000's)

                                     Less than    1 to 3    4 to 5   After 5
                               Total    1 year     Years     Years     Years
                              -----------------------------------------------
    Long-term debt            19,000         -    19,000         -         -
    Operating leases           5,340     2,122     2,377       554       287
    LTIP funding requirement     878       878         -         -         -
                              -----------------------------------------------
    Total                     24,218     3,000    21,377       554       287
                              -----------------------------------------------


    Financing

    Canadian Helicopters has a senior secured credit facility consisting of a
revolving credit facility of up to $15.0 million and a revolving term debt
facility of up to $35.0 million. As at December 31, 2006, Canadian Helicopters
has not drawn any amount on the revolving credit facility and has drawn
$19 million on the term debt facility.
    The revolving credit facility may be used for general corporate purposes,
including the payment of distributions required due to cash flow fluctuations.
The revolving facility has a 364-day term expiring in September 2007 and may
be renewed at the lender's discretion.
    The term debt facility is a three-year term facility that matures in
September 2008 and may be renewed at the lender's discretion. There are no
scheduled repayments of principal required prior to maturity.
    Advances under the revolving and term debt facilities are repayable
without any prepayment penalties or bonus but are subject to normal breakage
costs. Both facilities bear interest at a floating rate based on the Canadian
dollar prime rate, U.S. dollars base rate, LIBOR or bankers acceptance rates,
plus an applicable margin to those rates based on the borrower's ratio of
total funded debt to EBITDAR, as such terms are defined in the documentation
relating to the credit facilities.
    The credit facilities are collateralized by a hypothec and security
interest covering all present and future assets of the Fund and its
subsidiaries. Capitalization

    The following sets forth the capitalization of the Fund as at
    March 15, 2007:

                                                         #Issued
                                                                 ------------
    Units                                                         10,528,311

    Class B Limited Partnership Units of Canadian
     Helicopters LP exchangeable into Units and issued
     in conjunction with the Special Voting Units of
     the Fund                                                      2,751,689

    Each Unit entitles the holder to participate equally in all allocations
and distributions of the Fund and to one vote at all meetings of unitholders.
Each Special Voting Unit entitles the holder to one vote at all meetings of
unitholders but does not entitle the holder to any allocations or
distributions of the Fund.
    Each Class B LP Unit entitles the holder to participate equally in all
allocations and distributions from Canadian Helicopters LP but does not
entitle the holder to any votes. Each Class B LP Unit may be exchanged for a
Unit of the Fund, at which time the associated Special Voting Unit will be
simultaneously cancelled. The Canadian Helicopters Class B LP units are
classified as non-controlling interest in the consolidated financial
statements of the Fund.
    On November 17, 2006 the Fund initiated a normal course issuer bid through
the Toronto Stock Exchange for the purchase and cancellation of a maximum of
798,676 Units until November 16, 2007. The number of Units that the Fund
intends to purchase and the time of such purchases will be determined by the
Fund at its discretion. Up to March 15, 2007 no Units were purchased.

    Financial Instruments

    Forward Foreign Exchange Contracts

    Given that a portion of Canadian Helicopters revenue and expenses are
denominated in U.S. dollars, Canadian Helicopters is exposed to fluctuations
in the value of the U.S. dollar relative to the Canadian dollar. Canadian
Helicopters manages this risk through the use of forward foreign exchange
contracts, which meet the requirements of hedge accounting, to economically
hedge this exposure. The Fund does not enter into financial instruments for
trading or speculative purposes.
    At December 31, 2006, the Fund had entered into forward exchange contracts
and forward exchange collar contracts to hedge expenses denominated in U.S.
dollars for its next eight quarters. These financial instruments are described
in Note 13 of the Fund's consolidated financial statements. These financial
instruments cover a portion of the Fund U.S. expenses and a remainder are
naturally covered by the Fund's expected revenue denominated in U.S. dollars.

    Interest Rate SWAP

    The Fund has a long-term debt and operating facilities bearing interest at
variable rates and thus is exposed to interest rate fluctuations. The Fund
manages this risk through the use of interest rate swaps, which meet the
requirements of hedge accounting for a portion of the Swap.
     The Fund entered into an interest swap agreement for its term debt to pay
a fixed rate ranging between 4.67% and 5.17% until its maturity on September
8, 2008. As at December 31, 2006, the interest rate was 4.67% on the term
facility amounting to $19.0 million. Fair Value The fair value of the Fund
financial instruments are described in Notes 3 and 13 for the Fund's audited
consolidated financial statements.

    Off-Balance Sheet Arrangements

    The Fund has no other off-balance sheet arrangements that management is
aware of that are not disclosed in the consolidated financial statements.
Disclosure Controls and Internal Controls The Fund's President and CFO have
assessed the effectiveness of the disclosure procedures and controls used for
the consolidated financial statements and Management's Discussion and Analysis
as at December 31, 2006. Their assessment led them to conclude that the
disclosure procedures and controls used for the financial statements and
Management's Discussion and Analysis were effective.
    The President and the CFO are responsible for designing internal control
over financial reporting (ICFR), or causing them to be designed under their
supervision to provide reasonable assurance regarding the reliability of the
Fund's financial reporting and the preparation of financial statements for
external purposes in accordance with Canadian GAAP. There were no changes in
the Fund's ICFR during the most recent interim period that have materially
affected, or are reasonably likely to materially affect, the Fund's ICFR.

    Significant Accounting Policies and Estimates

    The Fund prepares its financial statements in conformity with GAAP, which
requires management to make estimates, judgments and assumptions that
management believes are reasonable based upon the information available. These
estimates, judgments and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Management bases its estimates on historical
experience and other assumptions, which it believes to be reasonable under the
circumstances. Management also evaluates its estimates on an ongoing basis.
The effect on the financial statements of changes in such estimates in future
periods could be material and would be accounted for in the period a change
occurs.
    The significant accounting policies of the Fund are described in Note 3 of
the Fund's audited consolidated financial statements as at December 31, 2006.
    The policies which the Fund believes are the most critical to aid in fully
understanding and evaluating its reported financial results include the
following:

    Flying Asset Amortization

    Flying assets are comprised of helicopter airframes, rotables and related
equipment. The recoverability of the book value of the flying assets is, in
part, dependent on the estimates used in determining the expected period of
future benefits over which to amortize flying assets. This takes into
consideration the Fund policy regarding the overhaul and maintenance of the
flying assets, which is to maintain them, on a group basis, at least at the
mid time of their useful life. In addition, such recoverability is dependent
on market conditions, including demand for certain types of aircraft, and
changes in technology arising from the introduction of newer, more efficient
aircraft. These estimates could therefore vary materially from actual
experience.

    Helicopter Overhaul and Maintenance Costs

    The helicopter airframes and components are inspected, repaired and
overhauled at pre-specified intervals. Such overhaul and maintenance costs are
expensed as incurred under the direct expensing method and, as such, may vary
from one period and one year to another.

    Inventory

    Inventory, consisting primarily of aircraft parts, is valued at the lower
of cost, determined using the first-in, first-out method, and replacement
cost. Canadian Helicopters has to maintain a significant number of parts in
inventory, in order to minimize disruptions, as they are not always readily
available from third party suppliers. Canadian Helicopters regularly assesses
the level of slow-moving and obsolete parts and estimates the provision
required based on several factors, including technology factors, anticipated
needs and the passage of time. These estimates could therefore vary materially
from actual experience.

    Valuation of Goodwill

    At the time of acquisition, goodwill is determined and recorded as the
excess of the purchase price over the fair value of identifiable tangible and
tangible assets acquired. The Fund performs an impairment test for goodwill at
least annually by using the discounted cash flow method to determine the fair
value of its business. As at December 31, 2006, the Fund performed a goodwill
impairment test using the discounted cash flow method based upon management's
best estimates which reflects the Fund's planned course of action and the
estimated potential impact of the proposed new Canadian tax legislation for
publicly-traded income trusts which would results in taxing the Funds
distributions at a rate of 31.5% beginning in the year 2011 see Risk factors -
income tax matters. The Fund concluded that there was no impairment in the
carrying amount of its goodwill. The Fund management will continue to monitor
the resulting impact of the new proposed tax legislation on the income trust
equity market and will review its estimates and assumptions accordingly and
any changes in such estimates and assumptions in future periods could result
in a goodwill impairment which could be significant.

    Intangible assets

    The Fund has recognized intangible assets that are comprised of customer
relationships and trade name. Customers' relationships have definite lives and
are amortized on a straight-line basis over eight years. Management's judgment
is required to determine the useful life of the intangible assets and, where
it is believed to be required, an impairment provision is recorded.

    Income Taxes

    Canadian Helicopters uses the liability method of accounting for income
taxes. Under this method, future income tax assets and liabilities are
determined based on temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using the tax rates
substantially enacted at the balance sheet date. The effect of changes in
income tax rates on future income tax assets and liabilities is recognized in
earnings in the period that the change becomes substantially enacted.
    Since Canadian Helicopters operates in all jurisdictions in Canada, having
different statutory tax rates, the determination of the future income tax
assets and liabilities is also subject to Canadian Helicopters' estimates as
to any future changes in the proportion of its business derived from each of
the jurisdictions. These estimates could therefore vary materially from actual
experience.
    Under the current terms of the Income Tax Act (Canada), the Fund is not
subject to income taxes to the extent that its taxable income in a year is
paid or payable to a unitholder. Accordingly, no provision for current income
taxes for the Fund is made. In addition, the Fund is not subject to the
recommendations of CICA Section 3465, as the Fund is contractually committed
to distribute to its unitholders all or virtually all of its taxable income
and taxable capital gains that would otherwise be taxable in the Fund. The
Fund intends to continue to meet the requirements under the Income Tax Act
(Canada) applicable to such trusts, and there is no indication that the Fund
will fail to meet those requirements.
    On October 31, 2006, the Minister of Finance (Canada) announced proposed
changes to the taxation of publicly traded income trusts. The proposed
changes, if enacted, will result in the taxation, at the rate of 31.5%, of
distributions made by the Fund beginning in the year 2011.

    Revenue Recognition

    Revenue from helicopter operations are recognized based on the terms of
customer contracts which generally provide for revenue on the basis of flight
hours at contract rates or fixed monthly charges or a combination of both.
    Revenues from long-term contracts where the Fund provides on site
maintenance and airworthiness supports are recognized based on the percentage
of completion method. The Fund uses the cost-to-cost method to measure
progress towards completion on contracts. Estimated losses on contracts are
recognized when they become known. These estimates could therefore vary
materially from actual experience.

    Recent Accounting Pronouncements

    Comprehensive Income

    The CICA issued section 1530 of the CICA Handbook, "Comprehensive Income".
The section is effective for fiscal years beginning on or after October 1,
2006. It describes how to report and disclose comprehensive income and its
components. Comprehensive income is the change in a company's net assets that
results from transactions, events and circumstances from sources other than
the company's shareholders. It includes items that would not normally be
included in net earnings, such as unrealized gains or losses on
available-for-sale investments.

    Equity

    The CICA also made changes to section 3250 of the CICA Handbook,
"Surplus", and reissued it as section 3251, "Equity." The section is also
effective for fiscal years beginning on or after October 1, 2006. The changes
in how to report and disclose equity and changes in equity are consistent with
the new requirements of section 1530, "Comprehensive Income". Adopting these
sections on January 1, 2007, will require the Fund to report comprehensive
income and its components and accumulated other comprehensive income and its
components in the consolidated financial statements.

    Financial Instruments - Recognition and Measurement

    The CICA issued section 3855 of the CICA Handbook, "Financial Instruments
- Recognition and Measurement." The section is effective for fiscal years
beginning on or after October 1, 2006. It describes the standards for
recognizing and measuring financial assets, financial liabilities and non-
financial derivatives. This section requires that:

    - All financial assets be measured at fair value, with some exceptions,
      such as loans and investments that are classified as held-to-maturity;
    - All financial liabilities be measured at fair value if they are
      derivatives or classified as held for trading purposes. Other financial
      liabilities are measured at their carrying value; and
    - All derivative financial instruments to be measured at fair value, even
      when they are part of a hedging relationship.

    Hedges

    The CICA recently issued section 3865 of the CICA Handbook, "Hedges." The
section is effective for fiscal years beginning on or after October 1, 2006,
and describes when and how hedge accounting can be used. Hedging is an
activity used by a company to change an exposure to one or more risks by
creating an offset between:

    - Changes in the fair value of a hedged item and a hedging item;
    - Changes in the cash flows attributable to a hedged item and a hedging
      item; or
    - Changes resulting from a risk exposure relating to a hedged item and a
      hedging item.

    Hedge accounting ensures that all gains, losses, revenues and expenses
from the derivative and the item it hedges are recorded in the income
statement in the same period.
    The Fund is currently evaluating the individual impact on the consolidated
financial statements of adopting these four accounting pronouncements in its
first quarter of 2007.

    Recent Events

    On February 14, 2007, the Fund declared the distribution for the period
from February 1, 2007 to February 28, 2007 on Trust units and Class B LP
units, in the amount of $1.162 million or $ $0.0875 per unit , for registered
unitholders and Class B LP unitholders on February 28, 2007. This distribution
will be paid on March 15, 2007.
    On January 12, 2007, the Fund declared the distribution for the period
from January 1, 2007 to January 31, 2007 on Trust units and Class B LP units,
in the amount of $1.162 million or $ $0.0875 per unit, for registered
unitholders and Class B LP unitholders on January 31, 2007. This distribution
was paid on February 15, 2007

    Risk Factors

    The results of operations, business prospects and financial condition of
Canadian Helicopters are subject to a number of risks and uncertainties, and
are affected by a number of factors outside the control of Canadian
Helicopters' management including those described below. Those should be read
together with the otherrisk factors set forth in the Section entitled "Risk
Factors" in the Fund's Annual Information Form (which can be found at
www.sedar.com).

    Reliance on Major Customers

    Canadian Helicopters derives a significant amount of its revenue from a
small number of customers. For the twelve months ended December 31, 2006,
Canadian Helicopters' two largest customers accounted for 34.3% of revenue, as
compared to 40.4% in the comparative period of 2005. The contracts with the
Ornge and USAF contain provisions permitting early termination by the
customer. Canadian Helicopters' loss of any one of these customers could have
a material adverse effect on Canadian Helicopters' business, results of
operations and financial condition.
    Upon expiration of their term, the contracts with the Ornge and USAF may
be subject to a bidding process that could result in the loss of these
contracts to competitors capable of servicing such contracts. A bidding
process is subject to factors over which Canadian Helicopters has little or no
control, including: (i) the internal review process by customers for bid
acceptance; (ii) changes in customer administration and personnel; (iii)
budget restrictions of customers; (iv) competition generated by the bidding
process; and (v) the possibility of cancellation or delay by the customers.
Any delay in the bidding process, any changes to the bidding practices and
policies, the failure to receive the bid or the failure to execute may disrupt
Canadian Helicopters' business, results of operations and financial condition.

    Seasonality

    Helicopter operations are subject to seasonal variations. Demand for
onshore helicopter services is significantly higher during the months of May
to October and may further increase during the summer months. Reduced demand
for helicopter services during the months of November to April is generally
due to adverse weather conditions and fewer daylight hours and, in some cases,
the availability of ice roads, particularly in the VFR market. In addition,
depending on weather conditions, forest fires can lead to increased business
activity in the summer months. Operating results therefore vary from quarter
to quarter, depending on these seasonal factors. Results of one quarter are
not indicative of results that may be achieved for the full year. Seasonal
variations can have a material effect on Canadian Helicopters' business,
results of operations and financial condition, including its cash flow and
level of indebtedness.
    In addition, adverse weather conditions during the peak periods of the
year could reduce the number of flight hours and have a material adverse
effect on Canadian Helicopters' business, results of operations and financial
condition.

    Competition

    Although Canadian Helicopters is the largest helicopter transportation
services company operating onshore in Canada, it faces competition in each
region of the country where it carries on business from a variety of regional
competitors, particularly in the VFR market. There can be no assurance that
Canadian Helicopters' principal competitors will not be successful in
capturing, or that new competitors will not emerge and capture, a share of
Canadian Helicopters' present or potential customer base.
    It is also possible that some of Canadian Helicopters' customers may elect
to perform their own helicopter operations. In addition, certain helicopter
services could also be provided by other types of aircraft not currently
operated by Canadian Helicopters.
    Finally, although CHC Helicopter Corporation is currently restricted from
carrying business in the Canadian onshore helicopter transportation services
market pursuant to a non-competition undertaking in favour of Canadian
Helicopters, this undertaking will terminate on the third anniversary of the
closing of the initial public offering of the Fund completed on September 9,
2005. Thereafter, there can be no assurance that CHC Helicopter Corporation,
which is significantly larger than Canadian Helicopters, will not enter this
market.
    There can be no assurance that Canadian Helicopters will be able to
compete successfully against its current or future competitors or that such
competition will not have a material adverse effect on Canadian Helicopters'
business, results of operation and financial condition.

    Obligations under long-term contracts

    The longer-term contractual arrangements entered into by Canadian
Helicopters in connection with its IFR business typically provide for the
option on the part of the customer to unilaterally terminate the contract upon
prior written notice and also provide the ability to withhold payments to
Canadian Helicopters in certain specific circumstances, such as the
unavailability of a dedicated aircraft or substandard provision of the
services. In addition, certain of these contracts are entered into on the
basis of a fixed price, without any maximum number of flight hours. The
unilateral termination by a customer of a significant long-term contract, the
withholding of payments by a customer under such a contract or the demand by a
customer for a significant number of flight hours in excess of Canadian
Helicopters' pricing under a fixed-fee arrangement could all have a material
adverse effect on Canadian Helicopters' business, results of operations and
financial condition.

    Reductions in Government Spending

    A reduction in the retention of Canadian Helicopters' services by
governments and quasi-governmental entities would have a material adverse
effect on its business, results of operations and financial condition given
that approximately 49.2% of Canadian Helicopters' revenue was derived,
directly or indirectly, from contracts with governments or quasi-governmental
entities for its year ended December 31, 2006. Canadian Helicopters' business
depends to a certain extent on the continued willingness of governments or
quasi-governmental entities to commit sufficient resources to existing and new
programs, such as EMS or the North Warning System. There are inherent risks in
contracting with governments or quasi-governmental entities. Laws and
regulations may permit governments to (i) terminate contracts for its
convenience, (ii) reduce, modify or cancel contracts or subcontracts if its
requirements or budgetary constraints change, and (iii) terminate contracts or
adjust their terms on the basis of internal audits. Any of these events could
have a material adverse effect on Canadian Helicopters' business, results of
operations and financial condition.

    Labour Relations

    Canadian Helicopters' employees, with the exception of its EMS pilots, are
non-unionized. On December 1, 2006 the EMS Pilot, as represented by the
"Office and Professional Employees International Union" ("OPEIU"), and
Canadian Helicopters agreed to the terms of their first collective agreement.
The agreement was ratified by the employee group on December 22, 2006, and
shall remain in force and effect from December 1, 2006 to November 30, 2010.
    There is no assurance that other Canadian Helicopters employees will not
unionize in the future. While labour relations have been stable to date, the
maintenance of a productive and efficient labour environment, and in the event
of unionization, the successful negotiation of a collective bargaining
agreement cannot be assured. Negotiations of a collective bargaining agreement
could result in a strike or work stoppage by the affected workers or higher
wages or benefits paid to union members. Any disruptions of Canadian
Helicopters' operations or higher ongoing labour costs could have a material
adverse effect on Canadian Helicopters' business, results of operations and
financial condition.

    Fixed Costs

    The profitability of Canadian Helicopters is directly related to demand
for its helicopter services. Given that a substantial portion of its operating
expenses is fixed, a decrease in Canadian Helicopters' revenue could result in
a disproportionately higher decrease in Canadian Helicopters' earnings as a
substantial portion of its operating expenses would remain unchanged.

    Income tax matters

    There can be no assurance that Canadian federal income tax laws and
administrative policies respecting the treatment of mutual fund trusts will
not be changed in a manner which adversely affects the holders of Units.
    On October 31, 2006, the Minister of Finance (Canada) announced proposals
relating to the taxation of income trusts, which proposed that the Tax Act be
amended to impose tax on certain income earned by income trusts and other
publicly traded trusts and partnerships. On December 21, 2006 the Minister of
Finance (Canada) released draft legislation in respect of these proposals (the
"SIFT Proposals"). Under the SIFT Proposals, trusts or partnerships (defined
as "SIFT trusts" and "SIFT partnerships", respectively) the securities of
which are listed on a prescribed stock exchange or other public market and
that hold one or more "non-portfolio properties" (as defined) would
effectively be taxed on income and capital gains in respect of such non-
portfolio properties at combined rates comparable to the rates that apply to
income earned and distributed by Canadian corporations. Distributions of such
income received by unitholders of SIFT trusts (and allocations of such income
made to members of SIFT partnerships) would be treated as dividends from a
taxable Canadian corporation.
    As currently drafted, the SIFT Proposals will not apply to income trusts,
the units of which were publicly traded as of October 31, 2006, such as the
Fund, until January 1, 2011, subject to issues of "undue expansion" discussed
further herein.
    The 2006 SIFT Proposals characterize a trust as a SIFT trust if the trust
meets all the following criteria: (i) the trust is resident in Canada; (ii)
the units of the trust are listed on a stock exchange; and (iii) the trust
holds one or more "non-portfolio properties".
    Non-portfolio property of a trust includes certain Canadian real and
resource properties, property that the trust (or a non-arm's length person or
partnership) uses in the course of carrying on a business in Canada, and
investments in certain "subject entities". A subject entity is defined in the
SIFT Proposals to include a trust resident in Canada, a corporation resident
in Canada and a Canadian resident partnership. An investment by a trust in a
subject entity will be a non-portfolio property if the investment meets either
(or both) of the following tests:

    - The trust holds securities of the subject entity that have a total fair
      market value that is greater than 10% of the subject entity's "equity
      value". For this purpose the equity value of a subject entity that is a
      trust (such as the Trust) is the total fair market value of all of the
      income and capital interests in the trust.
    - The trust holds securities of the subject entity that, together with
      all of the securities that the trust holds of entities affiliated with
      the subject entity, have a total fair market value that is greater than
      50% of the equity value of the trust itself. For this purpose, a
      trust's equity value is the total fair market of all of the income and
      capital interests of the trust.

    Assuming that the final legislation enacts the SIFT Proposals as currently
drafted, it is expected that (i) the Fund will be a SIFT trust; (ii) the new
distribution tax (subject to any undue expansion) will apply to the Fund
commencing in 2011; and (iii) distributions which have been subject to the new
distribution tax will be characterized as taxable dividends received from a
taxable Canadian corporation for Unitholders. No assurance can be given that
the final legislation implementing the SIFT Proposals will be consistent with
the foregoing or that Canadian federal income tax law respecting income trusts
and other flow-through entities will not be further changed in a manner which
adversely affects the Fund and its Unitholders.
    The SIFT Proposals permit normal growth for SIFT trusts the units of which
were publicly traded as at October 31, 2006 throughout the transitional period
between October 31, 2006 and December 31, 2010. However, "undue expansion" of
a SIFT trust could cause the deferred application of the new tax regime to be
revisited, and SIFT Proposals to be effective at a date earlier than January
1, 2011.
    Currently, a trust will not be considered to be a mutual fund trust if it
is established or maintained primarily for the benefit of non-residents of
Canada (within the meaning of the Tax Act) unless all or substantially all of
its property is property other than "taxable Canadian property" as defined in
the Tax Act. The Fund Declaration of Trust contains mechanisms to ensure that
the Fund is not maintained primarily for the benefit of non-residents of
Canada. On September 16, 2004, the Minister of Finance (Canada) released draft
amendments to the Tax Act providing that a trust will lose its status as a
mutual fund trust if the aggregate fair market value of all units issued by
the trust held by one or more non-residents of Canada or partnerships that are
not "Canadian partnership" (as defined on the Tax Act) is more than 50% of the
aggregate fair market value of all the units issued by the trust where more
than 10% (based on fair market value) of the trust's property is "taxable
Canadian property" or certain other types of property. If the draft amendments
are enacted as proposed, and if, at any time, more than 50% of the aggregate
fair market value of Units of the Fund were held by non-residents of Canada
and non-Canadian partnerships, the Fund may thereafter cease to be a mutual
fund trust. The draft amendments do not currently provide any means of
rectifying a loss of mutual fund trust status. On December 6, 2004, the
Minister of Finance (Canada) tabled a Notice of Ways and Means Motion which
did not include the proposed changes. In addition, the Minister of Finance
(Canada) indicated that the implementation of the proposed changes would be
suspended pending further consultation with interested parties.
    Interest on the Trust Notes accrues at the Fund level for Canadian federal
income tax purposes, whether or not actually paid. The Fund Declaration of
Trust provides that a sufficient amount of the Fund's net income and net
realized capital gains will be distributed each year to Unitholders in order
to eliminate the Funds liability for tax under Part I of the Tax Act. Where
such amount of net income (including interest on the Trust Notes) and net
realized capital gains of the Fund in a taxation year exceeds the cash
available for distribution in the year, such excess net income and net
realized capital gains will be distributed to Unitholders in the form of
additional Units. Unitholders will generally be required to include an amount
equal to the fair market value of those Units in their taxable income, in
circumstances when they do not directly receive a cash distribution.

    Forward-looking statements

    Certain statements in this management's discussion and analysis contain
"forward looking" statements that involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Fund or Canadian Helicopters to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. When used in this management's discussion and
analysis, such statements use such words as "may," "will," "intend," "should,"
"expect," "believe," "plan," "anticipate," "estimate," "predict," "potential,"
"continue," the negative of these terms or other similar terminology. These
statements reflect current expectations regarding future events and operating
performance and speak only as of the date of this management's discussion and
analysis. Forward-looking statements involve significant risks and
uncertainties, should not be read as guarantees of future performance or
results, and will not necessarily be accurate indications of whether or not
such results will be achieved. A number of factors could cause actual results
to differ materially from the results discussed in the forward-looking
statements, including, but not limited to, customer concentration, reliance on
suppliers and other risks described in the Fund's Annual Information Form.
These forward-looking statements contained in this management's discussion and
analysis are made as of the date of release of this management's discussion
and analysis, and the Fund does not assume any obligation to update or revise
them to reflect new events or circumstances unless being required by
applicable laws.

    Additional Information

    Additional information relating to the Fund and Canadian Helicopters,
including the Fund's annual information form, is available on SEDAR at
www.sedar.com.
    




For further information:

For further information: Please contact: Canadian Helicopters Limited: 
Jean-Pierre Blais, Président, (450) 452-3007; Don Wall, Senior Executive Vice
President, (780) 429-6919


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