Air Canada 2006 Annual Report Download - page 118

leases if no material defaults have occurred. If a material default occurs, this difference plus interest will become
due and payable and all future rent will be based on the original contracted rates. Rent expense is being
recorded on the renegotiated lease agreements and any liability would be recorded only at the time
management believes the amount is likely to occur.
Guarantees in Fuel Facilities Arrangements
The Corporation participates in fuel facility arrangements operated through fuel facility corporations ("Fuel
Facility Corporations"), along with other airlines that contract for fuel services at various major airports in
Canada. The Fuel Facility Corporations operate on a cost recovery basis. The purpose of the Fuel Facility
Corporations is to own and finance the system that distributes the fuel to the contracting airlines, including
leasing the Land Rights under the land lease. The aggregate debt of the five Fuel Facility Corporations in
Canada that have not been consolidated by the Corporation under AcG-15 is approximately $108 as at
December 31, 2006 (2005 $87), which is the Corporation's maximum exposure to loss without taking into
consideration any cost sharing that would occur amongst the other contracting airlines. The Corporation views
this loss potential as remote. Each contracting airline participating in a Fuel Facility Corporation shares pro rata,
based on system usage, in the guarantee of this debt.
Under the terms of their respective land leases, the Fuel Facility Corporations have an obligation to restore the
land to vacant condition at the end of the lease and to rectify any environmental damage for which it is
responsible. If it was found that the Fuel Facility Corporations had to contribute to any remediation costs, each
contracting airline would share pro rata, based on system usage, in the costs. For Fuel Facility Corporations
that are consolidated, the Corporation has recorded an obligation of $2 ($12 undiscounted) representing the
present value of the estimated decommissioning and remediation obligations at the end of the lease using an
8% discount rate, with lease term expiry dates ranging from 2032 to 2039. This estimate is based on numerous
assumptions including the overall cost of decommissioning and remediation and the selection of alternative
decommissioning and remediation approaches. For Fuel Facilities Corporations that are not consolidated, the
Corporation will also be responsible for any remediation costs that may be incurred. No amount has been
accrued in these financial statements for these future costs.
Guarantees of Related Parties
The Corporation is jointly and severally liable for its own obligations and those of a related party subject to
common control by ACE, pursuant to a merchant services agreement entered into with First Data Loan
Company, Canada, in the event that such entities were unable to fulfill their obligations related to airline and
tour tickets sold in advance and charged to the credit cards processed under the agreement. The maximum
exposure related to this guarantee as at December 31, 2006 was estimated to be $10 million ($8 million as at
December 31, 2005)
Indemnification Agreements
The Corporation enters into real estate leases or operating agreements, which grant a license to the
Corporation to use certain premises, in substantially all cities that it serves. It is common in such commercial
lease transactions for the Corporation as the lessee to agree to indemnify the lessor and other related third
parties for tort liabilities that arise out of or relate to the Corporation's use or occupancy of the leased or licensed
premises. Exceptionally, this indemnity extends to related liabilities arising from the negligence of the
indemnified parties, but usually excludes any liabilities caused by their gross negligence or willful misconduct.
Additionally, the Corporation typically indemnifies such parties for any environmental liability that arises out of or
relates to its use or occupancy of the leased or licensed premises.
In aircraft financing or leasing agreements, the Corporation typically indemnifies the financing parties, trustees
acting on their behalf and other related parties and/or lessors against liabilities that arise from the manufacture,
design, ownership, financing, use, operation and maintenance of the aircraft and for tort liability, whether or not
these liabilities arise out of or relate to the negligence of these indemnified parties, except for their gross
negligence or willful misconduct. In addition, in aircraft financing or leasing transactions, including those
structured as leveraged leases, the Corporation typically provides indemnities in respect of certain tax
consequences.
When the Corporation, as a customer, enters into technical service agreements with service providers, primarily
service providers who operate an airline as their main business, the Corporation has from time to time agreed to
indemnify the service provider against liabilities that arise from third party claims, whether or not these liabilities
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