Air Canada 2006 Annual Report Download - page 22

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Special Charge for Aeroplan Miles
In 2001, Air Canada established Aeroplan Limited Partnership as a limited partnership wholly-owned by Air
Canada. The Aeroplan loyalty program was previously a division of Air Canada. Under the Commercial
Participation Services Agreement (“CPSA”) between Air Canada and Aeroplan, Air Canada retained
responsibility for the miles to be redeemed from accumulations of miles up to December 31, 2001. Aeroplan
assumed responsibility for all miles issued beginning January 1, 2002. On December 31, 2001, there were 171
billion miles outstanding of which, after considering breakage, Management estimated that 103 billion miles
would be redeemed.
With the assistance of independent actuaries, Management of Air Canada and Aeroplan re-estimated the
number of miles expected to be redeemed from accumulations up to December 31, 2001. Management expects
that 112 billion miles will be redeemed compared to the original estimate of 103 billion. Pursuant to the terms of
the CPSA dated June 9, 2004, as amended, Management of Air Canada and Aeroplan agreed to further amend
the terms of the CPSA. Effective October 13, 2006, by further amendment, Air Canada has assumed
responsibility for the redemption of up to 112 billion miles and, as a result, has recorded a special charge of
$102 million for the incremental 9 billion miles against operating revenues in the third quarter of 2006 and
increased Aeroplan deferred revenues. This charge is referred to as the "special charge for Aeroplan miles" in
this MD&A. This amendment to the CPSA represents full and final settlement between the parties in connection
with Air Canada's obligations for the redemption of pre-2002 miles. Aeroplan is responsible for any redemption
of miles in excess of the re-estimated 112 billion miles. The amount of the additional liability was determined by
valuing the incremental miles at the current fair value.
Special Charge for Labour Restructuring
A workforce reduction plan was announced in February 2006 to reduce the number of non-unionized employees
by 20 percent. As at February 14, 2007, approximately 75 percent of the planned reductions had been
completed. A special charge of $28 million was recorded in the Air Canada Services segment in Quarter 1 2006
relating to this program. During Quarter 4 2006, the estimated cost of this plan was revised due to the
favourable impact of attrition and other factors which reduced the cost of achieving the target. As a result, the
Air Canada Services segment recorded a reduction of $8 million in Quarter 4 2006 to the special charge for
labour restructuring.
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