Air Canada 2007 Annual Report Download - page 132

2007 Air Canada Annual Report
132
Other Contingencies
Various other lawsuits and claims, including claims fi led by various labour groups of Air Canada are pending by and
against the Corporation and provisions have been recorded where appropriate. It is the opinion of management that fi nal
determination of these claims will not have a signifi cant material adverse effect on the fi nancial position or the results of
the Corporation.
With respect to 45 aircraft leases, the difference between the amended rents as a result of the implementation of the Plan
of Reorganization, Compromise and Arrangement (the “Plan”) under the Companies’ Creditors Arrangement Act (“CCAA”)
on September 30, 2004 and amounts due under the original lease contracts will be forgiven at the expiry date of the 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
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 fi nance
the system that distributes the fuel to the contracting airlines, including leasing the Land Rights under the land lease.
The aggregate debt of the fi ve Fuel Facility Corporations in Canada that have not been consolidated by the Corporation
under AcG-15 is approximately $119 as at December 31, 2007 (2006 - $108), 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.
Indemnifi cation 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 indemnifi ed parties, but usually excludes any liabilities caused by their gross negligence
or willful misconduct. Additionally, the Corporation typically indemnifi es 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 fi nancing or leasing agreements, the Corporation typically indemnifi es the fi nancing parties, trustees acting on
their behalf and other related parties and/or lessors against liabilities that arise from the manufacture, design, ownership,
fi nancing, 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 indemnifi ed parties, except for their gross negligence or willful misconduct. In addition,
in aircraft fi nancing or leasing transactions, including those structured as leveraged leases, the Corporation typically
provides indemnities in respect of various tax consequences including in relation to the leased or fi nanced aircraft, the use,
possession, operation maintenance, leasing, subleasing, repair, insurance, delivery, import, export of such aircraft, the lease
or fi nance arrangements entered in connection therewith, changes of law and certain income, commodity and withholding
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 arise out of or relate
to the negligence of the service provider, but excluding liabilities that arise from the service provider’s gross negligence or
willful misconduct.
Under its general by-laws, the Corporation has indemnifi cation obligations to its directors and offi cers. Pursuant to such
obligations, the Corporation indemnifi es these individuals, to the extent permitted by law, against any and all claims or
losses (including amounts paid in settlement of claims) incurred as a result of their service to the Corporation.
The maximum amount payable under the foregoing indemnities cannot be reasonably estimated. The Corporation expects
that it would be covered by insurance for most tort liabilities and certain related contractual indemnities described above.