Air Canada 2007 Annual Report Download - page 135

Consolidated Financial Statements and Notes
135
Air Canada is one of Aeroplan’s leading partners and it pays a fee to participate in the Aeroplan program, which fee
is based on the Aeroplan miles awarded to Aeroplan members who are Air Canada customers traveling on AC Flights.
Aeroplan is required to purchase a minimum number of reward travel seats on AC Flights annually, 2007 - $171
(2006 - $170), which number is a function of Aeroplan’s consumption of seats in the three preceding calendar years.
Moreover, the Corporation is required to purchase a minimum number of Aeroplan miles annually.
The Aeroplan CPSA also provides that Aeroplan shall, in return for a service fee, manage the Corporation’s frequent
fl yer tier membership program for Air Canada Super Elite™, Elite™ and Prestige™ customers, as well as perform
certain marketing and promotion services for the Corporation, including call centre services for the frequent fl yer tier
membership program.
Aeroplan Master Services Agreement (Aeroplan MSA)
Air Canada and Aeroplan are parties to the Aeroplan MSA effective January 1, 2005 pursuant to which, the Corporation
provides certain services to Aeroplan in return for a fee based on the Corporation’s fully allocated cost of providing
such services to Aeroplan plus a mark-up to refl ect overhead and administrative costs. Pursuant to the Aeroplan MSA,
the Corporation provides Aeroplan with infrastructure support which is mostly administrative in nature, including
information technology, human resources, fi nance and accounting, and legal services. Amounts related to the MSA
are included in the table summarizing related party revenues and expenses under Revenues from corporate services
and other.
Aeroplan General Services Agreement (Aeroplan GSA)
Air Canada and Aeroplan are parties to the Aeroplan GSA effective January 1, 2005 pursuant to which the Corporation
provides Aeroplan with the services of a group of call centre employees of the Corporation. Aeroplan must reimburse
Air Canada for all costs, including salary and benefi ts, related to the call centre employees on a fully allocated basis.
With regard to the shortfall in the pension plan maintained by the Corporation, which covers, among others, these
call centre employees, Aeroplan has agreed to pay an amount not to exceed $11 over a six year period ending in
2013 to compensate the Corporation for call centre employees’ share of the unfunded Air Canada pension liability.
Either party may, subject to collective agreements of the employees assigned to Aeroplan, terminate the GSA upon
six months notice.
Trademark License Agreement
Pursuant to a Trademark License Agreement effective May 13, 2005, Air Canada and Aeroplan have granted each
other reciprocal royalty-free, non-exclusive, non-sublicensable, non-assignable rights to use certain of each other’s
trademarks around the world which incorporate their names or logos, solely in association with the Aeroplan Program.
No fees were charged or earned under this agreement for 2007 and 2006.
The Relationship between the Corporation and Jazz
ACE reported a 20.1% ownership interest in Jazz Air Income Fund at December 31, 2007. On January 24, 2008,
ACE’s ownership interest in Jazz Air Income Fund was reported to have been reduced to 9.5%. Air Canada has no
ownership interest in Jazz. Jazz is consolidated in these consolidated fi nancial statements under AcG-15 up to May
24, 2007. Jazz is still considered to be a variable interest entity to the Corporation, however, is no longer the primary
benefi ciary under AcG-15 (refer to Note 1). The deconsolidation of Jazz does not impact any of the contractual
arrangements between Air Canada and Jazz.
In addition to the agreements summarized below, Air Canada and Jazz are also parties to a number of lease agreements
pursuant to which Jazz leases or subleases, from the Corporation, certain premises at airports across Canada. Refer to
Note 16, Commitments for further details.
Jazz Capacity Purchase Agreement (Jazz CPA)
Air Canada and Jazz are parties to the Jazz CPA, effective January 1, 2006, pursuant to which the Corporation
purchases substantially all of Jazz’s fl eet capacity based on predetermined rates, in addition to reimbursing Jazz,
without mark-up, for certain pass-through costs as defi ned in the Jazz CPA which include fuel, airport and navigation
fees. The fees include both a variable component that is dependent on Jazz aircraft utilization and a fi xed component.
The initial term of the Jazz CPA expires December 31, 2015. There are two automatic renewal periods of fi ve years
each, subject to either party’s right not to renew by notice at least one year prior to the expiration of the then