Air Canada 2007 Annual Report Download - page 141

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Consolidated Financial Statements and Notes
141
21. JAZZ IPO
On February 2, 2006, Jazz Air Income Fund completed an initial public offering of its fund units. The Jazz Fund is an
unincorporated, open-ended trust. With the proceeds of the initial public offering, the Jazz Fund subscribed for 23.5 million
units of Jazz at a price of $10.00 per unit for net proceeds of $218, net of offering costs of $17 that were paid during
Quarter 1 2006. Concurrent with the closing of the initial public offering, Jazz received proceeds of $113, net of fees of $2,
representing the drawing under a new term credit facility (refer to Note 8).
On February 27, 2006, following the exercise of the over-allotment option by the underwriters, the Jazz Air Income Fund
issued an additional 1.5 million units at a price of $10.00 per unit for additional net proceeds of approximately $14. The
proceeds of the over allotment were used to acquire 1,500,000 Jazz partnership units from ACE.
In connection with the initial public offering, Jazz Air Limited Partnership transferred substantially all of its assets and
liabilities to the new Jazz Air LP that was wholly owned by ACE. In consideration ACE received 99,365,143 units of the Jazz
Air LP partnership and an acquisition promissory note of $424. The acquisition promissory note was repaid by Jazz Air LP
to ACE from proceeds it received from the offering, a drawdown under its new term credit facility (Note 8) and out of the
working capital of Jazz Air LP.
22. 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 and Services Agreement (CPSA) between Air Canada and Aeroplan, Air Canada retained
responsibility for the 103 billion Miles to be redeemed from accumulations 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.
In 2006, management of Air Canada and Aeroplan re-estimated the number of Miles expected to be redeemed from
accumulations up to December 31, 2001. As a result, management of Air Canada and Aeroplan concluded that they expected
that 112 billion Miles would be redeemed compared to the original estimate of 103 billion. Pursuant to the terms of the
CPSA, dated June 9, 2004, as amended, the management of Air Canada and Aeroplan agreed to further amend the terms
of the CPSA. Effective October 13, 2006, by amendment, Air Canada assumed responsibility for the redemption of up to
112 billion Miles and, as a result, recorded a special charge of $102 for the incremental 9 billion Miles against Operating
revenues in the year ended December 31, 2006 and increased Aeroplan deferred revenues. This amendment to the CPSA
represented full and fi nal settlement with Aeroplan of 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 fair value.