Air Canada 2007 Annual Report Download - page 39

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Management’s Discussion and Analysis of Results and Financial Condition
39
Under the terms of their respective land leases, each Fuel Facility Corporation (described in section 11 of this MD&A
“Off-Balance Sheet Arrangements”) has 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 were 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
all Fuel Facility Corporations in Canada in which the Corporation participates, the Corporation has recorded an obligation of
$7 million ($44 million 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. The estimated fair value of the obligation is nil.
7.6 PENSION FUNDING OBLIGATIONS
The table below provides projections for Air Canada’s pension funding obligations for the years 2008 through to 2012,
assuming no change in economic conditions. Changes in the economic conditions, mainly the return on fund assets and
changes in interest rates will impact projected required contributions. These funding projections are updated annually. The
required contributions disclosed below assume no future gains and losses on plan assets and liabilities over the projection
period and do not refl ect the economic experience of 2007. Based on preliminary estimates, the solvency defi cit on the
registered pension plans at January 1, 2008 is expected to increase compared to January 1, 2007 and, as a result, employer
contributions determined in accordance with regulations are expected to increase by $90 million in 2008 and $120 million
each year thereafter. These preliminary estimates have not been refl ected in the table below.
Air Canada ($ millions) 2008 2009 2010 2011 2012
Past service domestic registered plans $ 91 $ 92 $ 93 $ 93 $ 93
Current service domestic registered plans 166 171 176 181 186
Other pension arrangements (1) 86 65 69 74 79
Projected pension funding obligations $ 343 $ 328 $ 338 $ 348 $ 358
(1) Includes retirement compensation arrangements, supplemental plans and international plans
The above pension funding requirements are in respect of Air Canada’s pension arrangements. For domestic registered pension
plans, the funding requirements are based on the minimum past service contributions disclosed in the January 1, 2007 actuarial
valuation plus a projection of the current service contributions. Air Canada entered into the Pension and Benefi ts Agreement with
ACTS LP and ACTS Aero Technical Support & Services Inc. (“ACTS Aero”). Refer to section 12 of this MD&A (“Related Party
Transactions”) for additional information.
The net defi cit, on an accounting basis, at December 31, 2007 for pension benefi ts was $403 million compared to
$1,377 million at December 31, 2006. The decrease in the accounting defi cit was mainly the result of an increase in the
discount rate and the funding of past service contributions of $134 million offset by a negligible return on plan assets.