Air Canada 2007 Annual Report Download - page 50

2007 Air Canada Annual Report
50
12. RELATED PARTY TRANSACTIONS
At December 31, 2007, ACE had a 75% ownership interest in Air Canada. Air Canada has various related party transactions
with ACE and other ACE-related entities, including Aeroplan, Jazz and ACTS Aero Technical Support & Services Inc. (“ACTS
Aero”). ACTS Aero conducts the business operated by ACTS LP prior to monetization of ACTS LP announced by ACE and
completed on October 16, 2007.
The Relationship between Air Canada and Aeroplan
ACE has reported holding a 20.1% ownership interest in Aeroplan Income Fund at December 31, 2007. Aeroplan operates a
loyalty program which provides loyalty marketing services to its customers. The transactions between Air Canada and Aeroplan
described below are recorded at the exchange amount and are settled by netting amounts payable against amounts receivable
in accordance with the intercompany agreements with any outstanding balance paid in the subsequent period. Accordingly, at
December 31, 2007 and December 31, 2006, the amounts have been presented on a net basis as the parties intend to settle on
a net basis.
Aeroplan Commercial Participation and Services Agreement (Aeroplan CPSA)
Air Canada and Aeroplan are parties to the Aeroplan CPSA dated June 9, 2004. Pursuant to the Aeroplan CPSA, Air Canada allocates
8% of the seat capacity to Aeroplan on the fl ights operated by Air Canada and Jazz and certain other air carriers under the Air
Canada code (collectively, the “AC Flights”) at a fi xed redemption cost. In 2007, the rates charged for such seat capacity were
renegotiated in accordance with the Aeroplan CPSA for the period January 1, 2008 through to December 31, 2010. Aeroplan may
also purchase an unlimited number of available seats based on published fares with a variable discount depending on the fare
product. Any adjustment to this variable discount is based on an identifi ed set of parameters. The Aeroplan CPSA also provides that
Aeroplan will be charged the lowest fares charged to any other loyalty program taking into account Aeroplan’s volume purchase of
Air Canada’s seat inventory. The Aeroplan CPSA expires June 29, 2020 with four automatic renewals of fi ve year each, unless either
party provides notice of its intention not to renew at least twelve months prior to the expiry of the applicable term.
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 million (2006 - $170 million), which
number is a function of Aeroplan’s consumption of seats in the three preceding calendar years. Moreover, Air Canada 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 Air Canada’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 Air Canada, 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 Air Canada provides
certain services to Aeroplan in return for a fee based on Air Canada’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, Air Canada provides Aeroplan with
infrastructure support which is mostly administrative in nature, including information technology, human resources, fi nance and
accounting, and legal services.
Aeroplan General Services Agreement (GSA)
Air Canada and Aeroplan are parties to the Aeroplan GSA effective January 1, 2005 pursuant to which Air Canada provides Aeroplan
with the services of a group of call centre employees of Air Canada. 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 Air Canada which covers, among others, these call centre employees, Aeroplan has agreed to pay an amount not to
exceed $11 million over a six year period to compensate Air Canada 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.