Air Canada 2007 Annual Report Download - page 51

Management’s Discussion and Analysis of Results and Financial Condition
51
The Relationship between Air Canada 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 Air Canada’s consolidated fi nancial statements under AcG-15 up to May 24, 2007. Jazz is still considered
to be a variable interest entity to Air Canada however Air Canada is no longer the primary benefi ciary under AcG-15.
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 Air Canada, certain premises at airports across Canada.
Jazz Capacity Purchase Agreement (Jazz CPA)
Air Canada and Jazz are parties to the Jazz CPA, effective January 1, 2006 pursuant to which Air Canada 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 applicable term. The rates under the Jazz CPA are
subject to periodic adjustment with the next adjustment scheduled for the start of 2009.
Jazz Master Services Agreement (Jazz MSA)
Air Canada and Jazz are parties to the Jazz MSA pursuant to which Air Canada provides certain services to Jazz in return for
a fee based on the fair market value of the services provided by Air Canada to Jazz. Pursuant to the Jazz MSA, Air Canada
provides Jazz with infrastructure support consisting principally of administrative services in relation with information
technology, corporate real estate, environmental affairs and legal services. Jazz benefi ts from certain information technology
services available to Air Canada from third parties and from Air Canada’s internal information technology resources.
Either Air Canada or Jazz may elect to terminate any services under the Jazz MSA (without terminating the whole Jazz
MSA) or the entire Jazz MSA upon one year’s prior written notice. The Jazz MSA terminates upon the termination of the
Jazz CPA.
Jazz Trademark License Agreements
Air Canada and Jazz are parties to the Jazz Trademark License Agreement pursuant to which Air Canada has granted Jazz
a royalty-free, non-exclusive, non-sublicensable, non-assignable right to use certain trademarks owned or registered by
Air Canada around the world including “Jazz” and certain trademarks which incorporate the Air Canada name, and/or
Air Canada’s roundel design, solely in association with the Jazz business. The Jazz Trademark License Agreement can be
terminated in the event that the Jazz CPA is terminated. However, Air Canada and Jazz have also entered into a Jazz Special
Trademark Agreement which would grant all of Air Canada’s rights to the Jazz trademark to Jazz (and preclude Air Canada
from using the Jazz trademark or licensing the Jazz trademark to third parties) upon the occurrence of certain events
involving (i) the expiration or termination of the Jazz CPA if, at such time, Jazz is no longer an affi liate of Air Canada; (ii)
the occurrence of a change of control pursuant to which Jazz ceases to be an affi liate of Air Canada if, at or prior to such
time, the Jazz CPA has expired or has been terminated; or (iii) the sale or transfer of all or substantially all of the assets or
business of Jazz to a third party that is not an affi liate of Air Canada if, at or prior to such time, the Jazz CPA has expired or
has been terminated.