Air Canada 2007 Annual Report Download - page 53

Management’s Discussion and Analysis of Results and Financial Condition
53
Real Estate Agreements
As part of the closing of the monetization of ACTS LP, Air Canada sold a building to ACTS Aero for proceeds of $28 million
effective as of October 16, 2007. In connection with the sale, Air Canada and ACTS Aero entered into a land sublease for
certain land contiguous with the building and a service contract whereby Air Canada provides ACTS Aero certain services
related to the operation of the building.
ACTS Aero and Air Canada are parties to a master lease agreement, effective as of October 1, 2006, pursuant to which ACTS
Aero leases space from Air Canada at the Vancouver, Winnipeg, Toronto and Montreal airports.
Pension and Benefi ts Agreement
Air Canada, ACTS LP and ACTS Aero entered into a Pension and Benefi ts Agreement effective as of October 16, 2007 (“Pension
and Benefi ts Agreement”), relating to pension and benefi ts arrangements pertaining to non-unionized and unionized
employees of Air Canada who were previously assigned to ACTS LP pursuant to general services agreements between Air
Canada and ACTS LP. On October 16, 2007, non-unionized employees of Air Canada who were previously assigned to the
ACTS LP operation became employees of ACTS Aero. New defi ned benefi t and defi ned contribution pension plans as well
as other employee and retiree benefi t arrangements (including health, life and disability) are to be established by ACTS
Aero (the “ACTS Benefi t Arrangements”). Upon receipt of regulatory approval where required and based upon valuations of
the relevant pension and benefi t arrangements of Air Canada (the “Air Canada Benefi t Arrangements”) as at October 16,
2007, the assets and obligations under the Air Canada Benefi t Arrangements pertaining to the transferring non-unionized
employees will be transferred to ACTS Aero or the ACTS Benefi t Arrangements, as applicable. Any solvency defi ciency in the
defi ned benefi t pension plans as at October 16, 2007 related to transferring non-unionized employees will be funded by
Air Canada through quarterly payments to ACTS Aero until 2014. The accounting liability as at October 16, 2007 in respect
of retiree and disability benefi ts related to transferring non-unionized employees will be funded by Air Canada through
quarterly payments to ACTS Aero until 2012. Until such future time as the assets and obligations under the Air Canada
Benefi t Arrangements pertaining to non-unionized employees may be transferred to ACTS Aero, the current service pension
cost and the current service and interest costs for other employee benefi ts will be expensed by Air Canada with a full offset
recorded as an amount charged to affi liates (ACTS Aero).
In addition, the Pension and Benefi ts Agreement contemplates similar asset and liability transfer and compensation
arrangements in respect of unionized employees, which arrangements would take effect at such future time as those
unionized employees may be transferred from Air Canada to ACTS Aero. However, the solvency defi ciencies in respect of
transferring unionized employees for which the future quarterly compensation payments would be made are determined as
at October 16, 2007, subject to certain adjustments, and the discount rate used to compute the accounting liability for the
unionized employees’ retiree and disability benefi ts is fi xed as at October 16, 2007. The compensation payments in respect
of these solvency defi ciencies and accounting liabilities would be made quarterly during the fi ve years beginning after the
unionized employees are transferred to ACTS Aero, but only if such a transfer occurs. Until such future time as the assets
and obligations under the Air Canada Benefi t Arrangements pertaining to unionized employees may be transferred to ACTS
Aero, the current service pension cost and the current service and interest costs for other employee benefi ts in respect of
Air Canada employees providing services to ACTS Aero are charged to ACTS Aero.
The Pension and Benefi ts Agreement also required that Air Canada provide letters of credit to ACTS Aero on October 16, 2007,
to secure the above-described payment obligations in respect of the solvency defi ciencies of the defi ned benefi t pension
plans and accounting liabilities for other retiree and disability benefi t arrangements. The letters of credit total $101 million,
subject to adjustment once the exact amounts of the relevant solvency defi ciencies and accounting liabilities as at October
16, 2007 are determined by actuarial valuations. The face amount of the letter of credit in respect of the unionized solvency
defi ciency is also adjusted annually to recognize past service costs paid by Air Canada to the plan in respect of unionized
employees assigned to ACTS Aero. The face amounts of the letters of credit decrease as the related quarterly funding
payments described above are made. ACTS Aero may call the letters of credit in whole or in part, in the event of a default as
defi ned in the Pension and Benefi ts Agreement. Collateral equal to the amount of the letters of credit was paid in cash with
the asset recorded in deposits and other assets.
Non-Compete and Repair Schemes Transfer Agreement
ACTS Aero and Air Canada are parties to a non-compete and repair schemes transfer agreement, effective as of October 16, 2007
(the “Repair Schemes and Non-Compete Agreement”). Generally described, repair schemes are processes and methods
which may be used in the maintenance and repair of aircraft and related equipment. The Repair Schemes and Non-Compete
Agreement confi rmed an arrangement and provides for the sale from Air Canada to ACTS Aero (as successor to ACTS LP) of