Air Canada 2008 Annual Report Download - page 144

2008 Air Canada Annual Report
144
With respect to 45 aircraft leases, the difference between the amended rents as a result of the implementation of the Plan
of Reorganization, Compromise and Arrangement (the “Plan”) under the Companies’ Creditors Arrangement Act (“CCAA”)
on September 30, 2004 and amounts due under the original lease contracts will be forgiven at the expiry date of the
leases if no material defaults have occurred. If a material default occurs, which does not include any cross defaults to other
agreements, this difference plus interest will become due and payable and all future rent will be based on the original
contracted rates. Rent expense is being recorded on the renegotiated lease agreements and any liability would be recorded
only at the time management believes the amount is likely to occur.
Guarantees
Guarantees in Fuel Facilities Arrangements
The Corporation participates in fuel facility arrangements operated through Fuel Facility Corporations, along with other
airlines that contract for fuel services at various major airports in Canada. The Fuel Facility Corporations operate on a cost
recovery basis. The purpose of the Fuel Facility Corporations is to own and finance the system that distributes the fuel to
the contracting airlines, including leasing the Land Rights under the land lease. The aggregate debt of the five Fuel Facility
Corporations in Canada that have not been consolidated by the Corporation under AcG-15 is approximately $127 as at
December 31, 2008 (2007 - $119), which is the Corporation’s maximum exposure to loss without taking into consideration
any cost sharing that would occur amongst the other contracting airlines. The Corporation views this loss potential as
remote. Each contracting airline participating in a Fuel Facility Corporation shares pro rata, based on system usage, in the
guarantee of this debt.
Indemnification Agreements
The Corporation enters into real estate leases or operating agreements, which grant a license to the Corporation to use
certain premises, in substantially all cities that it serves. It is common in such commercial lease transactions for the
Corporation as the lessee to agree to indemnify the lessor and other related third parties for tort liabilities that arise out
of or relate to the Corporation’s use or occupancy of the leased or licensed premises. Exceptionally, this indemnity extends
to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused
by their gross negligence or willful misconduct. Additionally, the Corporation typically indemnifies such parties for any
environmental liability that arises out of or relates to its use or occupancy of the leased or licensed premises.
In aircraft financing or leasing agreements, the Corporation typically indemnifies the financing parties, trustees acting on
their behalf and other related parties and/or lessors against liabilities that arise from the manufacture, design, ownership,
financing, use, operation and maintenance of the aircraft and for tort liability, whether or not these liabilities arise out of
or relate to the negligence of these indemnified parties, except for their gross negligence or willful misconduct. In addition,
in aircraft financing or leasing transactions, including those structured as leveraged leases, the Corporation typically
provides indemnities in respect of various tax consequences including in relation to the leased or financed aircraft, the use,
possession, operation maintenance, leasing, subleasing, repair, insurance, delivery, import, export of such aircraft, the lease
or finance arrangements entered in connection therewith, changes of law and certain income, commodity and withholding
tax consequences.
When the Corporation, as a customer, enters into technical service agreements with service providers, primarily service
providers who operate an airline as their main business, the Corporation has from time to time agreed to indemnify the
service provider against liabilities that arise from third party claims, whether or not these liabilities arise out of or relate
to the negligence of the service provider, but excluding liabilities that arise from the service provider’s gross negligence or
willful misconduct.
Under its general by-laws and pursuant to contractual agreements between the Corporation and each of its officers and
directors, the Corporation has indemnification obligations to its directors and officers. Pursuant to such obligations, the
Corporation indemnifies these individuals, to the extent permitted by law, against any and all claims or losses (including
amounts paid in settlement of claims) incurred as a result of their service to the Corporation.
The maximum amount payable under the foregoing indemnities cannot be reasonably estimated. The Corporation expects
that it would be covered by insurance for most tort liabilities and certain related contractual indemnities described above.