Air Canada 2008 Annual Report Download - page 146

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2008 Air Canada Annual Report
146
Summary of significant related party agreements
The Relationship between the Corporation and Aveos
On October 16, 2007, ACE announced the completion of the sale of ACTS LP, its wholly owned maintenance, repair and
overhaul subsidiary, pursuant to which ACTS LP sold substantially all its assets, liabilities and business to Aveos (formerly
ACTS Aero), a new entity established to purchase the assets of ACTS LP, with ACE retaining a 23% interest in Aveos as at
the date of this transaction.
On closing of the ACTS sale, the following transactions were recorded by Air Canada:
• Proceedsof$28forthesaleofabuildingtoAveos.
• Proceedsof$17forthesettlementofarelatedpartyreceivablewithACTS.
• Proceedsof$20pursuanttotheNon-CompeteandRepairSchemesTransferAgreement(“RepairSchemesandNon-
Compete Agreement”) described below.
• Thefundingofaletterofcreditintheamountof$101relatedtothePensionandBenetsAgreementdescribed
below.
Aveos is a related party to Air Canada due to ACE’s investment in both entities.
The ACTS Maintenance Agreements, the ACTS Master Services Agreement, and the General Services Agreements, all between
Air Canada and ACTS, and the Repair Schemes and Non-Compete Agreement described below were assigned from ACTS to
Aveos upon closing of the ACTS sale.
Pension and Benefits Agreement
The Corporation, ACTS and Aveos entered into a Pension and Benefits Agreement effective as of October 16, 2007, as
amended (“Pension and Benefits Agreement”), relating to pension and benefits arrangements pertaining to (i) the non-
unionized employees of Air Canada who were previously assigned to the ACTS operation and who became employees of
Aveos on October 16, 2007 and (ii) those unionized employees of Air Canada who were assigned to ACTS Aero operation
pursuant to general services agreements between Air Canada and ACTS for the assignment of unionized employees from
Air Canada to ACTS (these agreements were assigned to ACTS Aero (i.e. Aveos) upon closing of the ACTS Sale). Aveos is
required to establish new defined benefit and defined contribution pension plans as well as other employee and retiree
benefit arrangements (including health, life and disability) (the “ACTS Benefit Arrangements”).
Upon receipt of regulatory approval where required and based upon valuations of the relevant pension and benefit
arrangements of Air Canada (the “Air Canada Benefit Arrangements”) as at October 16, 2007, the assets and obligations
under the Air Canada Benefit Arrangements pertaining to the transferring non-unionized employees will be transferred to
Aveos or the ACTS Benefit Arrangements, as applicable. Amounts with a present value equal to the solvency deficiency in
the defined benefit pension plans as at October 16, 2007 related to transferring non-unionized employees will be paid by Air
Canada through quarterly payments to Aveos until 2014. Amounts with a present value equal to the accounting liability as
at October 16, 2007 in respect of retiree and disability benefits related to transferring non-unionized employees are to be
paid by Air Canada through quarterly payments to Aveos until 2012. The present value of these quarterly payments is also
referred to as the compensation amount. Until such future time as the assets and obligations under the Air Canada Benefit
Arrangements pertaining to non-unionized employees may be transferred to Aveos, the current service pension cost and the
current service and interest costs for other employee benefits are expensed by Air Canada with a full offset recorded as an
amount charged to affiliates (Aveos).
In addition, the Pension and Benefits 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 commence employment with Aveos pursuant to the Transition MOA, as described further
below. However, the solvency deficiencies 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