Air Canada 2008 Annual Report Download - page 99

Consolidated Financial Statements and Notes
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Air Canada also maintains an employee share purchase plan. Under this plan, contributions by the Corporation’s employees
are matched to a specific percentage by the Corporation. Employees must remain with the Corporation until March 31 of
the subsequent year for vesting of the Company’s contributions. These contributions are included in Wages, salaries, and
benefits expense as earned.
J) MAINTENANCE AND REPAIRS
Maintenance and repair costs for both leased and owned aircraft, including line maintenance, component overhaul and
repair, and maintenance checks, are charged to Operating expenses as incurred, with the exception of maintenance and
repair costs related to return conditions on short-term aircraft leases, which are accrued over the term of the lease. Line
maintenance consists of routine daily and weekly scheduled maintenance inspections and checks, overhaul and repair
involves the inspection or replacements of major parts, and maintenance checks consist of more complex inspections and
servicing of the aircraft.
K) OTHER OPERATING EXPENSES
Included in Other operating expenses are expenses related to building rent and maintenance, terminal handling, professional
fees and services, crew meals and hotels, advertising and promotion, insurance costs, credit card fees, ground costs for Air
Canada Vacations packages, and other expenses. Expenses are recognized as incurred.
L) FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
Under the Corporation’s risk management policy derivative financial instruments are used only for risk management
purposes and not for generating trading profits.
Financial assets and financial liabilities, including derivatives, are recognized on the Consolidated Statement of Financial
Position when the Corporation becomes a party to the contractual provisions of the financial instrument or non-financial
derivative contract. All financial instruments are required to be measured at fair value on initial recognition except for
certain related party transactions. Measurement in subsequent periods is dependent upon the classification of the financial
instrument as held-for-trading, held-to-maturity, available-for-sale, loans and receivables, or other financial liabilities. The
held-for-trading classification is applied when an entity is “trading” in an instrument or alternatively the standard permits
that any financial instrument be irrevocably designated as held-for-trading. The held-to-maturity classification is applied
only if the asset has specified characteristics and the entity has the ability and intent to hold the asset until maturity. For
financial instruments classified as other than held-for-trading, transaction costs are added to the initial fair value of the
related financial instrument.
Financial assets and financial liabilities classified as held-for-trading are measured at fair value with changes in those fair
values recognized in Non-operating income (expense). Financial assets classified as held-to-maturity, loans and receivables,
or other financial liabilities are measured at amortized cost using the effective interest method of amortization.
The Corporation enters into interest rate, foreign currency, and fuel derivatives to manage the associated risks. Derivative
instruments are recorded on the Consolidated Statement of Financial Position at fair value, including those derivatives that
are embedded in financial or non-financial contracts. Changes in the fair values of derivative instruments are recognized in
Non-operating income (expense) with the exception of foreign exchange risk management contracts, which are recorded
in Foreign exchange gain (loss), and fuel derivatives designated as effective cash flow hedges, as further described below.
These contracts are included in the Consolidated Statement of Financial Position at fair value in Prepaid expenses and
other current assets, Deposits and other assets, Accounts payable and accrued liabilities, or Other long-term liabilities as
appropriate. All cash flows associated with purchasing and selling derivatives are classified as operating cash flows in the
Consolidated Statement of Cash Flow.
For financial instruments measured at amortized cost, transaction costs or fees, premiums or discounts earned or incurred
are recorded, at inception, net against the fair value of the financial instrument. Interest expense is recorded using the
effective interest method. For any guarantee issued that meets the definition of a guarantee pursuant to Accounting
Guideline 14, Disclosure of Guarantees, the inception fair value of the obligation relating to the guarantee is recognized and
amortized over the term of the guarantee. It is the Corporation’s policy to not re-measure the fair value of the financial
guarantee unless it qualifies as a derivative.