Air Canada 2009 Annual Report Download - page 55

2009 Management’s Discussion and Analysis
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The Pension and Benefi ts Agreement also required that Air Canada provide letters of credit to Aveos 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 initially totaled
$101 million, subject to adjustment once the exact amounts of the relevant solvency defi ciencies and accounting liabilities
as at October 16, 2007 were 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 Aveos. The face amount of the letters of credit decreases as the related
quarterly funding payments described above are made. During 2008, as described below under “Agreement with Aveos on
Revised Payment Terms”, the Corporation and Aveos also agreed to temporarily cancel certain letters of credit in the amount
of $40 million. Aveos 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. Refer to the “Aveos Restructuring Plan” section below for a description of amendments which
would be made to this agreement pursuant to the restructuring.
In 2008, Air Canada, Aveos, and the union representing the employees assigned to Aveos continued discussions regarding
the options under which certain unionized employees would commence employment directly with Aveos and the creation
of a separate bargaining unit for those employees at Aveos. On January 8, 2009, these same parties entered into the
Transition MOA in order to resolve certain remaining issues and in order to (i) facilitate the orderly transition of certain
Air Canada employees to Aveos and (ii) to establish terms and conditions of employment that will apply to those
Air Canada employees who elect to become employees of Aveos. In relation to the Transition MOA, the Corporation and
Aveos also entered into certain ancillary agreements (the “Ancillary Transition Agreements”) to address commercial issues
relating to the transition of employees contemplated by the Transition MOA. On March 5, 2009, the Corporation received
the decision of the arbitrator seized with resolving fi ve issues which remained outstanding following the execution of the
Transition MOA. The Corporation and the IAMAW subsequently amended the Transition MOA, by establishing timelines for
the steps for the transition and by providing for a date on which the employees who will transition to Aveos will become
employees of Aveos, namely, April 1, 2011.
Non-Compete and Repair Schemes Transfer Agreement
Aveos and Air Canada are parties to a Non-Compete and Repair Schemes Transfer Agreement, effective as of October 16,
2007. Generally described, repair schemes are processes and methods which may be used in the maintenance and repair
of aircraft and related equipment. The Non-Compete and Repair Schemes Transfer Agreement confi rmed an arrangement
and provides for the sale from Air Canada to ACTS Aero (as successor to ACTS LP) of an undivided joint ownership interest
in repair schemes owned by Air Canada or approved under Air Canada’s airworthiness engineering organization as well as
the sale from Aveos to Air Canada of an undivided joint ownership interest in the repair schemes owned or developed by
Aveos and applicable to airframe heavy maintenance services provided by ACTS to Air Canada under the parties’ airframe
heavy maintenance services agreement. However, in September 2004 as part of the implementation of the Corporation’s
plan of arrangement under the CCAA, the Corporation had already granted ACTS full and exclusive right to these schemes
on a royalty free basis.
The Non-Compete and Repair Schemes Transfer Agreement also restricts Air Canada’s ability to own any equity interest in
an entity (other than entities in which Air Canada previously held interests), or to carry on a business activity, related to the
following commercial maintenance, repair and overhaul services in the airline industry, namely, airframe heavy maintenance
and paint services, engine and auxiliary power unit (“APU”) overhaul maintenance services, and component maintenance
services. The applicable non-compete periods are as follows:
• With respect to airframe heavy maintenance services and paint services, the non-compete period ends one year
after the current heavy maintenance services agreement is terminated or expires (the current term of the heavy
maintenance services agreement expires October 1, 2011);
• With respect to engine and APU overhaul maintenance services, the non-compete period ends on October 1, 2015;
and
• With respect to component maintenance services, the non-compete period ends on October 1, 2016.