Air Canada 2009 Annual Report Download - page 59

2009 Management’s Discussion and Analysis
59
16. CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that are most important to the portrayal of the Corporation’s fi nancial condition
and results of operations. They require management’s most diffi cult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are inherently uncertain. Actual results could differ from those
estimates under different assumptions or conditions.
The Corporation has identifi ed the following areas that contain critical accounting estimates utilized in the preparation of
its consolidated fi nancial statements:
Passenger and cargo revenues
Airline passenger and cargo advance sales are deferred and included in current liabilities. Advance sales also include the
proceeds from the sale of fl ight tickets to Aeroplan, a corporation that provides loyalty program services to the Corporation
and purchases seats from Air Canada pursuant to the Aeroplan Commercial Participation and Services Agreement between
Aeroplan and Air Canada (the “CPSA”). Passenger and cargo revenues are recognized when the transportation is provided,
except for revenue on unlimited fl ight passes which is recognized on a straight-line basis over the period during which the
travel pass is valid. Air Canada has formed alliances with other airlines encompassing loyalty program participation, code
sharing and coordination of services including reservations, baggage handling and fl ight schedules. Revenues are allocated
based upon formulas specifi ed in the agreements and are recognized as transportation is provided.
The Corporation performs regular evaluations on the deferred revenue liability which may result in adjustments being
recognized as revenue. Due to the complex pricing structures, the complex nature of interline, and other commercial
agreements used throughout the industry, historical experience over a period of many years, and other factors including
refunds, exchanges and unused tickets, certain relatively small amounts are recognized as revenue based on estimates.
Events and circumstances may result in actual results that are different from estimates.
Employee future benefi ts
Air Canada maintains several defi ned benefi t and defi ned contribution plans providing pension, other retirement and
post-employment benefi ts to its employees. Certain Corporation employees perform work for ACE and Aveos and are
members of Corporation-sponsored defi ned benefi t pension plans and also participate in Corporation-sponsored health,
life and disability benefi t plans. Other Corporation employees performed work for Aeroplan until the date of transition to
employment at Aeroplan and then ceased to accrue benefi ts under the Corporation-sponsored defi ned benefi t pension
plans and under the Corporation-sponsored health, life and disability benefi t plans. The Corporation’s audited consolidated
fi nancial statements for 2009 include all of the assets and liabilities of all the sponsored plans of the Corporation. Employee
benefi ts expense includes the expenses for all employees participating in the plans less a cost recovery which is charged
to ACE, Aveos, and Aeroplan for those employees contractually assigned. The cost recovery includes current service costs
for pensions, past service costs to Aeroplan for pensions and a portion of post-employment and post-retirement benefi ts
to ACE and Aveos, based on the actuarial calculation for their specifi c employee group. The cost recovery amounted to
$32 million for the year ended December 31, 2009 ($40 million for the year ended December 31, 2008).
In May 2009, Air Canada and Aeroplan reached an agreement with the Canadian Auto Workers (CAW) Local 2002 providing
for a process for the approximately 750 Air Canada employees then assigned to and working in the Aeroplan contact
centres to choose to transition to employment at Aeroplan, effective June 1, 2009, or to remain employees of Air Canada.
Employees at Air Canada work locations who became surplus to Air Canada’s needs due to employees who were senior
to them and then working at Aeroplan contact centres choosing to remain employees of Air Canada were given the option
to transition to employment at Aeroplan. Effective October 4, 2009, all affected employees had completed the transition
to Aeroplan. For those employees who transferred to Aeroplan, their service, which largely determines benefi t levels under
the Air Canada pension and other employee benefi t plans, ceased to accrue as of the date of employment with Aeroplan.
Air Canada and Aeroplan continue to discuss the terms surrounding the transfer of pension benefi ts and certain implications
relating to same remain to be resolved. Air Canada continues to retain plan assets and report liabilities for services accrued
for the transferred Aeroplan employees as at December 31, 2009, pending fi nal determination of this matter. Aeroplan is
now contributing current service costs in their pension plan for service accruing with Aeroplan.