Air Canada 2009 Annual Report Download - page 94

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2009 Air Canada Annual Report
94
Due to terms of the Jazz CPA, Jazz is deemed to be a variable interest entity. Notwithstanding that Air Canada is not the
primary benefi ciary of Jazz, Air Canada holds a signifi cant variable interest in Jazz through the contractual arrangements
with Jazz as described in Note 14.
As discussed in Note 1C, the Corporation entered into an agreement amending the terms of the Jazz CPA effective
August 1, 2009. This amending agreement provides for (i) a reduction to rates paid under the Jazz CPA based on a reduction
in the mark-up rate paid to Jazz on the fi rst 375,000 block hours of annual fl ying from 16.7% to 12.5% and from 16.7%
to 5% on annual block hours above 375,000; (ii) a reduction in Air Canada’s commitment to Jazz’s minimum fl eet from
133 to 125 aircraft; (iii) a contract term extension of fi ve years (from January 1, 2016 to December 31, 2020), during which
the rates will be subject to a benchmarking review; and (iv) a commitment to work together on Jazz’s turboprop fl eet
renewal strategy over the term of the contract.
E) AEROPLAN LOYALTY PROGRAM
Air Canada is an Aeroplan partner providing certain of Air Canada’s customers with Aeroplan Miles, which can be redeemed
by customers for air travel or other rewards acquired by Aeroplan.
Under the CPSA, Aeroplan purchases passenger tickets from Air Canada to meet its obligation for the redemption of Aeroplan
Miles for air travel. The proceeds from the sale of passenger tickets to Aeroplan are included in Advance ticket sales. Revenue
related to these passenger tickets is recorded in passenger revenues when transportation is provided.
For Aeroplan Miles earned by Air Canada customers, Air Canada purchases Miles from Aeroplan in accordance with the
terms of the CPSA. The cost of purchasing Aeroplan Miles from Aeroplan is accounted for as a sales incentive and charged
against passenger revenues when the points are issued, which occurs upon the qualifying air travel being provided to the
customer.
F) OTHER REVENUES
Other revenue includes revenues from the sale of the ground portion of vacation packages, ground handling services and
other airline related services. Vacation package revenue is recognized as services are provided over the period of the vacation.
Other airline related service revenues are recognized as the products are sold to passengers or the services are provided.
Other revenue also includes revenue related to the lease or sublease of aircraft to third parties. Lease or sublease revenues
are recognized on a straight line basis over the term of the lease or sublease. Rental revenue from operating leases and
subleases amounted to $126 in 2009 (2008 - $115).
In certain subleases of aircraft to Jazz, the Corporation reports the sublease revenues net against aircraft rent expense as
the terms of the sublease match the terms of the Corporation’s lease. The Corporation acts as lessee and sublessor in these
matters. Refer to Note 14 for the lease commitments under these arrangements.
The Corporation provides certain services to related parties, namely ACE and Aveos Fleet Performance Inc. (“Aveos”),
and former related parties consisting principally of administrative services in relation to information technology, human
resources, fi nance and accounting, treasury and tax services, corporate real estate, and environmental affairs. Administrative
service revenues are recognized as services are provided. Real estate rental revenues are recognized on a straight line basis
over the term of the lease.
G) EMPLOYEE FUTURE BENEFITS
The cost of pensions, other post-retirement and post-employment benefi ts earned by employees is actuarially determined
annually as at December 31. The cost is determined using the projected benefi t method prorated on service, market interest
rates, and management’s best estimate of expected plan investment performance, salary escalation, retirement ages of
employees and health care costs.
A market-related valuation method is used to value plan assets for the purpose of calculating the expected return on plan
assets. Under the selected method, the differences between investment returns during a given year and the expected
investment returns are amortized on a straight line basis over four years.