Air Canada 2009 Annual Report Download - page 96

2009 Air Canada Annual Report
96
Air Canada also maintains an employee share purchase plan. Under this plan, contributions by the Corporation’s employees
are matched to a specifi c percentage by the Corporation. Employees must remain with the Corporation until March 31 of
the subsequent year for vesting of the Corporation’s contributions. These contributions are included in Wages, salaries, and
benefi ts 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 fi nancial instruments are used only for risk management
purposes and not for generating trading profi ts.
Financial assets and fi nancial liabilities, including derivatives, are recognized on the Consolidated Statement of Financial
Position when the Corporation becomes a party to the contractual provisions of the fi nancial instrument or non-fi nancial
derivative contract. All fi nancial instruments are required to be measured at fair value on initial recognition except for
certain related party transactions. Effective January 1, 2009, the Corporation adopted the recommendations of the Emerging
Issues Committee of the CICA relating to Abstract EIC-173 Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities. Under this Abstract, the Corporation’s own credit risk and the credit risk of the counterparty are taken into
consideration in determining the fair value of fi nancial assets and fi nancial liabilities, including derivative instruments. The
adoption of this guidance had no signifi cant impact on the Corporation’s consolidated fi nancial statements as collateral
deposits with fuel derivative counterparties and master netting arrangements are considered in determining whether a
credit risk adjustment is required on the valuation of the derivatives. Measurement in subsequent periods is dependent upon
the classifi cation of the fi nancial instrument as held-for-trading, held-to-maturity, available-for-sale, loans and receivables,
or other fi nancial liabilities. The held-for-trading classifi cation is applied when an entity is “trading” in an instrument
or alternatively the standard permits that any fi nancial instrument be irrevocably designated as held-for-trading. The
held-to-maturity classifi cation is applied only if the asset has specifi ed characteristics and the entity has the ability and
intent to hold the asset until maturity. For fi nancial instruments classifi ed as other than held-for-trading, transaction costs
are added to the initial fair value of the related fi nancial instrument.
Financial assets and fi nancial liabilities classifi ed as held-for-trading are measured at fair value with changes in those fair
values recognized in Non-operating income (expense). Financial assets classifi ed as held-to-maturity, loans and receivables,
or other fi nancial 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 fi nancial or non-fi nancial contracts. Changes in the fair value 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 fl ow 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 based on
the terms of the contractual agreements. All cash fl ows associated with purchasing and selling derivatives are classifi ed as
operating cash fl ows in the Consolidated Statement of Cash Flow.