Air Canada 2012 Annual Report Download - page 140

2012 Air Canada Annual Report
140
Rights Act, however, management has determined that it is not possible at this time to predict with any degree of certainty
the final outcome of the proceedings.
Mandatory Retirement
Air Canada is engaged in a number of proceedings involving challenges to the mandatory retirement provisions of certain of
its collective agreements, including the previous Air Canada-Air Canada Pilots Association collective agreement, which
incorporated provisions of the pension plan terms and conditions applicable to pilots requiring them to retire at age 60. Air
Canada has fully or partially resolved some of these complaints and is defending others. At this time, it is not possible to
determine with any degree of certainty the extent of any financial liability that may arise from Air Canada being unsuccessful
in its defence of these proceedings, though any such financial liability, if imposed, would not be expected to be material.
Other Contingencies
Various other lawsuits and claims, including claims filed by various labour groups of Air Canada are pending by and against the
Corporation and provisions have been recorded where appropriate. It is the opinion of management that final determination
of these claims will not have a material adverse effect on the financial position or the results of the Corporation.
With respect to 23 aircraft leases, the difference between the reduced rents as a result of the implementation of the Plan of
Reorganization, Compromise and Arrangement under the Companies’ Creditors Arrangement Act (“CCAA”) on September 30,
2004 and amounts which would have been due under the original lease contracts will be forgiven at the expiry date of the
leases if no material default has occurred by such date. In the event of a material default which does not include any cross
defaults to other unrelated agreements (including unrelated agreements with the counterparties to these aircraft leases), this
difference plus interest will become due and payable and all future rent will be based on the original contracted rates. Rent
expense is being recorded on the renegotiated lease agreements and any additional liability would be recorded only at the
time management believes the amount is likely to be incurred.
Refer to Note 10 for a continuity schedule of litigation provisions.
Guarantees
Guarantees in Fuel Facilities Arrangements
The Corporation participates in fuel facility arrangements operated through Fuel Facility Corporations, along with other
airlines that contract for fuel services at various major airports in Canada. The Fuel Facility Corporations operate on a cost
recovery basis. The purpose of the Fuel Facility Corporations is to own and finance the system that distributes the fuel to the
contracting airlines, including leasing the Land Rights under the land lease. The aggregate debt of the five Fuel Facility
Corporations in Canada that have not been consolidated by the Corporation under SIC Interpretation 12 – Consolidation of
Special Purpose Entities is approximately $193 as at December 31, 2012 (2011 – $187), which is the Corporation's maximum
exposure to loss before taking into consideration the value of the assets that secure the obligations and any cost sharing that
would occur amongst the other contracting airlines. The Corporation views this loss potential as remote. Each contracting
airline participating in a Fuel Facility Corporation shares pro rata, based on system usage, in the guarantee of this debt. The
maturities of these debt arrangements vary but generally extend beyond five years.
Indemnification Agreements
In the ordinary course of the Corporation’s business, the Corporation enters into a variety of agreements, some of which may
provide for indemnifications to counterparties that may require the Corporation to pay for costs and/or losses incurred by
such counterparties. The Corporation cannot reasonably estimate the potential amount, if any, it could be required to pay
under such indemnifications. Such amount would also depend on the outcome of future events and conditions, which cannot
be predicted. While certain agreements specify a maximum potential exposure, certain others do not specify a maximum
amount or a limited period. Historically, the Corporation has not made any significant payments under these indemnifications.
The Corporation enters into real estate leases or operating agreements, which grant a license to the Corporation to use certain
premises, in substantially all cities that it serves. It is common in such commercial lease transactions for the Corporation, as
the lessee, to agree to indemnify the lessor and other related third parties for tort liabilities that arise out of or relate to the
Corporation's use or occupancy of the leased or licensed premises. Exceptionally, this indemnity extends to related liabilities
arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by their gross negligence or
willful misconduct. Additionally, the Corporation typically indemnifies such parties for any environmental liability that arises
out of or relates to its use or occupancy of the leased or licensed premises.