Air Canada 2007 Annual Report Download - page 140

2007 Air Canada Annual Report
140
The Pension and Benefi ts Agreement also required that Air Canada provide letters of credit to ACTS Aero 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 total $101, subject
to adjustment once the exact amounts of the relevant solvency defi ciencies and accounting liabilities as at October 16, 2007 are
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 ACTS Aero. The face amount of the letters of credit decreases as the related quarterly funding payments
described above are made. ACTS Aero 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.
Non-Compete and Repair Schemes Transfer Agreement
ACTS Aero and Air Canada are parties to a non-compete and repair schemes transfer agreement, effective as of October
16, 2007 (the “Repair Schemes and Non-Compete Agreement”). Generally described, repair schemes are processes and
methods which may be used in the maintenance and repair of aircraft and related equipment. The Repair Schemes and
Non-Compete 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 ACTS Aero to Air Canada of an undivided joint ownership
interest in the repair schemes owned or developed by ACTS Aero 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 Companies’ Creditors Arrangement
Act, the Corporation had already granted ACTS full and exclusive right to these schemes on a royalty free basis.
The Repair Schemes and Non-Compete 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;
The Repair Schemes and Non-compete Agreement does not restrict Air Canada from holding interests in any entities in
which it held interests at the time of concluding the agreement nor does it limit Air Canada’s line maintenance activities
which it continues to operate.
In consideration for the transfer of the repair schemes, Air Canada received $20. These proceeds were recorded in fi nancing
activities on the Consolidated statement of cash fl ows and a credit of $20 was recorded in contributed surplus ($15 after
future income tax) as the transaction was recorded at the Corporation’s carrying amount of nil.
The Repair Schemes and Non-Compete Agreement was assigned to ACTS Aero upon closing of the ACTS Sale.