Air Canada 2007 Annual Report Download - page 54

2007 Air Canada Annual Report
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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 Aero 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 repair schemes, Air Canada received $20 million in 2007.
Cash Management System
Air Canada managed the cash for ACTS LP up to October 16, 2007. All cash collected from billings, and sources other than
Air Canada, is recorded by Air Canada on a daily basis. Any payments to pay obligations related to operating and fi nancing
costs and capital expenditures other than obligations to Air Canada and other ACE affi liates were made through the
Air Canada cash management system. Intercompany accounts receivable and payable include any excess cash (cash
proceeds greater than cash expenditures), cash defi ciencies (cash expenditures greater than proceeds) or deferrals of
receipts of payments. Air Canada’s consolidated statement of cash fl ows refl ects the receipt and repayment of excess cash
as a fi nancing activity and the disbursement and repayment of cash defi ciencies as investing activities.
Loan and Prepayment Agreements between ACTS and Air Canada
Pursuant to a Prepayment Agreement dated October 26, 2006, Air Canada prepaid an amount of approximately $595 million
to ACTS Limited Partnership (the predecessor to ACTS LP and ACTS Aero) under the ACTS Maintenance Agreements for
the estimated equivalent of 12 months of service to be rendered to Air Canada under the ACTS Maintenance Agreements
starting on November 1, 2006. The amount of such prepayment was immediately loaned back by ACTS LP to Air Canada
pursuant to a loan agreement dated October 26, 2006. Such loan was non-interest bearing and repayable in instalments
starting on November 1, 2006. The amount of the instalments was equal to the amount that would otherwise have been
payable by Air Canada under the ACTS Maintenance Agreements and became due and payable on the day on which the
amount became payable under the ACTS Maintenance Agreements. Repayment of the entire amount of the loan was
completed in 2007.