Air Canada 2007 Annual Report Download - page 94

2007 Air Canada Annual Report
94
X) AIRCRAFT LEASE PAYMENTS IN EXCESS OF OR LESS THAN RENT EXPENSE
Total aircraft operating lease rentals over the lease term are amortized to operating expense on a straight-line basis.
Included in deferred charges and long-term liabilities is the difference between the straight line aircraft rent expense and
the payments as stipulated under the lease agreement.
Y) ASSET RETIREMENT OBLIGATIONS
The Corporation records an asset and related liability for the costs associated with the retirement of long-lived tangible
assets when a legal liability to retire such assets exists. The fair value of a liability for an asset retirement obligation is
recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated
useful life. In subsequent periods, the asset retirement obligation is adjusted for the passage of time through charges to
income and any changes in the amount of the underlying cash fl ows through increases or decreases to the asset retirement
obligation and related asset. A gain or loss may be incurred upon settlement of the liability.
Z) RELATED PARTY TRANSACTIONS
Related party transactions not in the normal course of operations are measured at the exchange amount when the change
in ownership interest in the item transferred is substantive and the exchange amount is supported by independent evidence;
otherwise it is recorded at the carrying amount. Related party transactions in the normal course of operations are measured
at the exchange amount.
AA) VARIABLE INTEREST ENTITIES
Aircraft and Engine Leasing Transactions
The Corporation has aircraft and engine leasing transactions with a number of special purpose entities that are variable
interest entities (a “VIE”) under Accounting Guideline 15 of the CICA Handbook, Variable Interest Entities (“AcG-15”). As a
result of the Corporation being the primary benefi ciary of these VIEs, the Corporation consolidates leasing entities covering
44 aircraft and 22 engines.
Fuel Facilities Arrangements
The Corporation participates in fuel facilities arrangements operated through fuel facility corporations (the “Fuel Facility
Corporations”), along with other airlines to contract for fuel services at various major Canadian airports. The Fuel Facility
Corporations are organizations incorporated under federal or provincial business corporations acts in order to acquire,
fi nance and lease assets used in connection with the fuelling of aircraft and ground support equipment. The Fuel Facilities
Corporations operate on a cost recovery basis.
Under AcG-15, the Corporation is the primary benefi ciary of three of the Fuel Facilities Corporations in Canada. Five of
the Fuel Facility Corporations in which Air Canada participates in Canada that have not been consolidated have assets of
approximately $141 and debt of approximately $119, which is the Corporation’s maximum exposure to loss without taking
into consideration any cost sharing and asset retirement obligations that would occur amongst the other contracting
airlines. The Corporation considers this loss potential as remote.
BB) FUTURE ACCOUNTING STANDARD CHANGES
The following is an overview of accounting standard changes that the Corporation will be required to adopt in future years:
Capital Disclosures and Financial Instruments – Presentation and Disclosure
The CICA issued three new accounting standards: section 1535, Capital Disclosures, section 3862, Financial Instruments –
Disclosures, and section 3863, Financial Instruments – Presentation. These new standards will be effective for fi scal years
beginning on or after October 1, 2007 and the Corporation will adopt them on January 1, 2008. The Corporation is in the
process of evaluating the disclosure and presentation requirements of the new standards.