Air Canada 2008 Annual Report Download - page 60

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2008 Air Canada Annual Report
60
14. RELATED PARTY TRANSACTIONS
At December 31, 2008, ACE held a 75% ownership interest in Air Canada. Air Canada has various related party transactions
with ACE and Aveos Fleet Performance Inc. (“Aveos”) (formerly called ACTS Aero Technical Support & Services Inc. (“ACTS
Aero”)), which conducts the business previously operated by ACTS LP (“ACTS”) prior to the sale of ACTS announced by ACE
and completed on October 16, 2007.
Summary of Significant Related Party Agreements
The Relationship between the Corporation and Aveos
In 2008, ACTS LP settled certain contracts with Air Canada for $11 million, in relation to the sale of assets of ACTS LP. These
contracts were accounted for as equity transactions, with a resulting dilution loss of $3 million recorded in non-controlling
interest.
On October 16, 2007, ACE announced the completion of the sale of ACTS LP, its wholly-owned maintenance, repair and
overhaul subsidiary, pursuant to which ACTS LP sold substantially all its assets, liabilities and business to Aveos (formerly
ACTS Aero), a new entity established to purchase the assets of ACTS LP, with ACE retaining a 23% interest in Aveos as at
the date of this transaction.
On closing of the ACTS sale, the following transactions were recorded by Air Canada:
• Proceedsof$28millionforthesaleofabuildingtoAveos.
• Proceedsof$17millionforthesettlementofarelatedpartyreceivablewithACTS.
• Proceedsof$20millionpursuanttotheNon-CompeteandRepairSchemesTransferAgreement(“RepairSchemes
and Non-Compete Agreement”) described below.
• Thefundingofaletterofcreditintheamountof$101millionrelatedtothePensionandBenetsAgreement
described below.
Aveos is a related party to Air Canada due to ACE’s investment in both entities.
The ACTS Maintenance Agreements, the ACTS Master Services Agreement, and the General Services Agreements, all between
Air Canada and ACTS, and the Repair Schemes and Non-Compete Agreement described below were assigned from ACTS to
Aveos upon closing of the ACTS sale.
Pension and Benefits Agreement
The Corporation, ACTS and Aveos entered into a Pension and Benefits Agreement effective as of October 16, 2007, as
amended (“Pension and Benefits Agreement”), relating to pension and benefits arrangements pertaining to (i) the non-
unionized employees of Air Canada who were previously assigned to the ACTS operation and who became employees of
Aveos on October 16, 2007 and (ii) those unionized employees of Air Canada who were assigned to ACTS Aero operation
pursuant to general services agreements between Air Canada and ACTS for the assignment of unionized employees from
Air Canada to ACTS (these agreements were assigned to ACTS Aero (i.e. Aveos) upon closing of the ACTS Sale). Under
the Pension and Benefits Agreement, Aveos is required to establish new defined benefit and defined contribution pension
plans as well as other employee and retiree benefit arrangements (including health, life and disability) (the “ACTS Benefit
Arrangements”).
Upon receipt of regulatory approval where required and based upon valuations of the relevant pension and benefit arrangements
of Air Canada (the “Air Canada Benefit Arrangements”) as at October 16, 2007, the assets and obligations under the Air Canada
Benefit Arrangements pertaining to the transferring non-unionized employees are to be transferred to Aveos or the ACTS Benefit
Arrangements, as applicable. Amounts with a present value equal to the solvency deficiency in the defined benefit pension plans
as at October 16, 2007 related to transferring non-unionized employees will be paid by Air Canada through quarterly payments
to Aveos until 2014. Amounts with a present value equal to the accounting liability as at October 16, 2007 in respect of retiree
and disability benefits related to transferring non-unionized employees are to be paid by Air Canada through quarterly payments
to Aveos until 2012. The present value of these quarterly payments is also referred to as the compensation amount. Until such
future time as the assets and obligations under the Air Canada Benefit Arrangements pertaining to non-unionized employees are
to be transferred to Aveos, the current service pension cost and the current service and interest costs for other employee benefits
are expensed by Air Canada with a full offset recorded as an amount charged to affiliates (Aveos).