Air Canada 2008 Annual Report Download - page 63

2008 Management’s Discussion and Analysis
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Master Services Agreement (MSA)
Aveos and Air Canada are parties to an amended and restated master services agreement (the “Aveos MSA”), effective January
1, 2007, pursuant to which the Corporation provides Aveos with services including infrastructure support and services which
are mostly administrative in nature, including information technology, human resources, finance and accounting, and claims
services in return for fees paid by Aveos to the Corporation. Aveos may elect to terminate any services under the Aveos
MSA or the entire Aveos MSA upon six months’ prior written notice, with the exception of services relating to information
technology which Aveos cannot terminate prior to the expiry of the Aveos MSA. Air Canada may elect to terminate any
services under the Aveos MSA or the entire Aveos MSA upon 18 months’ prior written notice. These amounts are recorded
in the above table summarizing related party revenues and expenses under Revenues from corporate services and other.
General Services Agreements
Aveos and Air Canada are parties to an amended and restated general services agreement (the “Aveos GSA”), effective as of
June 22, 2007, pursuant to which the Corporation provides Aveos with the services of a group of unionized employees for
which the Corporation is reimbursed by Aveos for all costs, including salary and benefits, on a fully allocated basis. The Aveos
GSA may be terminated by either party at any time upon 30 days’ prior written notice.
Real Estate Agreements
As part of the closing of the monetization of ACTS LP, Air Canada sold a building to Aveos for proceeds of $28 million
effective as of October 16, 2007. In connection with the sale, Air Canada and Aveos entered into a land sublease for certain
land contiguous with the building and a service contract whereby the Corporation provides Aveos certain services related
to the operation of the building.
Aveos and Air Canada are parties to a master lease agreement, effective as of October 1, 2006, pursuant to which Aveos
leases space from the Corporation at the Vancouver, Winnipeg, Toronto and Montreal airports.
The Relationship between the Corporation and ACE
Master Services Agreement
Air Canada provides certain administrative services to ACE in return for a fee. Such services relate to finance and accounting,
information technology, human resources and other administrative services.
Air Canada has received notice from ACE that the substantive majority of these service agreements will be terminated in
2009.
Share Purchase Rights Sold by Air Canada to ACE
In 2007, Air Canada entered into an aircraft transaction with an unrelated third party whereby partial consideration was
paid to the Corporation in the form of the right to acquire shares of the unrelated third party. The Corporation recorded
the value of the share purchase rights at fair value of $1 million. The transaction related to the sale by the Corporation
of two Airbus A319 aircraft and the sublease by the Corporation of an additional two Airbus A319 aircraft, all of which
was completed in 2007 with the exception of one of the owned Airbus A319 aircraft, which was completed in 2008. The
Corporation sold the right to acquire the shares received from the unrelated third party to ACE, for proceeds of $1 million.
Warrants purchased from ACE
On November 26, 2007, Air Canada purchased certain share warrants held by ACE for consideration of $4 million, which
was paid in 2007 and recorded as a decrease to contributed surplus. These warrants are for the purchase of shares of an
unrelated third party from which the Corporation purchases services. The equity of the unrelated third party is not quoted
in an active market and therefore fair value is not reliably measurable. As such, the financial instrument is recorded at cost,
being the carrying amount in ACE of nil.
Purchase of Air Canada Vacations
In 2007, Air Canada purchased from ACE its 49% interest in Air Canada Vacations causing Air Canada Vacations to be
wholly owned by the Corporation. Consideration for the interest was $10 million. The consideration is accounted for on Air
Canada’s consolidated statement of financial position in contributed surplus. Air Canada Vacations remains consolidated
within the results of the Corporation.