Air Canada 2009 Annual Report Download - page 137

Consolidated Financial Statements and Notes
137
Mandatory Retirement
Air Canada is engaged in a number of proceedings involving challenges to the mandatory retirement provisions of certain
of its collective agreements, including the Air Canada-Air Canada Pilots Association collective agreement which incorporate
provisions of the pension plan terms and conditions applicable to pilots requiring them to retire at age 60. Air Canada is
defending these challenges. At this time, it is not possible to determine with any degree of certainty the extent of any
fi nancial liability that may arise from Air Canada being unsuccessful in its defense of these proceedings, though any such
fi nancial liability, if imposed, would not be expected to be material.
Other Contingencies
Various other lawsuits and claims, including claims fi led by various labour groups of Air Canada are pending by and
against the Corporation and provisions have been recorded where appropriate. It is the opinion of management that fi nal
determination of these claims will not have a signifi cant material adverse effect on the fi nancial position or the results of
the Corporation.
With respect to 45 aircraft leases, the difference between the amended rents as a result of the implementation of the Plan
of Reorganization, Compromise and Arrangement (the “Plan”) under the Companies’ Creditors Arrangement Act (“CCAA”)
on September 30, 2004 and amounts due under the original lease contracts will be forgiven at the expiry date of the
leases if no material defaults have occurred. If a material default occurs, which does not include any cross defaults to other
agreements, this difference plus interest will become due and payable and all future rent will be based on the original
contracted rates. Rent expense is being recorded on the renegotiated lease agreements and any liability would be recorded
only at the time management believes the amount is likely to occur.
Guarantees
Guarantees in Fuel Facilities Arrangements
The Corporation participates in fuel facility arrangements operated through Fuel Facility Corporations, along with other
airlines that contract for fuel services at various major airports in Canada. The Fuel Facility Corporations operate on a cost
recovery basis. The purpose of the Fuel Facility Corporations is to own and fi nance the system that distributes the fuel to
the contracting airlines, including leasing the Land Rights under the land lease. The aggregate debt of the fi ve Fuel Facility
Corporations in Canada that have not been consolidated by the Corporation under AcG-15 is approximately $162 as at
December 31, 2009 (2008 - $127), which is the Corporation’s maximum exposure to loss without taking into consideration
any cost sharing that would occur amongst the other contracting airlines. The Corporation views this loss potential as
remote. Each contracting airline participating in a Fuel Facility Corporation shares pro rata, based on system usage, in the
guarantee of this debt.
Indemnifi cation Agreements
The Corporation enters into real estate leases or operating agreements, which grant a license to the Corporation to use
certain premises, in substantially all cities that it serves. It is common in such commercial lease transactions for the
Corporation, as the lessee, to agree to indemnify the lessor and other related third parties for tort liabilities that arise out
of or relate to the Corporation’s use or occupancy of the leased or licensed premises. Exceptionally, this indemnity extends
to related liabilities arising from the negligence of the indemnifi ed parties, but usually excludes any liabilities caused
by their gross negligence or willful misconduct. Additionally, the Corporation typically indemnifi es such parties for any
environmental liability that arises out of or relates to its use or occupancy of the leased or licensed premises.
In aircraft fi nancing or leasing agreements, the Corporation typically indemnifi es the fi nancing parties, trustees acting on
their behalf and other related parties and/or lessors against liabilities that arise from the manufacture, design, ownership,
fi nancing, use, operation and maintenance of the aircraft and for tort liability, whether or not these liabilities arise out of
or relate to the negligence of these indemnifi ed parties, except for their gross negligence or willful misconduct. In addition,
in aircraft fi nancing or leasing transactions, including those structured as leveraged leases, the Corporation typically
provides indemnities in respect of various tax consequences including in relation to the leased or fi nanced aircraft, the
use, possession, operation maintenance, leasing, subleasing, repair, insurance, delivery, import, export of such aircraft,
the lease or fi nance arrangements entered in connection therewith, changes of law and certain income, commodity and
withholding tax consequences.