Air Canada 2010 Annual Report Download - page 140

2010 Air Canada Annual Report
140
18. RELATED PARTY TRANSACTIONS
During 2010, ACE announced that it had concluded a public secondary offering on a bought deal basis of 44,000,000 Class
B voting shares of Air Canada for aggregate gross proceeds to ACE of $162. Air Canada did not receive any of the proceeds
from this offering. In accordance with the Registration Rights Agreement between Air Canada and ACE, the expenses of the
offering of less than $1 were paid by Air Canada. After giving effect to this offering and ACE’s resulting ownership interest
in Air Canada of approximately 11%, ACE and Air Canada are no longer related parties. ACE was a participant lender in the
Credit Facility as described in Note 6. ACE’s pro-rata share of interest expense to the time the facility was repaid was $13.
As a result of the Aveos Restructuring Plan described below and the change in equity interests in Aveos, Air Canada and
Aveos are no longer related parties.
Aveos Restructuring Plan
During the first quarter of 2010, Aveos reached an agreement with its lenders and equity holders on the terms of a
consensual restructuring plan to recapitalize the company. As part of this recapitalization, Air Canada and Aveos entered into
agreements to settle certain issues and modify the terms of certain contractual arrangements in exchange for Air Canada
receiving a minority equity interest in Aveos. This restructuring modified the terms of certain commercial agreements
between Air Canada and Aveos, including terms of the Pension and Benefits Agreement and an agreement with Aveos
on revised payment terms. The modified terms relating to maintenance agreements are not expected to have a material
impact on maintenance expense over their terms.
As part of these agreements, the Corporation also agreed to extend repayment terms on $22 of receivables, due in 2010,
over six years with annual repayments on a non-interest bearing basis, with such payments subject to satisfaction of certain
conditions. This agreement is now referred to as the Term Note.
The terms of the 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 Aveos operation and who became employees of
Aveos on October 16, 2007 and (ii) those unionized employees of Air Canada who were assigned to the Aveos operation
pursuant to general services agreements between Air Canada and Aveos for the assignment of unionized employees from
Air Canada to Aveos were also modified to defer the determination of pension assets and related solvency deficiencies
of transferring unionized employees performing airframe maintenance services to April 2011. This has the result of Air
Canada assuming changes in the solvency deficiency for those affected employees from October 16, 2007, being the
date of the Pension and Benefits Agreement, to April 1, 2011. As part of the amendment, all letters of credit issued under
the Pension and Benefits Agreement were cancelled and a new letter of credit in the amount of $20 was issued by Air
Canada in favour of Aveos to secure the payment of all compensation payments owing by Air Canada to Aveos in respect
of pension, disability, and retiree liabilities for which Air Canada would be liable under the Pension and Benefits Agreement.
This modification resulted in a reduction to the outstanding deposit under Air Canada’s letter of credit facility of $23 in
2010. Until such future time as the assets and obligations under the Air Canada pension and other employee and retiree
benefit arrangements pertaining to unionized employees may be transferred to Aveos, the current service pension cost and
the current service and interest costs for other employee benefits in respect of Air Canada employees providing services to
Aveos are charged by Air Canada to Aveos, and as such, the modifications to the Pension and Benefits Agreement have no
accounting consequence in the current period.