Air Canada 2011 Annual Report Download - page 132

2011 Air Canada Annual Report
132
20. AVEOS CERTIFICATION ORDER
Aveos Certification Order
On January 31, 2011, the Canada Industrial Relations Board issued an order (the “Order”) determining that the sale of Air
Canada’s former aircraft, engine and component maintenance and repair business had occurred within the meaning of the
Canada Labour Code, and establishing Aveos as a distinct employer, bound by separate collective agreements. The issuance of
the order triggered the commencement of the process by which certain employees transitioned from Air Canada
to employment with Aveos effective July 14, 2011.
Pursuant to the Order and a related separation program, Air Canada may be required to provide up to a maximum of 1,500
separation packages to IAMAW-represented Aveos employees employed in airframe maintenance activities as of the date of
the Order (with each package including up to a maximum of 52 weeks of pay), in the event that such employees are
permanently laid off or terminated as a direct result of Aveos ceasing to be the exclusive provider of airframe maintenance
services to Air Canada prior to June 30, 2015. These packages will also be made available at any time up to June 30, 2013, in
the event of an insolvency, liquidation or bankruptcy involving Aveos resulting in the cancellation of Air Canada-Aveos
contracts and in the termination or permanent layoff of any airframe, engine or component IAMAW-represented employees.
The airframe maintenance services agreement allows for its termination as of June 30, 2013.
An employee benefit liability is recognized related to this separation program. The liability is measured based on the number
of employees expected to be paid the benefits and discounted to reflect the estimated timing of the benefits. The amount of
the liability is not significant. Any changes in the estimate will be reflected in Wages, salaries and benefits.
Pension and Benefits Agreement
As described in Note 10, Air Canada and Aveos are parties to a Pension and Benefits Agreement covering the transfer of
certain pension and benefit assets and obligations to Aveos. On July 14, 2011 (the “Certification Date”), certain unionized
employees of Air Canada elected to become employees of Aveos. Under the terms of the Pension and Benefits Agreement and
subject to regulatory approval, where required, the assets and obligations under the pension, other post-retirement and post-
employment benefits plans pertaining to the transferred unionized employees will be transferred to Aveos.
The terms of the Pension and Benefits Agreement relating to transferred unionized employees provide for the determination
of solvency liabilities and pension assets as at July 14, 2011 in respect of unionized employees transferred to Aveos employed
in the airframe function and, as at October 16, 2007 in respect of unionized employees transferred to Aveos employed in all
other functions. Air Canada will compensate Aveos for the present value of the accounting liability in respect of other post-
retirement and post-employment liabilities as at July 14, 2011. These compensation amounts will be paid by Air Canada
through quarterly payments to Aveos over a period not exceeding five years after the transfer. Airframe employees represent
approximately half of the approximate 2,200 transferred employees. As part of the arrangements, a 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 amount is recorded in Deposits and other assets.
Until the Certification Date, the current service pension cost and the current service and interest costs for other employee
benefits in respect of employees assigned to Aveos are expensed by Air Canada with a full recovery recorded as an amount
charged to Aveos. From the Certification Date, transferred employees accrue employee benefits in the Aveos defined benefit
plans. The financial statements do not reflect the determination of the solvency liabilities to be transferred to Aveos, the
determination of amount of assets to be transferred to Aveos and the resulting compensation amount to be paid by Air
Canada to Aveos, as these amounts are not yet determined. Based on the January 1, 2011 actuarial valuation, these
compensation amounts are not expected to be material.
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.