Air Canada 2011 Annual Report Download - page 85

2011 Consolidated Financial Statements and Notes
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I) SHARE-BASED COMPENSATION PLANS
Certain employees of the Corporation participate in Air Canada’s Long-Term Incentive Plan, which provides for the grant of
stock options and performance share units (“PSUs”), as further described in Note 15. PSUs are notional share units which are
exchangeable, on a one-to-one basis, as determined by the Board of Directors based on factors such as the remaining number
of shares authorized for issuance under the Long-Term Incentive Plan as described in Note 15, for Air Canada shares, or the
cash equivalent. The options and PSUs granted contain both time and performance based vesting features as those further
described in Note 15.
The fair value of stock options with a graded vesting schedule is determined based on different expected lives for the options
that vest each year, as it would be if the award were viewed as several separate awards, each with a different vesting date, and
it is accounted for over the respective vesting period taking into consideration forfeiture estimates. For a stock option award
attributable to an employee who is eligible to retire at the grant date, the fair value of the stock option award is expensed on
the grant date. For a stock option award attributable to an employee who will become eligible to retire during the vesting
period, the fair value of the stock option award is recognized over the period from the grant date to the date the employee
becomes eligible to retire. The Corporation recognizes compensation expense and a corresponding adjustment to Contributed
surplus equal to the fair value of the equity instruments granted using an option pricing model taking into consideration
forfeiture estimates. Compensation expense is adjusted for subsequent changes in management’s estimate of the number of
options that are expected to vest.
Grants of PSUs are accounted for as cash settled instruments as described in Note 15. Accordingly, the Corporation recognizes
compensation expense at fair value on a straight line basis over the applicable vesting period, taking into consideration
forfeiture estimates. Compensation expense is adjusted for subsequent changes in the fair value of the PSU and
management’s current estimate of the number of PSUs that are expected to vest. The liability related to cash settled PSUs is
recorded in Other long-term liabilities. Refer to Note 18 for a description of derivative instruments used by the Corporation to
hedge the cash flow exposure to PSUs.
Air Canada also maintains an employee share purchase plan. Under this plan, contributions by the Corporation’s employees
are matched to a specific percentage by the Corporation. Employees must remain with the Corporation until March 31 of the
subsequent year for vesting of the Corporation’s contributions. These contributions are expensed in Wages, salaries, and
benefits expense over the vesting period.
J) MAINTENANCE AND REPAIRS
Maintenance and repair costs for both leased and owned aircraft are charged to Aircraft maintenance as incurred, with the
exception of maintenance and repair costs related to return conditions on aircraft under operating lease, which are accrued
over the term of the lease, and major maintenance expenditures on owned and finance leased aircraft, which are capitalized as
described below in Note 3T.
Maintenance and repair costs related to return conditions on aircraft leases are recorded over the term of the lease for the end
of lease maintenance return condition obligations within the Corporation’s operating leases, offset by a prepaid maintenance
asset to the extent of any related power-by-the-hour maintenance service agreements or any recoveries under aircraft
subleasing arrangements. The provision is recorded within Maintenance provisions using a discount rate taking into account
the specific risks of the liability over the remaining term of the lease. Interest accretion on the provision is recorded in Other
non-operating expense. For aircraft under operating leases which are subleased to third parties, the expense relating to the
provision is presented net on the income statement of the amount recognized for any reimbursement of maintenance cost
which is the contractual obligation of the sub-lessee. The reimbursement is recognized when it is virtually certain that
reimbursement will be received when the Corporation settles the obligation. Any changes in the maintenance cost estimate,
discount rates, timing of settlement or difference in the actual maintenance cost incurred and the amount of the provision is
recorded in Aircraft maintenance in the period.
K) OTHER OPERATING EXPENSES
Included in Other operating expenses are expenses related to building rent and maintenance, airport terminal handling costs,
professional fees and services, crew meals and hotels, advertising and promotion, insurance costs, ground costs for Air Canada
Vacations packages, and other expenses. Other operating expenses are recognized as incurred.