Air Canada 2014 Annual Report Download - page 133

133
2014 Management’s Discussion and Analysis
18. CONTINGENCIES, GUARANTEES AND INDEMNITIES
CONTINGENCIES AND
LITIGATION PROVISIONS
Investigations by Competition Authorities
Relating to Cargo
The European Commission and the United States
Department of Justice investigated, and the
Competition Bureau in Canada is investigating,
alleged anti-competitive cargo pricing activities,
including the levying of certain fuel surcharges, of
a number of airlines and cargo operators, including
Air Canada. Competition authorities in several
jurisdictions sought or requested information from
Air Canada as part of their investigations. Air Canada
has been cooperating with these investigations, which
are likely to lead, or have led, to proceedings against
Air Canada and a number of airlines and other cargo
operators in certain jurisdictions. Air Canada is also
named as a defendant or is otherwise involved in,
and may become further implicated, in a number
of class action lawsuits and other proceedings in
Canada, Europe and the United States in connection
with these allegations. In the United States, the
investigation by the U.S. Department of Justice
concluded with no proceedings having been instituted
against Air Canada and in 2012, the Corporation
entered into a settlement agreement relating to class
action proceedings in the United States in connection
with these allegations under which Air Canada made a
payment of $8 without any admission of liability.
In 2010, the European Commissions rendered a
decision finding that 12 air cargo carriers (including
groups of related carriers) had infringed European
Union competition law in the setting of certain cargo
charges and rates for various periods between 1999
and 2006. Air Canada was among the carriers subject
to the decision and a fine of 21 Euros (approximately
C$29) was imposed on Air Canada. Air Canada is
appealing this decision and filed an application for
appeal before the European General Court. In 2011,
Air Canada paid the fine, as required, pending the
outcome of its appeal.
As at December 31, 2014, Air Canada has a provision
of $27 relating to outstanding claims in this matter,
which is recorded in Accounts payable and accrued
liabilities. This provision is an estimate based upon
the status of investigations and proceedings at this
time and Air Canada’s assessment as to the potential
outcome for certain of them. The provision does
not address the proceedings and investigations in
all jurisdictions, but only where there is sufficient
information to do so. Air Canada has determined
it is not possible at this time to predict with any
degree of certainty the outcome of all proceedings
and investigations. As stated above, Air Canada
is appealing the decision issued by the European
Commission and, if and as appropriate, based on
the outcome of any updates regarding this appeal
as well as developments regarding proceedings and
investigations in other jurisdictions, may adjust the
provision in its results for subsequent periods as
required.
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 previous Air Canada-Air Canada Pilots
Association collective agreement, which incorporated
provisions of the pension plan terms and conditions
applicable to pilots requiring them to retire at
age 60. Air Canada has fully or partially resolved
some of these complaints and is defending others.
At this time, it is not possible to determine with any
degree of certainty the extent of any financial liability
that may arise from Air Canada being unsuccessful
in its defence of these proceedings, though any such
financial liability, if imposed, would not be expected
to be material.
Other Contingencies
Various other lawsuits and claims, including claims
filed 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 final determination
of these claims will not have a material adverse
effect on the financial position or the results of the
Corporation.
With respect to 12 aircraft leases, the difference
between the reduced rents as a result of the
implementation of the Plan of Reorganization,
Compromise and Arrangement under the
Companies’ Creditors Arrangement Act (“CCAA”) on
September 30, 2004 and amounts which would have
been due under the original lease contracts will be
forgiven at the expiry date of the leases if no material
default has occurred by such date. In the event of a
material default which does not include any cross
defaults to other unrelated agreements (including
unrelated agreements with the counterparties to
these aircraft leases), 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 additional liability would be
recorded only at the time management believes the
amount is likely to be incurred.