Air Canada 2014 Annual Report Download - page 134

134134 2014 Annual Report
GUARANTEES
Guarantees in Fuel Facilities Arrangements
The Corporation participates in fuel facility
arrangements operated through eight 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 finance the
system that distributes the fuel to the contracting
airlines, including leasing the land rights under the
land leases. The aggregate debt of the eight Fuel
Facility Corporations in Canada that have not been
consolidated by the Corporation under IFRS 10
Consolidated Financial Statements is approximately
$399 as at December 31, 2014 (December 31,
2013 – $394), which is the Corporation’s maximum
exposure to loss before taking into consideration
the value of the assets that secure the obligations
and 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. The maturities of these debt arrangements vary
but generally extend beyond five years.
INDEMNIFICATION AGREEMENTS
In the ordinary course of the Corporation’s business,
the Corporation enters into a variety of agreements,
some of which may provide for indemnifications to
counterparties that may require the Corporation
to pay for costs and/or losses incurred by such
counterparties. The Corporation cannot reasonably
estimate the potential amount, if any, it could be
required to pay under such indemnifications. Such
amount would also depend on the outcome of future
events and conditions, which cannot be predicted.
While certain agreements specify a maximum
potential exposure, certain others do not specify a
maximum amount or a limited period. Historically,
the Corporation has not made any significant
payments under these indemnifications.
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 indemnified parties, but
usually excludes any liabilities caused by their gross
negligence or wilful misconduct. Additionally,
the Corporation typically indemnifies 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 financing or leasing agreements, the
Corporation typically indemnifies the financing
parties, trustees acting on their behalf and other
related parties and/or lessors against liabilities that
arise from the manufacture, design, ownership,
financing, 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 indemnified parties, except for their gross
negligence or wilful misconduct. In addition, in
aircraft financing 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 financed aircraft, the use, possession, operation
maintenance, leasing, subleasing, repair, insurance,
delivery, import, export of such aircraft, the lease
or finance arrangements entered in connection
therewith, changes of law and certain income,
commodity and withholding tax consequences.
When the Corporation, as a customer, enters into
technical service agreements with service providers,
primarily service providers who operate an airline as
their main business, the Corporation has from time to
time agreed to indemnify the service provider against
certain liabilities that arise from third party claims,
which may relate to services performed by the service
provider.
Under its general by-laws and pursuant to contractual
agreements between the Corporation and each
of its officers and directors, the Corporation has
indemnification obligations to its directors and
officers. Pursuant to such obligations, the Corporation
indemnifies these individuals, to the extent permitted
by law, against any and all claims or losses (including
amounts paid in settlement of claims) incurred as a
result of their service to the Corporation.
The maximum amount payable under the foregoing
indemnities cannot be reasonably estimated. The
Corporation expects that it would be covered by
insurance for most tort liabilities and certain related
contractual indemnities described above.