Air Canada 2014 Annual Report Download - page 52

52 2014 Annual Report
Capital Commitments
As outlined in the table below, the estimated aggregate cost of the future firm Boeing 787, Boeing 777
and Boeing 737 MAX aircraft deliveries and other capital purchase commitments as at December 31, 2014
approximates $8,256 million.
CANADIAN DOLLARS IN MILLIONS 2015 2016 2017 2018 2019 THEREAFTER TOTAL
Projected committed expenditures $ 1,067 $ 2,122 $ 1,598 $ 1,362 $ 1,066 $ 1,041 $ 8,256
Projected planned but uncommitted
expenditures 134 254 302 286 331 not available not available
Projected planned but uncommitted
capitalized maintenance (1) 200 159 109 109 109 not available not available
TOTAL PROJECTED EXPENDITURES (2) $ 1,401 $ 2,535 $ 2,009 $ 1,757 $ 1,506 not available not available
1 Future capitalized maintenance amounts for 2018 and beyond are not yet determinable however an estimate of $109 million has been made for 2018 and 2019.
2 U.S. dollar amounts are converted using the December 31, 2014 closing exchange rate of US$1 = C$1.1601. The estimated aggregate cost of aircraft is based on delivery prices that
include estimated escalation and, where applicable, deferred price delivery payment interest calculated based on the 90-day U.S. LIBOR rate at December 31, 2014.
9.7. PENSION FUNDING OBLIGATIONS
Air Canada maintains several pension plans, including defined benefit and defined contribution pension plans
and plans providing other retirement and post-employment benefits to its employees. As at January 1, 2014,
the aggregate solvency surplus in the domestic registered pension plans was $89 million. The next required
valuations to be made as at January 1, 2015, will be completed in the first half of 2015, but as described below,
they will not impact the 2015 pension past service cost funding obligations unless Air Canada opts out of the
2014 Regulations (described below), deciding instead to fund its domestic registered pension plans pursuant to
normal funding rules. Based on preliminary estimates, including actuarial assumptions, as at January 1, 2015, the
aggregate solvency surplus in Air Canada’s domestic registered pension plans is projected to be $780 million.
Pension funding obligations under the normal funding rules are generally dependent on a number of factors,
including the assumptions used in the most recently filed actuarial valuation reports for current service
(including the applicable discount rate used or assumed in the actuarial valuation), the plan demographics at
the valuation date, the existing plan provisions, existing pension legislation and changes in economic conditions
(mainly the return on fund assets and changes in interest rates). Actual contributions that are determined
on the basis of future valuation reports filed annually may vary significantly from projections. In addition to
changes in plan demographics and experience, actuarial assumptions and methods may be changed from one
valuation to the next, including due to changes in plan experience, financial markets, future expectations, and
changes in legislation and other factors.
In December 2013, the Government of Canada formally approved the Air Canada Pension Plan Funding
Regulations, 2014 (the “2014 Regulations”) under the Pension Benefits Standards Act, 1985 in respect of special
payments required to be made to amortize the deficit under Air Canada’s defined benefit plans applicable to
the period between 2014 and 2020 inclusively, expiring December 31, 2020. According to the terms of the 2014
Regulations, Air Canada will be required to make payments of at least $150 million annually with an average
of $200 million per year, to contribute an aggregate minimum of $1,400 million over seven years in solvency
deficit payments, in addition to its pension current service payments.
Under an agreement reached with the Government of Canada, in respect of the plan years during which
Air Canada funds its plans pursuant to the 2014 Regulations, Air Canada is subject to a series of covenants
and undertakings, including a prohibition on dividends and share repurchases, as well as certain limitations
on executive compensation arrangements. As requested by the Government of Canada, Air Canada has also
agreed to use reasonable efforts, during the negotiations of the next collective agreements with Air Canada’s
Canadian-based unions, to seek to include in those collective agreements provisions which would have
employees contribute fifty per cent of their pension plan normal costs, and has agreed not to implement
pension plan benefit improvements without regulatory approval.