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2009 Air Canada Annual Report
Summary of significant related party agreements
The Relationship between the Corporation and Aveos
Refer to the “Aveos Restructuring Plan” section below for a description of a restructuring plan announced by Aveos on
January 26, 2010. Closing of Aveos restructuring transactions is expected to occur during the first quarter of 2010 and is
dependant on completion of formal documentation and certain conditions. This restructuring would modify the terms of
certain commercial agreements between Air Canada and Aveos, including terms of the Pension and Benefits Agreement and
the Agreement with Aveos on Revised payment terms described below.
Pension and Benefits Agreement
The Corporation, ACTS and Aveos entered into a Pension and Benefits Agreement effective as of October 16, 2007,
as amended (“Pension and Benefits Agreement”), relating to pension and benefits arrangements pertaining to (i) the
non-unionized employees of Air Canada who were previously assigned to the ACTS operation and who became employees
of Aveos on October 16, 2007 and (ii) those unionized employees of Air Canada who were assigned to ACTS Aero operation
pursuant to general services agreements between Air Canada and ACTS for the assignment of unionized employees from
Air Canada to ACTS (these agreements were assigned to ACTS Aero (i.e. Aveos) in 2007). Aveos is required to establish
new defined benefit and defined contribution pension plans as well as other employee and retiree benefit arrangements
(including health, life and disability) (the “ACTS Benefit Arrangements”).
Upon receipt of regulatory approval where required and based upon valuations of the relevant pension and benefit
arrangements of Air Canada (the “Air Canada Benefit Arrangements”) as at October 16, 2007, the assets and obligations
under the Air Canada Benefit Arrangements pertaining to the transferring non-unionized employees will be transferred to
Aveos or the ACTS Benefit Arrangements, as applicable. Amounts with a present value equal to the solvency deficiency in
the defined benefit pension plans as at October 16, 2007 related to transferring non-unionized employees will be paid by
Air Canada through quarterly payments to Aveos until 2014. Amounts with a present value equal to the accounting liability
as at October 16, 2007 in respect of retiree and disability benefits related to transferring non-unionized employees are to be
paid by Air Canada through quarterly payments to Aveos until 2012. The present value of these quarterly payments is also
referred to as the compensation amount. Until such future time as the assets and obligations under the Air Canada Benefit
Arrangements pertaining to non-unionized employees may be transferred to Aveos, the current service pension cost and
the current service and interest costs for other employee benefits are expensed by Air Canada with a full offset recorded as
an amount charged to affiliates (Aveos).
In addition, the Pension and Benefits Agreement contemplates similar asset and liability transfer and compensation
arrangements in respect of unionized employees, which arrangements would take effect at such future time as those
unionized employees may commence employment with Aveos pursuant to the Transition Memorandum of Agreement
(“the Transition MOA”), as described further below. However, the solvency deficiencies in respect of transferring unionized
employees for which the future quarterly compensation payments would be made are determined as at October 16, 2007,
subject to certain adjustments, and the discount rate used to compute the accounting liability for the unionized employees’
retiree and disability benefits is fixed as at October 16, 2007. The compensation payments in respect of these solvency
deficiencies and accounting liabilities will be made quarterly during the five years beginning after the unionized employees
are transferred to Aveos, but only if such a transfer occurs. Until such future time as the assets and obligations under the Air
Canada Benefit Arrangement pertaining to unionized employees may be transferred to Aveos, the current service pension
cost and the current service and interest costs for other employee benefits in respect of Air Canada employees providing
services to Aveos are charged by Air Canada to Aveos.
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The Pension and Benefits Agreement also required that Air Canada provide letters of credit to Aveos on October 16, 2007,
to secure the above-described payment obligations in respect of the solvency deficiencies of the defined benefit pension plans
and accounting liabilities for other retiree and disability benefit arrangements. The letters of credit initially totaled $101,
subject to adjustment once the exact amounts of the relevant solvency deficiencies and accounting liabilities as at
October 16, 2007 were determined by actuarial valuations. The face amount of the letter of credit in respect of the
unionized solvency deficiency is also adjusted annually to recognize past service costs paid by Air Canada to the plan in
respect of unionized employees assigned to Aveos. The face amount of the letters of credit decreases as the related quarterly
funding payments described above are made. During 2008, as described below under “Agreement with Aveos on Revised
Payment Terms”, the Corporation and Aveos also agreed to temporarily cancel certain letters of credit in the amount of $40.