Investor Presentaiton
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Capacity Purchase Agreement with Jazz
Pursuant to the Jazz CPA, Air Canada purchases capacity from Jazz representing substantially all of the capacity
of the Covered Aircraft. Of the 135 aircraft in Jazz's operating fleet as of December 31, 2006, 133 aircraft are Covered
Aircraft under the Jazz CPA.
Under the Jazz CPA, Jazz operates its flights on behalf of Air Canada using the Covered Aircraft, and provides all
crews (flight and cabin), aircraft maintenance and, in some cases, airport operations for such flights (the "Scheduled
Flights"). Air Canada determines routes and controls scheduling, ticket prices, product distribution, seat inventories,
marketing and advertising for these flights. Air Canada is entitled to all revenues (except bar and buy-on-board sales)
resulting from the Scheduled Flights and from cargo services carried on Scheduled Flights including, without
limitation, ticket sales, baggage charges, passenger charges and employee pass travel service charges.
Under the Jazz CPA, Air Canada reimburses Jazz, without mark-up, for pass-through costs (as defined in the Jazz
CPA) incurred directly by Jazz, such as fuel, navigation, landing and terminal fees. Jazz is also paid fees by Air Canada
for a variety of different metrics based on an estimate of all costs and expenses to be incurred and paid by Jazz for the
applicable period with respect to Scheduled Flights and other services to aircraft, other than Jazz's pass-through costs,
marked up by a specified percentage. The fees payable by Air Canada to Jazz on a monthly basis are broken down into
a number of categories. The payment categories fall into two broad groups: fees that are variable depending on the
Covered Aircraft utilization and fees that are not variable regardless of how often or where or with what load factors
the Covered Aircraft are utilized.
The most important of the variable payments for establishing Jazz's revenue is the block hour payment paid by Air
Canada for each block hour flown by Jazz's Covered Aircraft. This payment varies with the block hours flown and the
aircraft type. The other variable payments such as the cycle payment and, even more so, the passenger payment, are
relatively small and calibrated to cover the specific costs associated with the activity (either a cycle or flying a
passenger) to which they are linked. The other group of payments such as aircraft rent do not change regardless of the
Covered Aircraft's utilization and are designed to meet Jazz's costs for these items plus a mark-up.
Until the expiry of the Jazz CPA in December 2015, Air Canada has agreed to pay Jazz for certain daily minimum
levels of block hours for each Covered Aircraft other than aircraft being modified, undergoing schedule maintenance or
being painted. This minimum daily average utilization guarantee ensures that Air Canada must make certain minimum
payments to Jazz regardless of the revenue generated by Jazz.
The Jazz CPA will expire on December 31, 2015, subject to renewal on terms to be negotiated for two additional
five-year periods unless either party gives written notice of non-renewal to the other not less than one year prior to the
end of the initial term or the first renewal term. Either party is entitled to terminate the Jazz CPA at any time upon the
occurrence of an event of default (as determined in accordance with the terms of the Jazz CPA).
Jazz MSA
Air Canada and Jazz are also parties to the Jazz MSA pursuant to which Air Canada provides certain services to
Jazz in return for a fee based on the fair market value of the services provided by Air Canada to Jazz. Pursuant to the
Jazz MSA, Air Canada provides Jazz with infrastructure support consisting principally of administrative services in
relation with information technology, corporate real estate, environmental affairs and legal services. Jazz benefits from
the information technology available to Air Canada from third parties and from Air Canada's internal information
technology resources.
Air Canada and Jazz may elect to terminate any services under the Jazz MSA (without terminating the whole Jazz
MSA) or the entire Jazz MSA upon one year's prior written notice. The Jazz MSA shall terminate upon the termination
of the Jazz CPA.
Jazz Trademark Agreements
Pursuant to the Jazz Trademark License Agreement, Air Canada has granted Jazz a royalty-free, non-exclusive,
non-sublicensable, non-assignable right to use certain trademarks owned or registered by Air Canada around the world
including Jazz and those which incorporate the Air Canada name, and/or Air Canada's roundel design, solely in
association with the Jazz business. The Jazz Trademark License Agreement can be terminated in the event the Jazz
CPA is terminated. However, Air Canada and Jazz have also entered into the Jazz Special Trademark Agreement
which would grant all of Air Canada's rights to the Jazz trademark to Jazz (and preclude Air Canada from using theView entire presentation