f you are a credit card processor and one of your major customers-that happens to be a multibillion-dollar international airline-is struggling financially, wouldn't you be a little concerned? Might you want to terminate that contract out of fear of being liable for potentially millions of dollars in chargebacks?

That's exactly what Global Payments Canada Inc. argued when it appealed a May 2003 decision by Ontario Superior Court Justice James Farley that required Global Payments to continue processing credit card payments to Air Canada under Canada's Companies' Creditors Arrangement Act (CCAA).

Air Canada filed for CCCA protection on April 1, 2003. The CCAA allows companies to try to avoid bankruptcy by reorganizing or restructuring their debt using court-supervision while continuing to operate. Although under CCAA supervision, Air Canada has continued to honor and issue tickets, conduct flights, maintain airplanes and pay its employees.

Air Canada said it has been in trouble financially for more than a year and a half, resulting from 9/11, the war in Iraq, the SARS outbreak in Asia and increased competition from low cost carriers, whose annual growth rates often exceed 50%. In a statement issued about its restructuring plans, the airline said its "business model is broken" but it is not going out of business.

Global Payments processes Visa and MasterCard credit card transactions for Air Canada. This is how their processing partnership works: When a passenger buys an Air Canada plane ticket using a Visa- or MasterCard-branded credit card, the card association charges the account holder for the ticket, and then Global Payments pays Air Canada. The airline reimburses Global Payments within two to three days along with a fee for processing the transaction.

In its original plea to the court, Global Payments said it faced "substantial risk" as an unsecured creditor for more than $430 million in potential chargebacks if Air Canada went bankrupt.

If the airline was liquidated and Visa and MasterCard decided to refund passengers for the cost of the tickets, Global Payments might be forced to cover these "chargebacks" for the credit card companies.

Global Payments' main argument was that under the CCAA, a company is not required to provide credit or an advance of funds to another company under bankruptcy protection. Global Payments said it was being forced to provide credit to Air Canada, and this was in opposition to the CCAA rules.

The Ontario court's decision in May determined that Global Payments was not really providing 'credit' to Air Canada and that the credit card associations are the only ones in this case that supply the real credit-and that is to the card holders.

Global Payments had requested that Air Canada set aside $50 million in funds to protect the processor against any liability from chargebacks, the Canadian Press reported.

The court did rule that Air Canada should give Global Payments "reasonable protection" with regard to the transaction fees it charges, but that $50 million was an excessive amount. The judge suggested the two companies decide mutually on an amount and recommended $20-25 million instead.

A three-member panel of the Ontario Court of Appeal dismissed Global Payments' appeal, ruling that there was no reason to overturn Judge Farley's original decision.