Air Canada 2006 Annual Report Download - page 55

17. RISK FACTORS
The risks described herein may not be the only risks faced by the Corporation. Other risks of which the
Corporation is not aware or which the Corporation currently deems to be immaterial may surface and have a
material adverse impact on the Corporation’s business, results from operations and financial condition.
Risks Relating to the Corporation
Operating Results
In the recent past, the Corporation has sustained significant operating losses and may sustain significant losses
in the future. On September 30, 2004, the Corporation and certain of its subsidiaries emerged from protection
under the CCAA and implemented a plan of arrangement. For the years ended December 31, 2003, 2002 and
2001, Air Canada incurred operating losses before reorganization and restructuring items and non-recurring
labour expenses of $684 million, $192 million and $731 million, respectively. For the nine-month period ended
September 30, 2004, Air Canada realized operating income before reorganization and restructuring items of
$120 million and, for the three-month period ended December 31, 2004, the Corporation incurred an operating
loss of $59 million. For the years ended December 31, 2006 and 2005, the Corporation realized operating
income of $259 million and $318 million, respectively. Prior to September 30, 2004, the operations or Air
Canada included the operations of various entities included in the Air Canada Services segment, as well as
those of Jazz, Aeroplan and ACTS and, as such, those prior results may not be comparable. Despite Air
Canada's emergence from creditor protection under the CCAA, the resulting and ongoing business initiatives
and efforts at cost reductions and its recent results, the Corporation may not be able to successfully achieve
planned business initiatives and cost reductions, including those which seek to offset significant fuel and other
expenses or restore positive net profitability and may sustain significant losses in the future.
Leverage and Liquidity
The Corporation has, and is expected to continue to have, a significant amount of indebtedness, including
substantial fixed obligations under aircraft leases and financings. The Corporation may incur additional debt,
including secured debt, in the future. The amount of indebtedness that the Corporation currently has and which
it may incur in the future could have a material adverse effect on the Corporation, for example, by (i) limiting the
Corporation's ability to obtain additional financing , (ii) requiring the Corporation to dedicate a substantial portion
of its cash flow from operations to payments on its indebtedness and fixed cost obligations, thereby reducing
the funds available for other purposes, (iii) making the Corporation more vulnerable to economic downturns,
and (iv) limiting the Corporation's flexibility in planning for, or reacting to, competitive pressures or changes in its
business environment.
The ability of the Corporation to make scheduled payments under its indebtedness will depend on, among other
things, its future operating performance and its ability to refinance its indebtedness, if necessary. Each of these
factors is to a large extent subject to economic, financial, competitive, regulatory, operational and other factors,
many of which are beyond the Corporation's control. In addition, as the Corporation incurs indebtedness which
bears interest at fluctuating interest rates, to the extent these interest rates increase, its interest expense will
increase. There can be no assurance that the Corporation will be able to generate sufficient cash from its
operations to pay its debts and lease obligations.
Need for Additional Capital
The Corporation faces a number of challenges in its current business operations, including high fuel prices and
increased competition from international, transborder and low-cost domestic carriers. In order to meet such
challenges and to support the Corporation's business strategy, significant operating and capital expenditures
are, and may in the future be, required. There can be no assurance that the Corporation will continue to be able
to obtain on a timely basis sufficient funds on terms acceptable to the Corporation to provide adequate liquidity
and to finance the operating and capital expenditures necessary to support its business strategy if cash flows
from operations and cash on hand are insufficient.
Failure to generate additional funds, whether from operations or additional debt or equity financings, may
require the Corporation to delay or abandon some or all of its anticipated expenditures or to modify its business
strategy, which could have a material adverse effect on the Corporation's business, results from operations and
financial condition. Furthermore, the ability of competitors to raise money more easily and on less onerous
terms could create a competitive disadvantage for Air Canada.
55
Management's Discussion and Analysis of Results and Financial Condition