Air Canada 2006 Annual Report Download - page 63

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In addition, on November 2, 2004, the Minister of Industry tabled amendments to the Competition Act in Bill C-
19 which, if enacted, would have removed the airline-specific "abuse of dominance" provisions from the
Competition Act. However, on November 29, 2005, the 38th Parliament of Canada was dissolved. As a result,
the legislative process relating to the adoption of Bill C-19 was terminated. Management cannot predict if or
when such proposed legislation will be re-introduced in the House of Commons.
If the Commissioner of Competition commences inquiries or brings similar applications with respect to
significant competitive domestic routes and such applications are successful, it could have a material adverse
effect on the Corporation's business, results from operations and financial condition.
The Corporation is subject to domestic and foreign laws regarding privacy of passenger and employee data that
are not consistent in all countries in which the Corporation operates. Compliance with these regulatory regimes
is expected to result in additional operating costs and could have a material adverse effect on the Corporation's
business, results from operations and financial condition.
Increased Insurance Costs
Since September 11, 2001 the aviation insurance industry has been continually reevaluating the terrorism risks
that it covers and this activity may adversely affect some of the Corporation's existing insurance carriers or the
Corporation's ability to obtain future insurance coverage. To the extent that the Corporation's existing insurance
carriers are unable or unwilling to provide it with insurance coverage, and in the absence of measures by the
Government of Canada to provide the required coverage, the Corporation's insurance costs may increase
further and may result in the Corporation being in breach of regulatory requirement or contractual arrangements
requiring that specific insurance be maintained, which may have a material adverse effect on the Corporation's
business, results from operations and financial condition.
Third Party War Risk Insurance
There is a risk that the Government of Canada may not continue to provide an indemnity for third party war risk
liability coverage, which it currently provides to the Corporation and certain other carriers in Canada. In the
event that the Government of Canada does not continue to provide such indemnity or amends such indemnity,
the Corporation and other industry participants would have to turn to the commercial insurance market to seek
such coverage. The Corporation estimates that such coverage would cost the Corporation approximately $15
million per year. Alternative solutions, such as those envisioned by the International Civil Aviation Organization
("ICAO") and the International Air Transport Association ("IATA"), have not developed as planned, due to
actions taken by other countries and the recent availability of supplemental insurance products. ICAO and IATA
are continuing their efforts in this area, however the achievement of a global solution is not likely in the
immediate or near future. The U.S. federal government has set up its own facility to provide war risk coverage
to U.S. carriers, thus removing itself as a key component of any global plan.
Furthermore, the London aviation insurance market has introduced a new standard war and terrorism exclusion
clause which is applicable to aircraft hull and spares war risk insurance, and intends to introduce similar
exclusions to airline passenger and third party liability policies. Such clause excludes claims caused by the
hostile use of a dirty bomb, electromagnetic pulse device, or biochemical materials. The Government of Canada
indemnity program is designed to address these types of issues as they arise, but the Government of Canada
has not yet decided to extend the existing indemnity to cover this exclusion. Unless and until the Government of
Canada does so, the loss of coverage exposes the Corporation to this new uninsured risk and may result in the
Corporation being in breach of certain regulatory requirements or contractual arrangements, which may have a
material adverse effect on the Corporation's business, results from operations and financial condition.
63
Management's Discussion and Analysis of Results and Financial Condition