Air Canada 2007 Annual Report Download - page 68

2007 Air Canada Annual Report
68
Dependence on Technology
The Corporation relies on technology, including computer and telecommunications equipment and software and Internet-
based systems, to operate its business, increase its revenues and reduce its costs. These systems include those relating to
the Corporation’s telecommunications, websites, computerized airline reservations and airport customer services and fl ight
operations.
These technology systems may be vulnerable to a variety of sources of failure, interruption or misuse, including by reason
of third party suppliers’ acts or omissions, natural disasters, terrorist attacks, telecommunications failures, power failures,
computer viruses, unauthorized or fraudulent users, and other operational and security issues. While the Corporation
continues to invest in initiatives, including security initiatives and disaster recovery plans, these measures may not
be adequate or implemented properly. Any such technology systems failure could materially and adversely affect the
Corporation’s operations and could have a material adverse effect on the Corporation’s business, results from operations
and fi nancial condition.
Key Supplies and Suppliers
The Corporation is dependent upon its ability to source, on favourable terms and costs, suffi cient quantities of goods and
services in a timely manner, including those required for the Corporation’s operations such as fuel, aircraft and related parts
and aircraft and engine maintenance services (including maintenance services obtained from ACTS Aero). In certain cases,
such goods and services may only be available from a limited number of suppliers. Such failure, refusal or inability may arise
as a result of a wide range of causes, many of which are beyond the Corporation’s control. Any failure or inability of the
Corporation to successfully source goods and services, including by reason of a failure, refusal or inability of a supplier, or
to source goods and services on terms and pricing and within the timeframes acceptable to the Corporation, could have a
material adverse effect on the Corporation’s business, results from operations and fi nancial condition.
Aeroplan
Through its relationship with Aeroplan, the Corporation is able to offer its customers who are Aeroplan members the
opportunity to earn Aeroplan miles. Based on customer surveys, Management believes that rewarding customers with
Aeroplan miles is a signifi cant factor in customers’ decision to travel with Air Canada and Jazz and contributes to building
customer loyalty. The failure by Aeroplan to adequately fulfi ll its obligations towards the Corporation under the Aeroplan
CPSA and in connection with the Aeroplan program, or other unexpected interruptions of Aeroplan services which are
beyond the Corporation’s control could have a material adverse effect on the Corporation’s business, results from operations
and fi nancial condition.
Jazz
Under the Jazz CPA, Jazz provides the Corporation’s customers service in lower density markets and higher density markets
at off-peak times throughout Canada and to and from certain destinations in the United States and also provides valuable
traffi c feed to the Corporation’s mainline routes. The Corporation reimburses Jazz, without mark-up, for certain pass-
through costs incurred directly by Jazz, such as fuel, navigation, landing and terminal fees and certain other costs. Signifi cant
increases in such pass-through costs, the failure by Jazz to adequately fulfi ll its obligations towards the Corporation under
the Jazz CPA, or other unexpected interruptions of Jazz’s services which are beyond the Corporation’s control could have a
material adverse effect on the Corporation’s business, results from operations and fi nancial condition. In addition, the Jazz
CPA requires that Jazz maintain a minimum fl eet size and contains a minimum average daily utilization guarantee which
requires that the Corporation make certain minimum payments to Jazz regardless of the revenue generated by Jazz.
Pension Plans
Canadian federal pension legislation requires that the funded status of registered pension plans be determined periodically,
on both a going concern basis (essentially assuming indefi nite plan continuation) and a solvency basis (essentially assuming
immediate plan termination).
The solvency liability is infl uenced primarily by long-term interest rates and by the investment return on plan assets.
The interest rate used to calculate benefi t obligations for solvency purposes is a prescribed rate derived from the interest
rates on long-term Government of Canada bonds. In the current low interest rate environment, the calculation results in a
higher present value of the pension obligations, leading to a larger unfunded solvency position.
In May 2004, Air Canada and the Offi ce of the Superintendent of Financial Institutions agreed on a protocol pursuant to
which the solvency funding requirements for the Corporation’s registered pension plans provided for in the then existing