Air Canada 2008 Annual Report Download - page 73

2008 Management’s Discussion and Analysis
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18. 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
Prior to emergence from its restructuring under the CCAA on September 30, 2004, the Corporation had sustained significant
losses and the Corporation may sustain significant losses in the future. In 2008, the Corporation recorded an operating loss
before a provision for cargo investigations of $39 million. Current economic conditions may result in significant losses for the
Corporation. Despite ongoing business initiatives and efforts at securing cost reductions and additional sources of financing,
the Corporation may not be able to successfully achieve positive net profitability or realize the objectives of any or all of its
initiatives, including those which seek to offset or mitigate risks facing the Corporation, including those relating to economic
conditions, liquidity, pension funding, unexpected volatility in fuel costs and other expenses.
Leverage
The Corporation has, and is expected to continue to have and incur, a significant amount of indebtedness, including substantial
fixed obligations under aircraft leases and financings, and as a result of challenging economic or other conditions affecting
the Corporation, the Corporation may incur greater levels of indebtedness. 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 and Liquidity
The Corporation faces a number of challenges in its business, including in relation to economic conditions, pension plan
funding, volatile fuel prices, contractual covenants which could require the Corporation to deposit cash collateral with third
parties, foreign exchange rates and increased competition from international, transborder and low-cost domestic carriers. The
Corporation’s liquidity levels may be adversely impacted by these as well as by other factors and risks identified throughout
this MD&A. As part of the Corporation’s efforts to meet such challenges and to support the Corporation’s business strategy,
significant liquidity and significant operating and capital expenditures are, and will 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 overcome
challenges and 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, could require the
Corporation to delay or abandon some or all of its anticipated expenditures or to modify its business strategy and could
have a material adverse effect on the Corporation’s business, results from operations and financial condition. Furthermore,
competitors with greater liquidity or their ability to raise money more easily and on less onerous terms could create a
competitive disadvantage for Air Canada.
The Corporation’s credit ratings influence its ability to access capital markets and its liquidity. There can be no assurance that
the Corporation’s credit ratings will not be downgraded, which would add to the Corporation’s borrowing and insurance costs,
hamper its ability to attract capital, adversely impact its liquidity, and limit its ability to operate its business, all of which could
have a material adverse effect on the Corporation’s business, results from operations and financial condition.