Air Canada 2008 Annual Report Download - page 76

2008 Air Canada Annual Report
76
If Canadian low-cost and other carriers are successful in entering or expanding into the Corporation’s domestic and the US
transborder markets, if additional US or other carriers against which the Corporation competes are successful in entering the
Corporation’s transborder market or if carriers are successful in their expansion in international markets of the Corporation, the
Corporation’s business results from operations and financial condition could be materially adversely affected.
The Corporation also encounters substantial price competition. The expansion of low-cost carriers in recent years, along with
the advent of Internet travel websites and other travel products distribution channels, has resulted in a substantial increase
in discounted and promotional fares initiated by the Corporation’s competitors. The decision to match competitors’ fares, to
maintain passenger traffic, results in reduced yields which, in turn, could have a material adverse effect on the Corporation’s
business, results from operations and financial condition. Furthermore, the Corporation’s ability to reduce its fares in order to
effectively compete with other carriers is dependent on the Corporation’s ability to achieve acceptable operating margins and
may also be limited by government policies to encourage competition.
In addition, consolidation in the airline industry could result in increased competition as some airlines emerging from such
consolidations may be able to compete more effectively against the Corporation which could have a material adverse effect
on the Corporation’s business, results from operations and financial condition.
Limitations Due to Restrictive Covenants
Some of the financing and other major agreements of the Corporation contain restrictive, financial (including in relation
to liquidity and debt coverage ratios) and other covenants which affect and, in some cases, significantly limit or prohibit,
among other things, the manner in which the Corporation may structure or operate its business, including by reducing the
Corporation’s liquidity, limiting the Corporation’s ability to incur indebtedness, create liens, sell assets, make capital expenditures
and engage in acquisitions, mergers or restructurings. Future financing and other major agreements may also be subject to
similar covenants which limit Air Canada’s operating and financial flexibility, which could materially and adversely affect the
Corporation’s profitability.
A failure by the Corporation to comply with its contractual obligations (including restrictive, financial and other covenants), or
to pay its indebtedness and fixed costs could result in a variety of material adverse consequences, including the acceleration of
its indebtedness, the withholding of credit card proceeds by the credit card service providers and the exercise of remedies by
its creditors and lessors, and such defaults could trigger additional defaults under other indebtedness or agreements. In such a
situation, it is unlikely that the Corporation would be able to repay the accelerated indebtedness or fulfill its obligations under
certain contracts, make required aircraft lease payments or otherwise cover its fixed costs. Also, the lenders under the financing
arrangements could foreclose upon all or substantially all of the assets of the Corporation which secure the Corporation’s
obligations.
Airport User Fees and Air Navigation Fees
With the privatization of airports and air navigation authorities over the last decade in Canada, new airport and air navigation
authorities have imposed significant increases in their fees. If authorities in Canada or elsewhere continue to increase their
fees at the rate at which they have increased them in the recent past, the Corporation’s business, results from operations and
financial condition could be materially adversely affected.
Strategic, Business, Technology and Other Important Initiatives
In order to operate its business, achieve its goals and remain competitive, the Corporation continuously seeks to identify
and devise, invest in and implement strategic, business, technology and other important initiatives, such as those relating
to the aircraft fleet restructuring program, the aircraft refurbishment program, the new revenue model, the reservation and
airport customer service initiative (which will also support the revenue model), the business process initiatives and others.
These initiatives, including activities relating to their development and implementation, may be adversely impacted by a wide
range of factors, many of which are beyond the Corporation’s control. Such factors include the performance of third parties,
including suppliers, the implementation and integration of such initiatives into the Corporation’s other activities and processes
as well as the adoption and acceptance of initiatives by the Corporation’s customers, suppliers and personnel. A delay or
failure to sufficiently and successfully identify and devise, invest in or implement these initiatives could adversely affect the
Corporation’s ability to operate its business, achieve its goals and remain competitive and could have a material adverse effect
on the Corporation’s business, results from operations and financial condition.