Air Canada 2008 Annual Report Download - page 80

2008 Air Canada Annual Report
80
The availability of international routes to Canadian air carriers is regulated by agreements between Canada and foreign
governments. Changes in Canadian or foreign government aviation policy could result in the alteration or termination of these
agreements and could adversely affect the Corporation’s international operations.
The Corporation is subject to domestic and foreign laws regarding privacy of passenger and employee data, including advance
passenger information and access to airline reservation systems, which are not consistent in all countries in which the
Corporation operates. The need to comply 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
requirements 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 $10 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 US federal government has set up its own facility to provide war risk coverage to US 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.
RisksRelatedtotheCorporation’sRelationshipwithACE
Control of the Corporation and Related Party Relationship
As of the date of this MD&A, ACE owns shares of Air Canada representing 75% of the voting interests in Air Canada. Voting
control enables ACE to determine substantially all matters requiring security holder approval as a result of its voting interest
in Air Canada. ACE would exercise control over corporate transactions submitted to Air Canada’s board of directors and/or Air
Canada’s security holders for approval. ACE effectively has sufficient voting power to effect or prevent a change in control of
Air Canada. This voting control may discourage transactions involving shares in Air Canada, including as a result, transactions in
which the public shareholders of Air Canada might otherwise receive a premium for their shares over the then-current market
price. The interests of ACE may conflict with those of other shareholders.