Air Canada 2009 Annual Report Download - page 77

2009 Management’s Discussion and Analysis
77
Aeroplan
Through its commercial agreement with Aeroplan LP (“Aeroplan”), Air Canada 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 Air Canada under the Aeroplan Commercial
Participation and Services Agreement and in connection with the Aeroplan program®, or other unexpected interruptions of
Aeroplan services which are beyond Air Canada’s control, could have a material adverse effect on Air Canada, its business,
results from operations and fi nancial condition.
Jazz
Under the CPA, Jazz provides Air Canada’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 Air Canada’s mainline routes. Pursuant to the terms of the Jazz CPA, Air Canada pays Jazz a number of fees which
are determined based upon certain costs incurred by Jazz. Air Canada also 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 Air Canada
under the Jazz CPA, or other unexpected interruptions or cessation of Jazz’s services which are beyond Air Canada’s control
could have a material adverse effect on Air Canada, its 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 Air Canada make certain minimum payments to Jazz regardless of the amount of fl ying done on its behalf by Jazz.
Star Alliance®
The strategic and commercial arrangements with Star Alliance® members provide Air Canada with important benefi ts,
including codesharing, effi cient connections and transfers, reciprocal participation in frequent fl yer programs and use of
airport lounges from the other members. Should a key member leave Star Alliance® or otherwise fail to meet its obligations
thereunder, Air Canada, its business, results from operations and fi nancial condition could be materially adversely affected.
Interruptions or Disruptions in Service
Air Canada’s business is signifi cantly dependent upon its ability to operate without interruption at a number of hub airports,
including Toronto Pearson International Airport. Delays or disruptions in service, including those due to security or other
incidents, weather conditions, labour confl icts with airport workers, baggage handlers, air traffi c controllers and other workers
not employed by Air Canada or other causes beyond the control of Air Canada could have a material adverse impact on
Air Canada, its business, results from operations and fi nancial condition.
Current Legal Proceedings
The European Commission, the United States Department of Justice and the Competition Bureau in Canada are investigating
alleged anti-competitive cargo pricing activities, including the levying of certain fuel surcharges, of a number of airlines and
cargo operators, including Air Canada. Competition authorities have sought or requested information from Air Canada as part
of their investigations. Air Canada is cooperating with these investigations, which are likely to lead, or have led, to proceedings
against Air Canada and a number of airlines and other cargo operators in certain jurisdictions including in the European Union
where all formal procedural steps preceding a decision have been completed. Air Canada is also named as a defendant in a
number of class action lawsuits that have been fi led before the United States District Court and in Canada in connection with
these allegations.
During 2008, Air Canada recorded a provision of $125 million as a preliminary estimate. This is only an estimate based upon
the current status of the investigations and proceedings and Air Canada’s assessment as to the potential outcome for certain
of them. This provision does not address the proceedings and investigations in all jurisdictions, but only where there is suffi cient
information to do so. Management has determined it is not possible at this time to predict with any degree of certainty the
outcome of all proceedings and investigations. Additional material provisions may be required and such provisions could have
a material adverse effect on Air Canada’s fi nancial position.
In February 2006, Jazz commenced proceedings before the Ontario Superior Court of Justice against Porter Airlines Inc. (“Porter”)
and other defendants (collectively the “Porter Defendants”) after Jazz became aware that it would be excluded from operating
fl ights from Toronto City Centre (Island) Airport (the “TCCA”). On October 26, 2007, the Porter Defendants counter-claimed
against Jazz and Air Canada alleging various violations of competition law, including that Jazz and Air Canada’s commercial
relationship contravenes Canadian competition laws, and claiming $850 million in damages. Concurrently with the Ontario