Air Canada 2012 Annual Report Download - page 73

2012 Management’s Discussion and Analysis
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Under the Jazz 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 traffic
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. Significant
increases in such pass-through costs, the failure by Jazz to adequately fulfill its obligations 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 financial condition. In addition, the Jazz CPA requires that Jazz
maintain a minimum fleet 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 flying done on its behalf by Jazz.
The failure by Air Canada’s other regional carriers to fulfill their obligations under their respective agreements, or other
unexpected interruptions or disruptions of their services which are beyond Air Canada’s control could have a material adverse
effect on Air Canada, its business, results from operations and financial condition.
Star Alliance™
The strategic and commercial arrangements with Star Alliance members provide Air Canada with important benefits, including
codesharing, efficient connections and transfers, reciprocal participation in frequent flyer 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 financial condition could be materially adversely affected.
Interruptions or Disruptions in Service
Air Canada’s business is significantly 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 conflicts with airport workers, baggage handlers, air traffic 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 financial condition.
Interruptions and disruptions in service may be caused by, and the demand and cost of air travel may be adversely impacted
by, environmental conditions and factors in addition to those relating to the weather. Environmental conditions and factors,
such as those arising from volcanic eruptions or other natural phenomena, as well as those arising from man-made sources,
could cause interruptions and disruptions in service, increase Air Canada’s costs or adversely impact demand for air travel, any
of which could have a material adverse impact on Air Canada, its business, results from operations and financial condition.
Current Legal Proceedings
Investigations by Competition Authorities Relating to Cargo
The European Commission and the United States Department of Justice investigated and the Competition Bureau in Canada is
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 in several jurisdictions have sought or requested
information from Air Canada as part of their investigations. Air Canada has been 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. Air Canada is also named as a defendant, and may otherwise become implicated, in a number of class action
lawsuits and other proceedings that have been filed before the United States District Court, in Canada and Europe in
connection with these allegations. In the United States, the investigation by the US Department of Justice has concluded with
no proceedings having been instituted against Air Canada and, in 2012, Air Canada entered into a settlement agreement
relating to class action proceedings in the United States in connection with these allegations under which Air Canada made no
admission of liability. Under the settlement agreement for which final court approval was obtained, a payment of $8 million
was made by Air Canada in 2012.
In 2010, the European Commissions issued a decision finding that 12 air cargo carriers (including groups of related carriers)
had infringed European Union competition law in the setting of certain cargo charges and rates for various periods between
1999 and 2006. Air Canada was among the carriers subject to the decision and a fine of 21 million Euros (approximately
C$29 million at an exchange rate of $1.3970) was imposed on Air Canada. Air Canada is appealing this decision and filed an
application for appeal before the European General Court. In 2011, Air Canada paid the fine, as required, pending the outcome
of its appeal.