Air Canada 2007 Annual Report Download - page 72

2007 Air Canada Annual Report
72
Regulatory Matters
The airline industry is subject to extensive Canadian and foreign government regulations relating to, among other things,
security, safety, licensing, competition, noise levels and the environment and, in some measure, pricing. Additional laws
and regulations may be proposed, and decisions rendered, from time to time which could impose additional requirements
or restrictions on airline operations. The implementation of additional regulations or decisions by Transport Canada, the
Competition Bureau and/or the Competition Tribunal, the Canadian Transportation Agency or other domestic or foreign
governmental entities may have a material adverse effect on the Corporation’s business, results from operations and
fi nancial condition. The Corporation cannot give any assurances that new regulations or revisions to the existing legislation,
or decisions, will not be adopted or rendered. The adoption of such new laws and regulations or revisions, or the rendering
of such decisions, could have a material adverse effect on the Corporation’s business, results from operations and fi nancial
condition.
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.
In July 2000, the Government of Canada amended the CTA, the Competition Act and the Air Canada Public Participation Act
to address the competitive airline environment in Canada and ensure protection for consumers. This legislation included
airline-specifi c provisions concerning “abuse of dominance” under the Competition Act, later supplemented by creating
“administrative monetary penalties” for a breach of the abuse of dominance provisions by a dominant domestic air
carrier.
In July 2003, the Competition Tribunal released its reasons and fi ndings in a proceeding between the Commissioner of
Canada and the Corporation which had considered the approach to be taken in determining whether the Corporation
was operating below “avoidable costs” in violation of one of the new airline-specifi c abuse of dominance provisions.
The Competition Tribunal applied a very broadly crafted cost test in its decision. In September 2004, the Commissioner
of Competition published a letter describing the enforcement approach that would be taken in future cases involving the
airline-specifi c abuse of dominance provisions, which included a statement that the Tribunal’s approach to avoidable costs
remains relevant.
On November 2, 2004, the Minister of Industry tabled amendments to the Competition Act in Bill C-19 which, if enacted,
would have removed the airline-specifi c “abuse of dominance” provisions from the Competition Act. However, on November
29, 2005, the 38th Parliament of Canada was dissolved. As a result, the legislative process relating to the adoption of Bill
C-19 was terminated. On October 16, 2007, private Bill C-454 containing provisions to remove the airline-specifi c “abuse
of dominance” provisions from the Competition Act, was tabled for fi rst reading in the House of Commons. Management
cannot predict if or when such proposed legislation will come into force.
If the Commissioner of Competition commences inquiries or brings similar applications with respect to signifi cant competitive
domestic routes and such applications are successful, it could have a material adverse effect on the Corporation’s business,
results from operations and fi nancial condition.
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. Compliance 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 fi nancial 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 specifi c insurance be maintained, which may
have a material adverse effect on the Corporation’s business, results from operations and fi nancial condition.