Air Canada 2009 Annual Report Download - page 72

2009 Air Canada Annual Report
72
19. RISK FACTORS
The risks described herein may not be the only risks faced by Air Canada. Other risks of which Air Canada is not aware or
which Air Canada currently deems to be immaterial may surface and have a material adverse impact on Air Canada, its
business, results from operations and fi nancial condition.
Risks relating to Air Canada
Operating Results
Prior to emergence from its restructuring under the Companies Creditors Arrangement Act, as amended (“CCAA”) on September
30, 2004, Air Canada had sustained signifi cant losses and Air Canada may sustain signifi cant losses in the future. In 2008,
Air Canada recorded an operating loss before a provision for cargo investigations and proceedings of $39 million. During
2009, Air Canada recorded an operating loss of $316 million. Current economic conditions may result in signifi cant losses for
Air Canada. Despite ongoing business initiatives and efforts at securing cost reductions, revenue improvements and additional
sources of fi nancing, Air Canada may not be able to successfully achieve positive net profi tability or realize the objectives of
any or all of its initiatives, including those which seek to improve yield or offset or mitigate risks facing Air Canada, including
those relating to economic conditions, liquidity, pension funding, unexpected volatility in fuel costs and other expenses.
Leverage
Air Canada has, and is expected to continue to have and incur, a signifi cant amount of indebtedness, including substantial
fi xed obligations under aircraft leases and fi nancings, and as a result of challenging economic or other conditions affecting
Air Canada, Air Canada may incur greater levels of indebtedness than currently exist. The amount of indebtedness that
Air Canada currently has and which it may incur in the future could have a material adverse effect on Air Canada, for example,
by (i) limiting Air Canada’s ability to obtain additional fi nancing, (ii) requiring Air Canada to dedicate a substantial portion of
its cash fl ow from operations to payments on its indebtedness and fi xed cost obligations, thereby reducing the funds available
for other purposes, (iii) making Air Canada more vulnerable to economic downturns, and (iv) limiting Air Canada’s fl exibility in
planning for, or reacting to, competitive pressures or changes in its business environment.
The ability of Air Canada to make scheduled payments under its indebtedness will depend on, among other things, its future
operating performance and its ability to refi nance its indebtedness, if necessary. In addition, as Air Canada incurs indebtedness
which bears interest at fl uctuating interest rates, to the extent these interest rates increase, its interest expense will increase.
There can be no assurance that Air Canada will be able to generate suffi cient cash from its operations to pay its debts and lease
obligations. Each of these factors is, to a large extent, subject to economic, fi nancial, competitive, regulatory, operational and
other factors, many of which are beyond Air Canada’s control.
Need for Additional Capital and Liquidity
Air Canada faces a number of challenges in its business, including in relation to economic conditions, pension plan funding,
volatile fuel prices, contractual covenants which could require Air Canada to deposit cash collateral with third parties, foreign
exchange rates and increased competition from international, transborder and low-cost domestic carriers. Air Canada’s liquidity
levels may be adversely impacted by these as well as by other factors and risks identifi ed in this MD&A. As part of Air Canada’s
efforts to meet such challenges and to support Air Canada’s business strategy, signifi cant liquidity and signifi cant operating
and capital expenditures are, and will in the future be, required. There can be no assurance that Air Canada will continue to be
able to obtain on a timely basis suffi cient funds on terms acceptable to Air Canada to provide adequate liquidity and to fi nance
the operating and capital expenditures necessary to overcome challenges and support its business strategy if cash fl ows from
operations and cash on hand are insuffi cient.
Failure to generate additional funds, whether from operations or additional debt or equity fi nancings, could require Air Canada
to delay or abandon some or all of its anticipated expenditures or to modify its business strategy and could have a material
adverse effect on Air Canada, its business, results from operations and fi nancial condition. Furthermore, competitors with
greater liquidity or their ability to raise money more easily and on less onerous terms could create a competitive disadvantage
for Air Canada.
Air Canada’s credit ratings infl uence its ability to access capital markets and its liquidity. There can be no assurance that
Air Canada’s credit ratings will not be downgraded, which would add to Air Canada’s borrowing and insurance costs, hamper
its ability to attract capital, adversely impact its liquidity, and limit its ability to operate its business, all of which could have a
material adverse effect on Air Canada, its business, results from operations and fi nancial condition.