Air Canada 2009 Annual Report Download - page 80

2009 Air Canada Annual Report
80
Air Canada 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
Air Canada 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 Air Canada, its business, results from operations and fi nancial condition.
There can be no assurances that new laws, regulations or revisions to same, or decisions, will not be adopted or rendered,
from time to time, and these could impose additional requirements or restrictions, which may adversely impact Air Canada’s
business, results from operations and fi nancial condition.
Increased Insurance Costs
Since September 11, 2001 the aviation insurance industry has been continually re-evaluating the terrorism risks that it
covers, and this activity may adversely affect some of Air Canada’s existing insurance carriers or Air Canada’s ability to obtain
future insurance coverage. To the extent that Air Canada’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,
Air Canada’s insurance costs may increase further and may result in Air Canada being in breach of regulatory requirements
or contractual arrangements requiring that specifi c insurance be maintained, which may have a material adverse effect on
Air Canada, its business, results from operations and fi nancial 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 Air Canada 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, Air Canada and other industry participants
would have to turn to the commercial insurance market to seek such coverage. Air Canada estimates that such coverage
would cost Air Canada approximately $5 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 U.S. federal government has set up its own facility to provide war risk coverage to U.S. carriers, thus removing itself as a
key component of any global plan.
Risks related to the Corporation’s relationship with ACE
Control of Air Canada and Related Party Relationship
As at September 30, 2009, ACE owned Class B voting shares representing 75% of the shares issued and outstanding. This
voting control enabled ACE to determine substantially all matters requiring security holder approval as a result of its voting
interest in Air Canada. Accordingly, ACE would have been able to exercise control over corporate transactions that must be
submitted to Air Canada’s security holders for approval and effectively has suffi cient voting power to effect or prevent a
change in control of Air Canada. Following completion of the offering, as described in section 6 of this MD&A, and the issuance
of shares under the Pension MOUs, ACE’s ownership is reported to represent 27% of the shares issued and outstanding,
however, ACE remains the largest shareholder of Air Canada. The extent of ACE’s shareholdings in Air Canada 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 confl ict with
those of other shareholders. The exercise, if any, by lenders other than ACE of the initial warrants and additional warrants under
the Credit Agreement would further dilute ACE’s shareholdings in Air Canada.
Future Sales of Shares by or for ACE
ACE generally has the right at any time to spin-off the Air Canada shares that it owns or to sell a signifi cant interest in
Air Canada to a third party, in either case without the approval of the public shareholders of Air Canada and without providing
for a purchase of such shareholders’ shares of Air Canada, subject to compliance with applicable securities laws. Sales of
substantial amounts of Air Canada’s shares by ACE (including through a distribution of Air Canada’s shares to ACE shareholders),
or the perception or possibility of those sales by ACE, could adversely affect the market price of the shares and/or impede
Air Canada’s ability to raise capital through the issuance of equity securities.
ACE has no contractual obligation to retain any of its Air Canada shares. The Registration Rights Agreement that Air Canada
entered into with ACE concurrently with its initial public offering granted ACE the right to require Air Canada to fi le a prospectus
and otherwise assist with a public offering of shares that ACE holds in specifi ed circumstances.