Air Canada 2010 Annual Report Download - page 82

2010 Air Canada Annual Report
82
Regulatory Matters
The airline industry is subject to extensive Canadian and foreign government regulations relating to, among other things,
security, safety, privacy, licensing, competition, environment (including noise levels and carbon emissions) and, in some
measure, pricing. For example, new and proposed legislation have been considered or adopted concerning carbon emissions
emanating from the aviation industry. Such legislative initiatives include, for example, market-based mechanisms called
emissions trading systems which are being proposed and implemented to reduce the amount carbon emissions through
the setting of emissions allowances and charging aircraft operators for a certain percentage of theses allowances. The
implementation of additional regulations or decisions, including those relating to carbon emissions, and others, whether 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 Air Canada, its business, results from
operations and financial condition.
The European Union passed legislation for an Emissions Trading System which will include carbon emissions from aviation
commencing in January 2012, including for flights operated between Canada and countries within the European Union.
The legislation would require aircraft operators to monitor and report on fuel use and emissions data. While this legislation
would be expected to result in increased costs relating to the purchase of emissions allowances, the net financial impact
would, in part, depend upon how much of such cost, if any, would be recoverable, including in the form of higher passenger
fares and cargo rates.
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 Air Canada and its international operations.
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 financial 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 form operations and financial 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 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 specific insurance be maintained, which may have a material adverse effect on Air
Canada, its business, results from operations and financial 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 US$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.