Air Canada 2011 Annual Report Download - page 70

2011 Air Canada Annual Report
70
Regulatory Matters
The airline industry is subject to extensive Canadian and foreign government regulations relating to, among other things,
security, safety, consumer rights, 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 of 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 requires aircraft operators to monitor and report on fuel use and emissions data. While this legislation is expected
to result in increased costs relating to the purchase of emissions allowances, the net financial impact will, in part, depend
upon how much of such cost, if any, will be recovered, including in the form of higher passenger fares and cargo rates. Refer to
section 14.1 of this MD&A for additional information.
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 from operations and financial condition.
Availability of Insurance Coverage and Increased Insurance Costs
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 until December 31, 2013. 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.