Air Canada 2013 Annual Report Download - page 70

2013 Air Canada Annual Report
70
No strikes or lock-outs may lawfully occur during the term of the collective agreements, nor during the negotiations of their
renewal until a number of pre-conditions, in respect of the unions for Canadian-based employees, prescribed by the Canada
Labour Code, have been satisfied. There can be no assurance that collective agreements will be further renewed without
labour conflict or action or that there will not otherwise be any labour conflict or action that could also lead to a degradation,
interruption or stoppage in Air Canada’s service or otherwise adversely affect the ability of Air Canada to conduct its
operations, any of which could have a material adverse effect on Air Canada, its business, results from operations and financial
condition.
Any labour disruption or work stoppage by any of the unionized work groups of Jazz or other parties with whom Air Canada
conducts business could have a material adverse effect on Air Canada, its business, results from operations and financial
condition. In addition, labour conflicts at Star Alliance® partners could result in lower demand for connecting traffic with
Air Canada and, ultimately, could have a material adverse effect on Air Canada, its business, results from operations and
financial condition.
Pension Plans
Canadian federal pension legislation requires that the funded status of registered pension plans be determined periodically, on
both a going concern basis (essentially assuming indefinite plan continuation) and a solvency basis (essentially assuming
immediate plan termination).
Pension plan solvency valuations are influenced primarily by long-term interest rates and by the investment return on plan
assets, which in turn may be dependent on a variety of factors, including economic conditions. The interest rate used to
calculate benefit obligations for solvency purposes is a prescribed rate derived from the interest rates on long-term
Government of Canada bonds. Deteriorating economic conditions or prolonged period of low or decreasing interest rates may
result in significant increases in Air Canada’s funding obligations, which could have a material adverse effect on Air Canada, its
business, results from operations and financial condition.
Refer to section 9.7 of this MD&A for additional information relating to Air Canada’s pension funding obligations. In
December 2013, further to an agreement reached with Air Canada in March 2013, the Government of Canada formally
approved the Air Canada Pension Plan Funding Regulations, 2014 (the “2014 Regulations”) under the Pension Benefits Standards
Act, 1985. Absent the 2014 Regulations and under generally applicable regulations, Air Canada's pension funding obligations
would be determined by a variety of factors, including regulatory developments, assumptions and methods used and changes
in the economic conditions (mainly the return on fund assets and changes in interest rates) as well as the application of
normal past service contribution rules which would generally require one fifth of any solvency deficit, determined on the basis
of an average over the previous three years, to be funded each year in addition to required current service contributions.
Underfunded pension plans or a failure or inability by Air Canada to make required cash contributions to its registered pension
plans may have a material adverse effect on Air Canada, its business, results from operations and financial condition.
Revenue and Alliance Environment
Air Canada also encounters substantial price competition. The prevalence of low-cost carriers, Internet travel websites and
other travel products distribution channels, have resulted in a substantial increase in discounted and promotional fares
initiated by Air Canada’s competitors. A decision to match competitors’ fares to maintain passenger traffic results in reduced
yields which, in turn, could have a material adverse effect on Air Canada, its business, results from operations and financial
condition. Furthermore, Air Canada’s ability to reduce its fares in order to effectively compete with other carriers is dependent
on Air Canada’s ability to achieve acceptable operating margins and may also be limited by government policies to encourage
competition. Likewise, competitors continue to pursue commissions/incentive actions and, in many cases, increase these
payments. The decision to modify Air Canada’s current programs in order to remain competitive and maintain passenger
traffic could result in increased costs to Air Canada’s business.
Furthermore, consolidation within the airline industry could result in increased competition as some airlines emerging from
such consolidations and entering into integrated commercial cooperation arrangements, such as joint ventures, may be able
to compete more effectively, which could have a material adverse effect on Air Canada.