Air Canada 2013 Annual Report Download - page 73

2013 Management’s Discussion and Analysis
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The failure by Air Canada’s other regional carriers to fulfill their obligations under their respective agreements, or other
unexpected interruptions or disruptions of their services which are beyond Air Canada’s control, as well as minimum
guarantees in capacity purchase agreements which may limit Air Canada’s ability to effectively manage regional capacity in
response to economic downturns, market pressures or other external events, could have a material adverse effect on
Air Canada, its business, results from operations and financial condition.
Star Alliance®
The strategic and commercial arrangements with Star Alliance® members provide Air Canada with important benefits,
including codesharing, efficient connections and transfers, reciprocal participation in frequent flyer programs and use of
airport lounges from the other members. Should a key member leave Star Alliance® or otherwise fail to meet its obligations
thereunder, Air Canada, its business, results from operations and financial condition could be materially adversely affected.
Interruptions or Disruptions in Service
Air Canada’s business is significantly dependent upon its ability to operate without interruption at a number of hub airports,
including Toronto Pearson International Airport. Delays or disruptions in service, including those due to security or other
incidents, weather conditions, labour conflicts with airport workers, baggage handlers, air traffic controllers, security personnel,
and other workers not employed by Air Canada or other causes beyond the control of Air Canada could have a material
adverse impact on Air Canada, its business, results from operations and financial condition.
Interruptions and disruptions in service may be caused by, and the demand and cost of air travel may be adversely impacted
by, environmental conditions, technology issues and factors in addition to those relating to the weather. Environmental
conditions and factors, such as those arising from volcanic eruptions or other natural phenomena, as well as those arising from
man-made sources, could cause interruptions and disruptions in service, increase Air Canada’s costs or adversely impact
demand for air travel, any of which could have a material adverse impact on Air Canada, its business, results from operations
and financial condition.
Current Legal Proceedings
Investigations by Competition Authorities Relating to Cargo
The European Commission and the United States Department of Justice investigated and the Competition Bureau in Canada is
investigating alleged anti-competitive cargo pricing activities, including the levying of certain fuel surcharges, of a number of
airlines and cargo operators, including Air Canada. Competition authorities in several jurisdictions have sought or requested
information from Air Canada as part of their investigations. Air Canada has been cooperating with these investigations, which
are likely to lead, or have led, to proceedings against Air Canada and a number of airlines and other cargo operators in certain
jurisdictions. Air Canada is also named as a defendant, and may otherwise become implicated, in a number of class action
lawsuits and other proceedings in Canada, Europe and the United States in connection with these allegations. In the United
States, the investigation by the US Department of Justice concluded with no proceedings having been instituted against
Air Canada and in 2012, the Corporation entered into a settlement agreement relating to class action proceedings in the
United States in connection with these allegations under which Air Canada made a payment of $8 million without any
admission of liability.
In 2010, the European Commission rendered a decision finding that 12 air cargo carriers (including groups of related carriers)
had infringed European Union competition law in the setting of certain cargo charges and rates for various periods between
1999 and 2006. Air Canada was among the carriers subject to the decision and a fine of 21 million Euros (approximately
C$29 million) was imposed on Air Canada. Air Canada is appealing this decision and filed an application for appeal before the
European General Court. In 2011, Air Canada paid the fine, as required, pending the outcome of its appeal.
As at December 31, 2013, Air Canada has a provision of $27 million relating to outstanding claims in this matter, which is
recorded in accounts payable and accrued liabilities on Air Canada’s consolidated statement of financial position. This
provision is an estimate based upon the status of the investigations and proceedings at this time and Air Canada’s assessment
as to the potential outcome for certain of them. The provision does not address the proceedings and investigations in all
jurisdictions, but only where there is sufficient information to do so. Air Canada has determined it is not possible at this time
to predict with any degree of certainty the outcome of all proceedings and investigations. As stated above, Air Canada is
appealing the decision issued by the European Commission and, if and as appropriate, based on the outcome of any updates
regarding this appeal as well as developments regarding proceedings and investigations in other jurisdictions, may record
adjustments to the provision and/or its income in subsequent periods as required.