Air Canada 2014 Annual Report Download - page 68

6868 2014 Annual Report
The risks described herein may not be the only risks
faced by Air Canada. Other risks of which Air Canada
is not aware or which Air Canada currently deems
to be immaterial may surface and have a material
adverse impact on Air Canada, its business, results
from operations and financial condition.
RISKS RELATING TO AIR CANADA
Operating Results
Air Canada has sustained significant losses in the
past and Air Canada may sustain significant losses in
the future. A variety of factors, including economic
conditions and other factors described in this Risk
Factors section, may result in Air Canada incurring
significant losses. Despite ongoing strategic and
business initiatives, including efforts at securing cost
reductions, revenue improvements as well as efforts
relating to expansion of Air Canada rouge, Air Canada
may not be able to successfully achieve or sustain
positive net profitability or realize the objectives of
any or all of its initiatives, including those which seek
to decrease costs, improve yield or offset or mitigate
risks facing Air Canada, including those relating to
economic conditions, foreign exchange rates, labour
issues, liquidity, competition, and volatility in fuel
costs and other expenses.
Leverage
Air Canada has, and is expected to continue to have
and incur, a significant amount of indebtedness,
including substantial fixed obligations under aircraft
leases, aircraft purchases, and other financings, and
as a result of any challenging economic or other
conditions affecting Air Canada, Air Canada may
incur greater levels of indebtedness than currently
exist. The amount of indebtedness that Air Canada
currently has and which it may incur in the future
could have a material adverse effect on Air Canada,
for example, by (i) limiting Air Canada’s ability to
obtain additional financing, (ii) requiring Air Canada
to dedicate a substantial portion of its cash flow from
operations to payments on its indebtedness and fixed
cost obligations, thereby reducing the funds available
for other purposes, (iii) making Air Canada more
vulnerable to economic downturns, and (iv) limiting
Air Canada’s flexibility in planning for, or reacting
to, competitive pressures or changes in its business
environment.
The ability of Air Canada to make scheduled
payments under its indebtedness will depend on,
among other things, its future operating performance
and its ability to refinance its indebtedness,
if necessary. In addition, as Air Canada incurs
indebtedness which bears interest at fluctuating
interest rates, to the extent these interest rates
increase, its interest expense will increase.
There can be no assurance that Air Canada will at
all times be able to generate sufficient cash from
its operations to pay its debts and lease obligations.
Each of these factors is, to a large extent, subject
to economic, financial, competitive, regulatory,
operational and other factors, many of which are
beyond Air Canada’s control.
Need for Additional Capital and Liquidity
Air Canada faces a number of challenges in its
business, including in relation to economic conditions,
foreign exchange rates, labour issues, volatile
fuel prices, contractual covenants (which require
Air Canada to maintain minimum cash reserves
and which could require Air Canada to deposit
cash collateral with third parties), and increased
competition from international, U.S. transborder and
low-cost domestic carriers. Air Canada’s liquidity
levels may be adversely impacted by these as well as
by other factors and risks identified in this MD&A. As
part of Air Canada’s efforts to meet such challenges
and to support Air Canada’s business strategy,
significant liquidity and significant ongoing operating
and capital expenditures are required. There can be
no assurance that Air Canada will continue to be able
to obtain, on a timely basis, sufficient funds on terms
acceptable to Air Canada to provide adequate liquidity
and to finance the operating and capital expenditures
necessary to overcome challenges and support its
business strategy if cash flows from operations and
cash on hand are insufficient.
Failure to generate additional funds, whether from
operations or additional debt or equity financings,
could require Air Canada to delay or abandon some
or all of its anticipated expenditures or to modify its
business strategy and could have a material adverse
effect on Air Canada, its business, results from
operations and financial condition. Furthermore,
competitors with greater liquidity or the ability to raise
money more easily or on less onerous terms could
represent a competitive disadvantage to Air Canada.
Air Canada’s credit ratings influence its ability to
access capital markets and improve its liquidity.
There can be no assurance that Air Canada’s credit
ratings will not be downgraded, which would add to
Air Canada’s borrowing costs, hamper its ability to
attract capital, adversely impact its liquidity,
and limit its ability to operate its business, all
of which could have a material adverse effect on
Air Canada, its business, results from operations
and financial condition.
18. RISK FACTORS