Air Canada 2014 Annual Report Download - page 71

71
2014 Management’s Discussion and Analysis
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. In respect of the unions for Canadian-
based employees, strikes or lock-outs may lawfully
occur following the term and negotiations of the
renewal of collective agreements once a number of
pre-conditions prescribed by the Canada Labour Code
have been satisfied.
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.
STRATEGIC, BUSINESS, TECHNOLOGY
AND OTHER IMPORTANT INITIATIVES
In order to operate its business, achieve its goals and
remain competitive, Air Canada continuously seeks to
identify and devise, invest in, implement and pursue
strategic, business, technology and other important
initiatives, such as those relating to participation
in the leisure or low-cost market (including the
planned growth of Air Canada rouge), the aircraft
fleet restructuring (including the scheduled delivery
of Boeing 787 aircraft and the planned re-fleeting of
narrow-body aircraft with Boeing 737 MAX aircraft),
revenue enhancement initiatives, business processes,
information technology, revenue management
(including the planned implementation of Air Canada’s
revenue management system), cost transformation,
improving premium passenger revenues, expansion
of flying capacity (including in respect of new aircraft
and routes), corporate culture transformation,
initiatives seeking to ensure a consistently high
quality customer service experience and others.
These initiatives, including activities relating to their
development and implementation, may be adversely
impacted by a wide range of factors, many of which
are beyond Air Canada’s control. Such factors include
the need to seek legal or regulatory approvals, the
performance of third parties, including suppliers, the
implementation and integration of such initiatives
into Air Canada’s other activities and processes
as well as the adoption and acceptance of these
initiatives by Air Canada’s customers, suppliers,
unions and personnel. A delay or failure to sufficiently
and successfully identify and devise, invest in or
implement these initiatives could adversely affect
Air Canada’s ability to operate its business, achieve
its goals and remain competitive and could have a
material adverse effect on Air Canada, its business,
results from operations and financial condition.
For instance, a key component of Air Canada’s
business plan is the acquisition of new and more
efficient Boeing 787 and Boeing 737 MAX aircraft.
A delay or failure in the completion of Air Canada’s
fleet restructuring, including delays by the
manufacturers in the delivery of the aircraft, or an
inability to remove, as planned, certain aircraft from
the fleet in coordination with the planned entry
into service of new aircraft, could adversely affect
the implementation of Air Canada’s business plan
which may, in turn, 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. 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 “Pension Funding Obligations”
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.