Air Canada 2014 Annual Report Download - page 74

74 2014 Annual Report
The failure by Air Canada’s other regional carriers
to fulfill their obligations under their respective
agreements, or unexpected interruptions or
disruptions of their services, 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.
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 has, 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 U.S.
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 Commissions 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, 2014, 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.