Air Canada 2014 Annual Report Download - page 77
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77
2014 Management’s Discussion and Analysis 77
2014 Management’s Discussion and Analysis
coverage, and in the absence of measures by the
Government of Canada to provide the required
coverage, Air Canada’s insurance costs may increase
further and may result in Air Canada being in
breach of regulatory requirements or contractual
arrangements requiring that specific insurance be
maintained, which may have a material adverse effect
on Air Canada, its business, results from operations
and financial condition.
THIRD PARTY WAR RISK INSURANCE
There is a risk that the Government of Canada
may not continue to provide an indemnity for third
party war risk liability coverage, which it is currently
providing to Air Canada and certain other carriers
in Canada until December 31, 2015 or that it may
amend, in a manner adverse to Air Canada, the terms
of the indemnity which it is providing. In the event
that the Government of Canada does not continue
to provide such indemnity or amends such indemnity
(in a manner adverse to Air Canada), Air Canada and
other industry participants would have to turn to the
commercial insurance market to seek such coverage.
Air Canada estimates that such coverage would cost
Air Canada approximately US$2.5 million per year.
Alternative solutions, such as those envisioned by the
International Civil Aviation Organization (“ICAO”) and
the International Air Transport Association (“IATA”),
have not developed as planned, due to actions taken
by other countries and the recent availability of
supplemental insurance products. ICAO and IATA
are continuing their efforts in this area; however,
the achievement of a global solution is not likely
in the immediate or near future. The U.S. federal
government has set up its own facility to provide war
risk coverage to U.S. carriers, thus removing itself as a
key component of any global plan.