Investor Presentaiton
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In July 2000, the Government of Canada amended the CTA, the Competition Act and the Air Canada Public
Participation Act to address the competitive airline environment in Canada and ensure protection for consumers. This
legislation included airline-specific provisions concerning "abuse of dominance" under the Competition Act, later
supplemented by creating "administrative monetary penalties" for a breach of the abuse of dominance provisions by a
dominant domestic air carrier.
In July 2003, the Competition Tribunal released its reasons and findings in a proceeding between the
Commissioner of Canada and the Corporation which had considered the approach to be taken in determining whether
the Corporation was operating below "avoidable costs" in violation of one of the new airline-specific abuse of
dominance provisions. The Competition Tribunal applied a very broadly crafted cost test in its decision. In September
2004, the Commissioner of Competition published a letter describing the enforcement approach that would be taken in
future cases involving the airline-specific abuse of dominance provisions, which included a statement that the
Tribunal's approach to avoidable costs remains relevant.
In addition, on November 2, 2004, the Minister of Industry tabled amendments to the Competition Act in Bill C-19
which, if enacted, would have removed the airline-specific "abuse of dominance" provisions from the Competition Act.
However, on November 29, 2005, the 38th Parliament of Canada was dissolved. As a result, the legislative process
relating to the adoption of Bill C-19 was terminated. Management cannot predict if or when such proposed legislation
will be re-introduced in the House of Commons.
If the Commissioner of Competition commences inquiries or brings similar applications with respect to significant
competitive domestic routes and such applications are successful, it could have a material adverse effect on the
Corporation's business, results from operations and financial condition.
The Corporation is subject to domestic and foreign laws regarding privacy of passenger and employee data that are
not consistent in all countries in which the Corporation operates. Compliance with these regulatory regimes is expected
to result in additional operating costs and could have a material adverse effect on the Corporation's business, results
from operations and financial condition.
Increased Insurance Costs
Since September 11, 2001 the aviation insurance industry has been continually reevaluating the terrorism risks that
it covers and this activity may adversely affect some of the Corporation's existing insurance carriers or the
Corporation's ability to obtain future insurance coverage. To the extent that the Corporation's existing insurance carriers
are unable or unwilling to provide it with insurance coverage, and in the absence of measures by the Government of
Canada to provide the required coverage, the Corporation's insurance costs may increase further and may result in the
Corporation being in breach of regulatory requirements or contractual arrangements requiring that specific insurance be
maintained, which may have a material adverse effect on the Corporation's 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 currently provides to the Corporation and certain other carriers in Canada. In the event that
the Government of Canada does not continue to provide such indemnity or amends such indemnity, the Corporation
and other industry participants would have to turn to the commercial insurance market to seek such coverage. The
Corporation estimates that such coverage would cost the Corporation approximately $15 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. The 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.
Furthermore, the London aviation insurance market has introduced a new standard war and terrorism exclusion
clause which is applicable to aircraft hull and spares war risk insurance, and intends to introduce similar exclusions to
airline passenger and third party liability policies. Such clause excludes claims caused by the hostile use of a dirty
bomb, electromagnetic pulse device, or biochemical materials. The Government of Canada indemnity program is
designed to address these types of issues as they arise, but the Government of Canada has not yet decided to extend theView entire presentation