3.1.2 Risk factors analysis in MD&A
Under section 17, Air Canada MD&A states that its risk factors should be read carefully when evaluating Air Canada’s business and forward-looking statements. Any of these risks could materially and adversely affect Air Canada’s business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made.
3.1.2.1 Risk relating to Air Canada
Internal risks
Leverage and need for additional capital and liquidity, high fixed costs and low margins, labor costs and labor relations, key personnel, pension plan, interruptions or disruptions in service, Air Canada’s brand, Current legal proceedings, limitation due to restrictive covenants
Leverage and need for additional capital and liquidity
The first risk factor the MD&A pointed out is the leverage since Air Canada is expected to continue to incur a significant amount of indebtedness, and there can be no assurance that it will be able to pay its debts and lease obligations. It also mentioned that Air Canada may not be able to obtain sufficient funds in a timely way to provide adequate liquidity and to finance necessary operating and capital expenditures.
High…show more content… That is to say the costs of operating any particular flight do not vary significantly with the number of passengers carried; therefore, a relatively small change in the number of passengers, fare pricing and traffic mix could have a significant impact on Air Canada’s operating and financial results. This condition may be exacerbated by aggressive low pricing method by competitors, impacting the profit margin of Air Canada. As a result of high fixed costs, if Air Canada reduces its overall capacity or the number of flights operated, Air Canada will be unable to earn profit. Thus, for Air Canada to reduce certain fixed costs within a time frame may not be
