ANALYSIS OF THE VARIOUS RISKS TAKEN CARE OF BY AIR CANADA 1.

CATASTROPHIC RISK :- Despite flying be the safest form of passenger travel but still aviation insurance was considered very important because it could generate potential losses to a very high extent even from a single event .A large commercial aircraft was typically insured for $100 million-$250 million and its liability coverage ranged between $1.5 million -$2 billion. 2.OPERATIONAL RISK:-Operational risk had the potential for high frequency given the volume of passengers and flights. To manage these issues the used:1.All airline equipment required stringent programs of preventative maintenance and safety 2.The IT INFRASTRUCTURE had back-up systems and contingency plans in place. 3.HUMAN RESOURCE PLANNING ENSURES ADDITIONAL CAPACITY WAS AVAILABLE IN THE EVENTS OF A DEALY OR SICKNESS NOW ,QUADRANT WISE DESCRIPTION IN RISK MANAGEMENT OF AIR CANADA QUADRANT 1:- IN particular,the board of directors were most concerned with the risk in quadrant 1 that were beyond his control. AIR CANADA and the airline industry in general were vulnerable to frequent and dramatic changes in interest rate ,pension reserves,foreign exchange,severe weather,fuel costs and even their own stock prices.So indirectly, they need to understand that they they were in a big issue as they were being banged by a lot of problems together which they needed to avoid it but no other option with them . QUADRANT:-2 IN GENERAL,the board of directors were being satisfied that AIR CANADA had the insurance required to quadrant 2 risks as the took the AVIATION INSURANCE at that particular time QUADRANT3:-NOW in the third quadrant they started undertaking risk .they were now in a position to hedge jet fuel upto a position of 34% for 2010 and 8 % for 2011 .FUEL PRICES WERE a relatively important part in consideration as even a $1 increase in the cost of fuel collectively cost an increase by $425 million in additional operating costs per year . QUADRANT 4 :- IN QUADRANT 4 ,they started using the safety measures as they were already able to reduce risk by the 3rd quadrants,so now they started preventing the reduced risks . INTEREST RATE RISK AND LIQUIDITY RISK :-AIR CANADA S policy was to have a 60% of it s long term debt at fixed rate and 40 % at a floating rate .Because the interest rates on debt ws prevailing majorly on floating rate,in needed to used swaps and cash reserves as well.AS AIR CANADA S interest expense was greater than there operating income,and any change in rates could help generate profits or expand it s losses thus could definitely reach the situation of liquidity risk as stated above they were needed to use the swaps and interest on cash reserves as well. FOREIGN EXCHANGE RISK :-The vast majority of the of AIR CANADA S revenue were in CANADIAN DOLLARS ,but a large portion of it,s expense were in U.S. DOLLARS .To help manage this exchange

exposure ,AIR CANADA converted all the non-canadian revenue to U.S. DOLLARS ,but this strategy covered only 29% of the foreign exchange exposure.The remaining 71% was not naturally hedged . NOTE:-ADD THE POINT OF FORWARD CONTRACTS IN 3RD QUARTER WHERE YOU FEEL IT IS APPRORIATE.THE POINT GIVEN BEFORE CONCLUSION.IF ANY OTHER POINT COME S TO ANYONE OF YOUR S MIND LET ME KNW FRIENDS.BUBYE N TKARE.