Air Canada Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

QUESTION # 01: Examine the 2010 pension disclosure for Air Canada. How significant are pensions to Air Canada’s financial position?

ANSWER:

The defined pension plan 2010 disclosure of Air Canada is significant to the financial position of the Air Canada, as the pension plan adopted by the Air Canada generates the positive returns for the Air Canada. Positive returns reflected that the pension scheme adopted by the company is very significant and effective and good return for the company, as the plan adopted by the Air Canada for their pension scheme is funded plan. In funded plan, all the gain and loss arise on the pension scheme is solely related to the company in that scenario. Issue: Air Canada is unable to make its upcoming special pension payments to its ten defined benefit pension plans under the current minimum funding requirements for federally regulated pension plans as set out in the Pension Benefits Standards Regulations, 1985 (hereinafter, the 1985 Regulations). Air Canada requires pension funding relief in order to obtain the necessary new financing to sustain its operations. The Air Canada funding pension regulations help Air Canada with respect to the payment to be obliged to its ten different defined benefit plans from 2011 to 2013 that is $150 million, $175 million, and $225 million in the year 2011, 2012, and 2013 respectively. Subscriber of the pension plan will accumulate the benefits and the Air Canada would liable to make current service in behalf, this would help the company to run their operation effectively and efficiently in the near future.

QUESTION # 02: What is the current funded status of the pension plans? How is this status reflected in the company’s balance sheet? What risks do Air Canada’s pension plans pose to the company?

ANSWER:

The current funded status of the Air Canada pension plan will not directly affect the financial cost of the Air Canada, but the regulations of the Air Canada reflect that all the actuarial gain and loss of the pension and other employee future benefit plans would directly recognized into the deficit. The balance sheet of the Air Canada shows the liability against the registered pension plans which is the expected present value of the solvency payment of the deficit of the funding regulations that is Air Canada 2009 pension regulations. These regulations would not directly affect the financial cost of the Air Canada pension plan, but this results in the decline of the funded status of the Air Canada pension plan in the near future, because Air Canada is losing the contribution of these plans, which increase the contributory risk in that pension plan. The risk posed on the Air Canada is that company adopt the policy of defined contribution plan, because this allows the employee to adopt the plan to grab its investment goal and the employee should bear the risk of the investment of the pension scheme.

QUESTION # 03: How will the Air Canada 2009 Pension Regulation affect the company’s pension plans?

ANSWER:

Air Canada 2009 pension regulations are adopted by the government of Canada in 2009. These regulations of Air Canada relive from making any past service cost contributions to the new ten domestic defined benefit registered pension plan for the period starting from April 01, 2009 and ending at December 31, 2010. Thereafter, the period starting afterward January 01, 2011 to December 31, 2013 record should be on accrued basis and the maximum past service cost under the Canadian income tax act.

The other factors affecting is the discount rate used to determine the pension obligation is determined by the market interest rate. It would be decreased by 0.25 percent. Moreover, the expected rate of return on the assets is the measurement date and the portfolio of the plan assets. The main concern of Air Canada regulation is with the long term asset performance, including the longer duration bond portfolio to other pension plans.

QUESTION # 04: How will the company’s transition to IFRS affect the presentation of pension information in the financial statements? What optional exemptions would be available according to IFRS 1?

ANSWER:

The presentation of the pension information in the international reporting framework (IFRS) is that all the actuarial gain or loss arising on the pension benefit plan can be recognized either in the profit and loss under the corridor approach. Corridor approach is that the excess amount of obligation and market related value.......................

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