Air canada

3,363 views
3,067 views

Published on

all about risk management in AIR CANADA

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
3,363
On SlideShare
0
From Embeds
0
Number of Embeds
5
Actions
Shares
0
Downloads
78
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Air canada

  1. 1. Air Canada Presented by Sri Krishan Rana Joyeeta Roy Shri Ram Rana Sourav Pal
  2. 2. AIR CANADA <ul><li>Acquired Canadian Airlines in 2001. </li></ul><ul><li>Operational challenges faced due to the integration </li></ul><ul><li>Events of September 11, 2001 led Air Canada to file for Creditor protection. </li></ul><ul><li>On Sep 2004, Air Canada was protected from bankruptcy through a $850 million financial aid by Deutsche bank </li></ul>
  3. 3. STRATEGIES OF AIR CANADA <ul><li>Expansion of International Operations </li></ul><ul><li>Revenue generations </li></ul><ul><li>Cost savings </li></ul><ul><li>Refocusing on customer service </li></ul><ul><li>Encouraging a culture of change </li></ul>
  4. 4. Catastrophic Interest rate Currency Economic Technological Liquidity Market Operational RISK IDENTIFICATION
  5. 5. CAUSES OF RISK <ul><li>Currency: </li></ul><ul><li>Huge portion of expense was in the form of USD. </li></ul><ul><li>High density of international destinations </li></ul><ul><li>Operational / Technological Risk: </li></ul><ul><li>Illness / Delay of labor </li></ul><ul><li>Flight delays </li></ul><ul><li>Server downtime </li></ul>
  6. 6. CAUSES (contd) <ul><li>Market risk : </li></ul><ul><li>Investments / Asset side risks </li></ul><ul><li>Major portion of expense is in fuel </li></ul>
  7. 7. CAUSES (contd) <ul><li>Interest rate risk : </li></ul><ul><li>Long term debt and leases. </li></ul><ul><li>Future income taxes. </li></ul>
  8. 8. CAUSES (contd) <ul><li>Catastrophic risk: </li></ul><ul><li>Flight fatalities </li></ul><ul><li>Economic Risk: </li></ul><ul><li>Financial crisis </li></ul><ul><li>Natural calamities </li></ul>
  9. 9. EVALUATION & ANALYSIS OF RISK LOW SEVERITY/ HIGH FREQUENCY OPERATIONAL RISK LOW SEVERITY / LOW FREQUENCY CREDIT RISK OF DERIVATIVES CREDIT RISK OF SHORT TERM INVESTMENTS HIGH SEVERITY/ HIGH FREQUENCY MARKET RISK CURRENCY RISK INTEREST RISK HIGH SEVERITY/ LOW FREQUENCY CATASTROPHIC RISK ECONOMIC RISK TECHNOLOGICAL RISK LIQUIDITY RISK
  10. 10. Hedging the Risks <ul><li>Catastrophic Risk: </li></ul><ul><ul><li>Through insurance. Insurance is the best tool to </li></ul></ul><ul><ul><li>transfer the risk to a third party </li></ul></ul><ul><li>Operational Risk: </li></ul><ul><ul><li>Backup systems and contingency plans for IT </li></ul></ul><ul><ul><li>Additional capacity of labor in event of delay </li></ul></ul><ul><ul><li>illness </li></ul></ul>
  11. 11. <ul><li>Interest risk: </li></ul><ul><ul><li>Forward interest rate agreements of short term </li></ul></ul><ul><ul><li>maturities </li></ul></ul><ul><li>Currency risk: </li></ul><ul><ul><li>Foreign currency forward contracts </li></ul></ul><ul><ul><li>Currency Swaps </li></ul></ul><ul><ul><li>Option agreements </li></ul></ul>
  12. 12. <ul><li>Market risk: </li></ul><ul><ul><li>Commodity derivatives like options / collar </li></ul></ul><ul><ul><li>Options </li></ul></ul><ul><li>Credit Risk: </li></ul><ul><ul><li>Enter into derivatives contract with more than </li></ul></ul><ul><ul><li>one counter party. Helps in diversification of the </li></ul></ul><ul><ul><li>hedged amount. </li></ul></ul>
  13. 13. <ul><li>Liquidity risk: </li></ul><ul><ul><li>Decrease the amount of account receivables and realize the cash. </li></ul></ul><ul><ul><li>Decrease the low liquidity fuel based hedges by lowering the time period on jet fuel and increasing it on more liquid crude oil. </li></ul></ul>
  14. 14. Recommendations for Risk management <ul><li>Hedging with derivatives increase Off balance sheet risk. Liquidity risk arise due to derivatives. Hence hedging with derivatives should be short term. </li></ul><ul><li>Forward contracts are open to credit risks since they are OTC traded. Hence futures should be more frequently used as they are exchange traded and reduces credit risk. </li></ul>
  15. 15. Recommendations (contd) <ul><li>Jet fuel is less liquid than crude oil. Hence hedging in jet fuel should be short term and in crude oil should be medium to long term. </li></ul><ul><li>Long term debts should be further hedged in order to bring down the exposure of debt at floating rate which is 40%. </li></ul><ul><li>Should use more of financial derivatives so that they could hedge against currency risk. </li></ul>

×