Case 2: Air Canada

Core problem:

 The essence of the case is based on “Avoidance and controlled loss” which lies in quadrant
I. Here, risk management tools will need to be used.
 The risks come from economy, pension reserve fuel cost, foreign exchange, interest rate,
weather etc.

Probable approach to solution:

 Forecast income statement/balance sheet under three approaches and prepare valuation-
o Aggressive Policy: Here, relatively few risk management tools will be used. Impact
of the factor such as fuel cost, interest rate etc. will reflect variability in
corresponding Financial Statement items.
o Moderate policy: The current risk management tools will be used. Variability will
be moderate and cost of contract will also be moderate.
o Conservative policy: Risk management tools will be used as much as possible.
Impact of the factor such as fuel cost, interest rate etc. will be constant. However,
the cost will be increased highly due to these contract.
 Recommend the policy under which value per share is highest. In addition, recommend the
extent of risk management tools that the company should follow and any changes from the
current approach/techniques.