## External business environment 

The Corporation faces a number of external risk factors, more specifically general economic conditions, government policies related to import and export restrictions, changing priorities and possible spending cuts by government agencies, foreign government support to export sales, volatility of fuel prices and political instability. 

## Warranty and casualty claim losses 

The products manufactured by the Corporation are highly complex and sophisticated and may contain defects that are difficult to detect and correct. Defects may be found in the Corporation’s products after they are delivered to the customer. If discovered, the Corporation may not be able to correct them in a timely manner or at all. The occurrence of defects and failures in the Corporation’s products could result in warranty claims or the loss of cus- tomers. Correcting such defects could require significant capital investments. Any claims, defects or failures could have an adverse effect on the Corporation’s operating results and busi- ness. In addition, due to the nature of the Corporation’s business, the Corporation may be subject to liability claims arising from acci- dents or disasters involving the Corporation’s products or products for which the Corporation provided services, including claims for serious personal injuries or death. The Corporation can- not be certain that its insurance coverage will be sufficient to cover one or more substantial claims. Furthermore, there can be no assurance that the Corporation will be able to obtain insur- ance coverage at acceptable levels and cost in the future. 

## Key suppliers 

The Corporation’s manufacturing operations are dependant upon a limited number of key 

suppliers for the delivery of materials and major aircraft components. Certain of these suppliers participate with the Corporation in the devel- opment of various aircraft platforms and the subsequent delivery of materials and major aircraft components. Therefore, the Corporation’s contracts with these key suppliers are long- term and on a sole-source basis. A failure by one or more key suppliers to meet perform- ance specifications, quality standards, and delivery schedules could adversely affect the ability of the Corporation to meet its commit- ments to customers. Although alternative supplier sources generally exist for the procurement of material and major aircraft components, their replacement could take several months. Therefore, there can be no assurance that a failure by one or more key suppliers to meet their contractual obligations towards the Corporation would not result in a material effect on the Corporation’s Consolidated Financial Statements. 

## Collective labour agreements 

The Corporation is party to several collective labour agreements throughout its business segments, which are subject to expiration at various times in the future. If the Corporation is unable to renew these agreements or others as they become subject to renegotiation from time to time, this could result in work stop- pages and other labour disturbances, which could have a material adverse effect on the Corporation’s business. 

## Critical accounting estimates 

The preparation of financial statements in conformity with GAAP requires the use of estimates, judgment and assumptions. Critical accounting estimates are described in this section. An accounting estimate is considered critical if the estimate requires management 

to make assumptions about matters that were highly uncertain at the time the estimate was made, if different estimates could have been reasonably used or if changes in the estimate that would have a material impact on the Corporation’s financial condition or results of operations are likely to occur from period to period. 

## Average cost accounting 

Average cost accounting is used in the aero- space segment. Average cost accounting is a method of accounting for the costs associated with the manufacturing of aircraft whereby the estimated average unit production cost is charged to cost of sales. 

The determination of the estimated average unit cost per aircraft involves estimates of total accounting program quantities and total production costs for a selected program, as well as the period over which the units can reasonably be expected to be produced. 

Production accounting quantities for a program are established at the program launch date and are based on an assessment of prevailing market conditions and anticipated demand for the aircraft, considering, among other factors, firm order backlog and options. Production costs include raw material, direct labour and manufacturing overhead costs. Total production costs are estimated based on fore- casted costs of raw materials, inflation rates, foreign exchange rates, labour productivity and employment levels and salaries. Cost estimates are based mainly on historical performance trends, economic trends, labour agreements and information provided by sup- pliers. Production costs are also based on the learning curve concept, which anticipates a predictable decrease in direct labour costs as tasks and production techniques become more efficient through repetition. The estimated 

