Canadian Firm Seeks to Merge Two Airlines
A Canadian conglomerate on Tuesday offered $1.2 billion to buy and combine Air Canada and Canadian Airlines, saying bold action is needed to preserve the nation’s airline business.
A single airline, which would retain the Air Canada name and its Montreal headquarters, would be more efficient and financially stronger than the separate operations, said Gerald Schwartz, president and chief executive of Toronto-based Onex Corp.
The board of Calgary, Canada-based Canadian welcomed the Onex plan in a statement, saying it offers the chance of a “truly national airline for Canada.”
Air Canada said it had been informed of Onex’s “unsolicited, below-market offer” but would have no comment until completing a review of the proposal.
Canadian, with 14,000 employees, has been seeking new investors to keep flying. It has said it needs as much as $500 million to allow it to restructure and escape its chronic cash crisis.
Onex, one of Canada’s largest companies, controls such diverse firms as Sky Chefs airline catering, Lantic Sugar Ltd. and American Buildings Co. It offered $1.2 billion in cash and stock to acquire the companies and said it would also assume $2.6 billion in debt for a total obligation of $3.8 billion.
The buyout and merger would involve the loss of 5,000 jobs, Schwartz told a news conference. The cuts would be handled mostly through retirement and attrition, he said.
The deal would give U.S.-based American Airlines greater ties to Canada. American’s parent, AMR Corp., which is helping Onex finance the proposed takeover, now has 25% of the voting stock in Canadian, which is part of its Oneworld alliance.
The much larger Air Canada, however, is part of the Star Alliance with American’s rival United Airlines.
AMR shares rose $1.25 to close at $62 on the New York Stock Exchange, and UAL Corp., United’s parent, gained 63 cents to close at $62.25, also on the NYSE.
Onex said its new AirCo unit would invest approximately $6.7 billion in the venture, with help from Fort Worth-based AMR.
If Onex pulls off its coup to create one financially sound national carrier, Canada could well become the main crossroads for flights to Europe from Toronto, Air Canada’s strength, and to Asia from Vancouver, Canadian’s prized routes, said Rick Erickson, a Calgary-based industry consultant.
Onex offered Canadian Airlines shareholders about $1.34 in cash, or 0.2424 common share of AirCo, for each of their shares. Stockholders of Air Canada would get $5.50 in cash, or one share of the new company, for each of their shares.
On the Toronto Stock Exchange, Canadian Airlines shares rose 2 cents to close at $1.25, and Onex rose 34 cents to close at $17.92. Air Canada Class A nonvoting shares rose 50 cents to $5.56 on Nasdaq.
