Canadian Airlines OKs Air Canada Bid
Air Canada beat out rival Canadian Airlines for control of Canada’s skies Wednesday after a majority of Canadian’s shareholders accepted Air Canada’s takeover bid.
Rather than merge the two airlines, Air Canada said it will operate the two carriers separately, allowing Canadian and its partner, American Airlines, to maintain their own marketing identity. Air Canada will also start a third discount airline with a different name to handle smaller domestic routes.
The deal hinged on convincing American Airlines’ parent company, AMR Corp., to not only let its Canadian partner go but to forgo $1 billion in breakup fees.
In exchange, Air Canada will pay more than $37 million for AMR’s convertible preferred shares, and retain American’s routes to Canada and frequent-flier programs. Air Canada also said it will consider switching to American’s Sabre reservation system, which would bring AMR an additional $56 million.
Air Canada also pledged to cap job reductions at 2,500, mostly through buyouts and attrition, which made its proposal especially attractive to airline employees who had feared major layoffs.
“For all the options that were available to Canadian Airlines, the Air Canada proposal was the best option for customers and shareholders,” said Jeff Angel, a Canadian Airlines spokesman. The board of Canadian had urged its shareholders to accept Air Canada’s offer.
The deal concludes a drawn-out battle that began in August with a David-and-Goliath attempt by a Toronto-based investment group, Onex, to take over Air Canada and merge it with cash-strapped Canadian Airlines. Onex had to withdraw its offer last month after a Quebec court ruled it would violate domestic ownership limits for the country’s flagship carrier.
Air Canada must still wait for Canada’s Ministry of Transport to approve the deal, including its proposed foreign investment levels and rights for its international partners to pick up Canadian passengers and fly between Canadian cities. Air Canada is a member of the 15-airline Star Alliance, a group of international carriers that feed one another passengers and share marketing costs.
Transport Minister David Collenette has signaled there won’t be major obstacles, but he won’t deliver a verdict until the Canadian Parliament resumes in February. “The ball is in Collenette’s court,” spokesman John Reber said. “We’re hoping to move as soon as possible.”
The prospect of Canada’s airlines being controlled by a single company has worried consumers, who fear rising prices and reduced service to unprofitable rural areas. On Wednesday, a government committee issued a report with 43 recommendations to protect Canada’s air passengers, while bolstering airlines’ competitiveness.
The report urged a two-year fare freeze and a guarantee of service to remote communities. At the same time, the report proposed raising ceilings on foreign ownership from 25% to 49%, and boosting the amount an individual shareholder can own from 10% to 20%.
The current limits killed Onex’s offer, but if passed, the higher limits will benefit Air Canada and Canada’s ability to compete internationally.
“The committee feels it found a balance” between corporate and consumer interests, said Stan Keyes, the chairman of the transport committee after the report’s release Wednesday.
