Air Canada has taken over Canadian Airlines following Ottawa's approval, ending a long and bitter battle for control of Canada's skies.
Changes are already becoming apparent. Canadian had suspended Hong Kong and Manila flights and sold its Tokyo Narita slots to Air Canada, but Air Canada has started further revision of route networks. Air Canada is also relocating some Asian gateways from Vancouver to Toronto. In the light of these changes, it is unclear how much value American Airlines will see from its right to codeshare with Canadian for 10 more years.
Canada's transport ministry and competition bureau has imposed conditions on the takeover designed to protect competition, employees, and air service to small communities. These include:
Air Canada must offer to sell Canadian's affiliate Canadian Regional Airlines on "reasonable terms" for 90 days. Air Canada must relinquish terminal space and some peak hour slots at Toronto airport, the number of slots depending on whether there is a buyer for Canadian Regional. No involuntary lay-offs or relocation of unionised employees of Air Canada, Canadian, or their subsidiaries for two years. No cutbacks in service to small communities for three years.Competition bureau commissioner Konrad von Finckenstein was not happy about his options. He warns that Air Canada's takeover gives it 80% of the domestic market, a level of concentration that he calls "very dangerous". But he had little leverage to impose tougher conditions because Air Canada could have walked away and waited for Canadian to fail. Robert Milton, Air Canada's chief executive, declared negotiations with the bureau "tough" and "blunt", but von Finckenstein told reporters: "I was trying to hit a home run with a broken bat."
Transport minister David Collenette promises to protect the public with proposed legislation. Specifics are lacking, but he says the new law will give the competition bureau more power to police predatory pricing, roll back fare increases and impose sanctions.
Collenette has rejected recommendations from parliamentary committees to raise the 25% limit on foreign ownership of airlines, but he promises a bill to increase Air Canada's individual share ownership limit from 10% to 15%. That limit thwarted last year's takeover bid by Onex.
Following Ottawa's green light, Air Canada has bought control of Canadian, including AMR's preferred shares. As required, Air Canada will operate Canadian separately, assuming Canadian's creditors accept a restructuring of its C$3 billion ($2 billion) debt.
Source: Airline Business
