Brian Dunn/MONTREAL
Air Canada has gained control of Canadian Airlines, but faces the hurdle of new regulations being enforced by the government and the Parliamentary transport committee.
Montreal-based Air Canada said on 8 December that more than 50% of Canadian's shares have been tendered under its C$92 million ($62.5 million) takeover offer. Air Canada also concluded a crucial deal with AMR, Canadian's major shareholder, under which the American Airlines parent will cede control of Canadian for about C$60 million. It had previously demanded C$1 billion in fees and penalties from Air Canada.
In addition, American Airlines will continue to have access to the Canadian airline market under a 10-year continuation of its code-sharing agreement with Canadian, which will remain in the oneworld alliance for as long as its arrangement with American continues. AMR will still provide airline management services to Canadian through its Sabre subsidiary.
When the deal closes, which could happen as early as 4 January, the merger will create the tenth largest airline in the world with 40,000 employees, annual revenue of C$9 billion and 238 aircraft.
Air Canada plans initially to maintain Canadian as a wholly owned subsidiary, but is expected eventually to merge the airlines.
The deal also means that Air Canada will be the only airline in the world operating within oneworld and the Star Alliance.
Completion of the deal will see Air Canada restructure Canadian's C$3.5 billion debt. It also plans to cut 2,500 jobs over the next year, mostly through attrition and contract buy-outs.
The merger still requires the approval of the federal government, which is expected to table legislation in early February setting out new rules for the industry in the wake of the merger. On the same day, Air Canada gained control of Canadian, the Federal Parliament transport committee tabled a report recommending that Ottawa order Air Canada to freeze fares for two years and face a government investigation once the time is up.
The report also wants Air Canada to maintain service for three years to small communities, even if those routes are unprofitable. In addition, it said that Ottawa should consider allowing foreign airlines to set up domestic subsidiaries to fly between Canadian cities.
Air Canada chief executive Robert Milton warns, however, that if the government imposes too many restrictions on the deal, Air Canada will call it off, allowing Canadian to go bankrupt.
Meanwhile, regional carrier InterCanadian Airlines of Montreal has been grounded for over a week with close to C$50 million in debt, including C$40 million owed to Canadian Airlines.
Source: Flight International
