DAVID KNIBB SEATTLE
October will be a decisive month in Canada as its airline industry struggles to define its future. Only one major carrier is likely to survive, but fundamental questions must be settled before a 10 November deadline about who will own and control the airline.Ottawa set this process in motion when it granted Air Canada and Canadian Airlines three months of anti-trust immunity so the companies could discuss ways to restructure aviation and avoid Canadian's possible collapse this winter. Since then attention has mostly focused on a bid from Onex, a Toronto-based conglomerate and take-over specialist, to buy and combine Air Canada and Canadian into a single airline.
"The juice is the synergistic benefit that comes from putting the two carriers together," says Nigel Wright, Onex principal. Onex is offering C$1.8 billion ($1.2 billion) plus C$3.9 billion in assumed debt to merge both airlines under the name "New Air Canada." Analysts generally agree that Canadian cannot survive on its own, so alternatives need to be found.
Onex claims its bid makes the most sense because Canadian's board has already approved it, and it has the backing of AMR, parent of American Airlines. AMR holds the legal limit in share ownership and voting rights at Canadian.
But AMR's support is double-edged. It has agreed to invest C$275 million, to lend Onex another C$225 million, and to help refinance some of the new company's long term debt. But in return, AMR would take a 14.9% stake. Conversely, Air Canada, which sees the Onex bid as a hostile take-over, says Onex is fronting for American, a claim hotly refuted by Onex: "This is not AMR's deal. It is the brainchild of Onex chairman Gerry Schwartz."
AMR's move may be an attempt to salvage something from its investment in Canadian and squeeze the rival Star alliance out of Canada. Initially, Onex insisted New Air Canada would become a oneworld alliance member, even though Air Canada is a founding member of Star.
That drew protests from United Airlines and Lufthansa Airlines, also founders of Star, amid veiled suggestions that they might intervene, perhaps by buying shares to block a take-over.
Onex has since backed down on the alliance issue and now expects New Air Canada to sign a 10-year deal with American on codesharing, frequent flyer programmes, and lounge access. Wright says: "Around the world we think it's up to the New Air Canada to determine who its best codeshare partners are."
Source: Airline Business
