Air Canada/Canadian Air merger would cost Onex Corp over CAD1bn claims Air Canada

Airline Industry Information, Nov 3, 1999

AIRLINE INDUSTRY INFORMATION-(C) 1997-9 M2 COMMUNICATIONS LTD

After Onex Corp accused Air Canada of having made a 'poison pill' agreement with its Star Alliance partners, Air Canada has now launched a similar accusation against Onex Corp. Air Canada maintains that Onex Corp would have to make payments of up to CAD1.27bn according to a commercial agreement between AirCo, which would be the name of the company arising from the merger of Air Canada with Canadian Airlines, and AMR Corp's American Airlines. AirCo could apparently be liable for a payout of CAD740m if this agreement is breached. Furthermore, another CAD525m is apparently payable if an agreement between AirCo and AMR Corp requiring the new company to use services provided by Sabre is breached. Onex Corp has responded to the allegations by saying that many of the details were previously published in 1994 and that the penalties spoken of are reciprocal with American Airlines, unlike the agreements Air Canada has with Star Alliance according to Dow Jones. Meanwhile, Air Canada has responded to a new offer made by Onex Corp after it launched its own counter proposal, by saying that the new offer confirms that 'its original bid was an attempt to acquire Air Canada through an inadequate offer.' Under the new proposal from Onex Corp, the company would own about 31% of Air Canada, while Air Canada shareholders would own about 59% or less if they acquire AMR shares through a rights offering announced by Onex Corp. In a rough breakdown, Onex Corp's new plan would result in shareholders receiving a gross cash payout of CAD1.1bn compared to CAD800m under Air Canada's proposal, but a net cash payout after the exercise of rights of CAD776m compared to CAD800m according to a statement released by Air Canada. Air Canada also says that Onex Corp would still be in breach of the 10% ownership limit under its revised offer.