Manufacturing Industry

-Air Canada announces new restructuring plan to counter hostile takeover bid

Airline Industry Information, Oct 22, 1999

Air Canada has announced a new plan to restructure the Canadian airline industry as part of its attempt to counter a hostile takeover bid by Onex Corp and American Airlines. The move by Air Canada, which has been backed by Star Alliance partners United Airlines and Lufthansa, is seen as creating a broader rivalry between the Star Alliance and the oneworld alliance, of which American Airlines is a member. Air Canada is proposing to buy back 35% of its own common shares for CAD800m and to also acquire rival Canadian carrier, Canadian Airlines for CAD92m, with the intention of operating it as a low-cost subsidiary airline. The purchase of Canadian Airline would most likely result in Delta Air Lines replacing American Airlines as Canadian Airlines' US partner according to The Wall Street Journal. In response to Air Canada's plans, Onex Corp has said that the deal is not necessarily better value for share holders and raises a number of regulatory issues. A spokesperson for American Airlines' parent company AMR Corp has stated meanwhile that the plan 'has such heavy conditions it's not going to get done,' particularly as AMR can apparently block any transaction affecting Canadian Airlines due to its stake in that carrier. The latter impediment has been acknowledged by Air Canada, which has called for AMR to 'exit from its ownership and control structure in Canadian Airlines on a basis that is fair to Canadian Airlines' stakeholders.' Meanwhile, Delta Air Lines has apparently already been engaged in preliminary talks with Air Canada about the possibility of a code-share agreement and the US carrier is reportedly quite eager to code-share as it only has limited entry into the Canadian market. In related news, the Airline Pilots Association International has issued a statement saying that it had no real comments on the Air Canada proposal as it lacked the necessary detail and was still in the process of examining the offer from Onex Corp. It was also stated, however that the union is concerned about references to the establishment of a low-cost subsidiary airline under the deal because this often was 'a code word for hammering pilot wages.' The International of Machinists and Aerospace Workers has also issued a statement saying that it had not yet evaluated the proposal and neither endorsed nor opposed it at this stage. Finally, the Canadian transport minister has stated that the government will only consider proposals competing with that from Onex Corp after the shareholders of Air Canada and Canadian Airlines have voted on the Onex Corp offer on 8 November