|
Air Canada in Star defense
|
 |
October 19, 1999: 10:38 a.m. ET
Lufthansa, United back takeover bid to thwart American-led offensive
|
LONDON (CNNfn) - Air Canada launched a takeover bid for rival Canadian Airlines International Tuesday to fend off a hostile $3.8 billion takeover bid backed by American Airlines.
Air Canada is receiving C$730 million ($490) from partners Lufthansa and United Airlines and another C$200 million from CIBC bank to fund the offer and buy back 30 percent of its own shares.
Air Canada is offering just $92 million in cash for its loss-making Canadian rival, which it plans to run as a separate entity.
Onex Corp., one of Canada's largest industrial groups, in August launched an offer to buy ailing Canadian Airlines International and merge it with Air Canada to form "New Air Canada".
Leading industry observers suggested the Lufthansa-United alliance was likely to keep Air Canada from Onex's grasp. "Air Canada has had a deal in its pocket for two weeks," said Donald Gray, a partner at aviation law firm Cassel Brock & Blackwell in Toronto. "Onex is going to be hard pressed to get 30 percent support."
The Canadian government may be left to decide the fate of both carriers. Canadian Airlines rejected a merger offer from its rival earlier and a bid for its valuable overseas routes.
A deal between the two airlines would be a massive blow to AMR Corp.'s (AMR) American, which planned to help fund the Onex deal in return for a 14.3 percent stake. The U.S. carrier already has service contracts with Canadian worth hundreds of millions of dollars, and was planning to extend them to the "New Air Canada".
The Onex deal would have "stolen" Air Canada from the Star alliance and added it to the "oneworld" global alliance led by American and British Airways (BAY).
Onex has said in the past it would not sweeten its deal, but recently said it would be prepared to raise its existing leveraged offer.
Canadian Airlines has racked up massive losses in recent years and Canadian regulators gave the two airlines until mid-November to come up with a sustainable solution for the country's airline industry, despite their own antitrust concerns.
Air Canada's plan calls for the Calgary-based rival to cut 2,500 jobs.
The Air Canada offer comes a day after European regulators launched a formal probe into the Onex bid, citing competition concerns on transatlantic routes.
Antitrust officials at the European Commission, the Brussels-based executive arm of the European Union, believe that the Onex-led deal could raise competition problems on U.K.-Canada routes.
That would leave the merged Canadian airline and BA as the only carriers flying to Canada from London's Heathrow airport. Canadian Airlines currently operates from London's second airport, Gatwick.
Analysts speculated that Brussels may seek to carve out concessions such as forcing Air Canada or BA to divest their U.K.-Canada routes. Virgin Atlantic has in the past expressed interest in launching Canadian services from London. 
|
|
|
|
|
 |
|
