WVFM

Onex Corp announces plan to buy, merge Air Canada and Canadian Airlines.
http://205.150.148.50/english/index.htm

[This message has been edited by mijne (edited 08-24-1999).]

BlondeBomber

Chuckle chuckle.
(just when they thought nobody cared)

From Newsworld:

Onex makes offer for Canada's airlines
WebPosted Tue Aug 24 11:02:23 1999
MONTREAL - Toronto-based conglomerate Onex Corp. is offering $5.7 billion to take over both Canadian Airlines and Air Canada and then merge the two.

Onex chief says new merged airline would be called Air Canada. "This is a good deal for Canada and for all Canadians," said Onex president and chief executive Gerry Schwartz.

He said a merger would create a more efficient and financially stronger airline. Some 5,000 jobs would be lost if the merger is approved.

The plan has already been approved by the board of Canadian, Schwartz said.

Onex, known as a turnaround specialist, is involved in airline catering through its ownership of Skychefs.

Industry Minister John Manley told the Reuters news agency he would welcome investment in Canada's airline industry and refused to rule out the idea of one big carrier instead of two.

"It's good news that there's somebody who apparently wants to invest in the airline industry, because it's very important for Canada," Manley told Reuters.


[This message has been edited by BlondeBomber (edited 08-24-1999).]

doc

I'd thought the Canadian government wanted to insure "healthy" competition!

silverpie

They do. They haven't spoken on this issue.

silverpie

This would be very bad for me, as the deal would likely remove Canada's access to Star (AMR is backing the bid), and 1w does not serve CHA. But Onex will have to raise the bid anyway--they're offering C$8.25 for AC, currently trading at C$8.80 on Toronto (the nonvoting shares are over US$5.50 on Nasdaq). Comments on the Yahoo board indicate that many feel anything short of C$12 is an unfair offer. (The toonie they're offering for CP shares is slightly above market.)

Celestar340

Hold on ! I think Onex wanted to retain the name Air Canada and serve both current AC and CP's routes. That would mean that Oneworld would lose a partner...and of course the question now to all current CP Exec Plat members....would they get to keep their oneWorld status or would they be merged into STAR? I am quite certain that Onex confused the fact that AC currently belongs to STAR and not oneworld.

Australia has both - STAR and Oneworld. Of course the US has both too and a whole lot more.

This is mind boggling....AC stands to lose out most - because most of their staff are junior to Canadian's (cabin and tech crew).

Oh! Just read the fact that Onex is backed by AMR. Okay. Now that makes sense. Now then .. what would happen to AC's SuperElite memberships then? What if members don't want to go with OneWorld? Would UA offer reciprocal 1K memberships?

Would Air Transat now be offered STAR alliance membership?


[This message has been edited by Celestar340 (edited 08-24-1999).]

avek00

What about being in BOTH alliances? There's no law saying that cannot happen. It would probably be the least painul way to do this. 1w would focus on former CP routes, and STAR would concentrate on current AC routes.

BlondeBomber

AC Employee communications insisted that this was a below market value offer but would not comment further until they see details.

Headlines this PM:

Onex wants to merge Canada's airlines
WebPosted Tue Aug 24 14:35:54 1999
MONTREAL - Toronto-based conglomerate Onex Corp. wants to take over Canadian Airlines and Air Canada and then merge the two in a deal worth $5.7 billion.

"We all know the Canadian airline industry cannot maintain the status quo," said Schwartz, pointing to Canadian's mounting losses and Air Canada's flat share prices.
"This is the time for a bold step."

Gerry Schwartz
The plan has already been approved by the board of financially-troubled Canadian, said Schwartz, known as a turnaround specialist for troubled companies.

Air Canada, said it was aware of Onex's "unsolicited, below-market offer," but would not comment until it reviewed the proposal.


Some of the financing for the deal, about $225 million, would come from AMR Corporation, the parent company of American Airlines.

Under the plan, Onex would own a 31 per cent interest in the merged airline, AMR 14.9 per cent and public shareholders 54 per cent.

In Ottawa, federal Industry Minister John Manley would not rule out the possibility of having just one Canadian airline. "When there is a proposal that comes forward to restructure the industry, the government will consider it, and in the meantime we'll be asking the Competition Bureau to give us the benefit of their wisdom in what a restructured industry might look like, in order to protect the interests of consumers," he said.

burkey

Following is a letter from Don Carty:

Dear Colleagues:

I want to share with you some good news for all of us at American Airlines.

For some time now, we've been concerned about a potential loss of feed from Canada and the adverse impact that would have on AA flying, given Canadian Airlines' shaky financial situation.

Today, a group of Canadian investors announced, subject to government approvals, a bold plan to consolidate Canadian Airlines and Air Canada into a single, stronger airline, which will retain the name Air Canada. American is investing 334 million dollars in this transaction, because we
believe it will directly improve our operating results and preserve or enhance AA flying - but we intend to play no role in the management of this new company.

Because this development is so important, I wanted to communicate directly with all employees to explain why we are involved and why we think it will be good for American Airlines and all employee groups.

A Canadian Solution to a Canadian Problem
Canadian Airlines and Air Canada are currently engaged in a destructive downward competitive spiral that has seriously weakened both carriers. Both are suffering financially as they compete in a relatively small market, as demonstrated by their relatively poor financial performance
versus other North American airlines in recent years.

Under this proposed transaction, a newly formed company led by investors in Canada will acquire control of both Canadian Airlines and Air Canada. They will be merged into one flag carrier that will operate as Air Canada. After several years of seculation about whether a government bail-out of the industry would be necessary, or whether tens of thousands of jobs could be saved if one or both of the airlines was forced into bankruptcy, we think that a private sector solution to the Canadian airline industry's problems should be well received.

Furthermore, Onex, the investment firm leading the transaction, is recognized as one of the premier corporate management companies in Canada. These are smart business people who have a proven track record of success in a number of industries, and we are very confident of their ability to turn this deal into a successful and profitable venture.

American Airlines' Role
American Airlines is participating as an investor for a short period of time in order to facilitate the deal. There are several advantages for American in this transaction:

This new Canadian flag carrier will increase traffic feed to American Airlines as a member of our oneworld alliance. This, in turn, will enable us to increase our domestic and international schedules.

Without this transaction, Canadian Airlines could face very real financial problems in the next several months -- and disruption in its operations would significantly reduce our feed, and consequently strengthen our competitors. Since United Airlines currently receives more feed from Air Canada than AA receives from Canadian Airlines, this competitive disadvantage would only grow worse with the status quo.

Our investment should produce a good financial return. In addition, as we receive more and more feed from the new Air Canada, we believe we will be able to increase our own domestic and international flying. Our goal is to eventually eliminate any equity stake altogether, since a strong and independent new Air Canada will attract new equity capital and investors within
Canada. Demand for this equity should increase the value of our stake, allowing us to sell our shares at a premium.

American will have less than a 15 percent equity stake of the new airline, and our actual voting shares will never exceed 15 percent. We will be a passive investor. This contrasts notably with today's 33.9 percent equity and 25 percent voting stake in Canadian Airlines, which I recognize has been a cause for concern amongst some employees. Our goal is to facilitate the transaction,
grow our network, and then exit as soon as possible with a nice gain on our investment.

This transaction should enable us to reduce our ownership role in a foreign airline, and in the process, generate increased levels of traffic and improve our competitive position. I hope you and your fellow employees share that goal for our company.

As always, I value your professionalism and cooperation as we seek to build the world's leading airline.

Sincerely,

Don Carty
Chairman and CEO

SOURCE: AMR CORP

Flyaway

What? AA intends to invest in the propsed arrangement? Very interesting!

I wonder why American feels that this merger would increase customer feed to them? What abut United Airlines?

Sounds to me that if this is approved then the new Air Canada will be in One World?

Goodbye to competition!!

Scott the flier

I think that there would be a serious anti-trust issue if American is allowed to invest in this venture. We'll have to see how it develops through time, but it still won't tempt me back to American after the strike fiasco of last year. UA treats me better, plus they service all the destinations that I frequent.

Cheers Scott

shadow

That scream you hear coming from the Chicago suburbs would be UA crying "FOUL!"

and burkey, you really do have the inside track at AA...

[This message has been edited by shadow (edited 08-24-1999).]

Flyaway

Wouldn't it be better (for consumers) to increase AA's stake in Canadian and keep competition? In this proposed merger, wouldn't the new Air Canada be owned by Onex and AA anyway??

Flyaway

From the Canadian Airlines web site:

A LETTER TO CANADIAN PLUS MEMBERS
--------------------------------------------------------------------------------

Canadian Plus Members:

I wanted to take this opportunity to bring some clarity to the media attention surrounding the future of the airline industry in Canada.

We have been for some time pursuing our recapitalization options. Canadian Airlines has also been very public in our concerns over the present health of the industry.

We feel the status quo in the industry is not an option and there needs to be a long-term solution that improves the viability of the Canadian aviation industry. We have been working toward a positive solution for our employees, shareholders and most importantly, our customers.

Recently, Onex Corporation launched a plan to revitalize the industry and bring stability to what has become a highly unstable business. We feel this concept is a clear benefit to Canadian Airlines and our customers.

The proposed transition will create one national carrier that combines the strengths of both Canadian Airlines and Air Canada with Onex’s strategic and financial expertise. The combined airline will be a more efficient and financially stronger carrier, which will be better able to serve Canadian consumers.

We strongly believe Canadian Plus members will benefit in a number of ways:

The new airline will guarantee your Canadian Plus points.
The new airline will become a member of the oneworld global alliance of world-leading airlines including American Airlines, British Airways, Cathay Pacific, Qantas Airways, Iberia and Finnair.
The new airline will continue to rely on serving the business customer as a key component of its strategy to build revenues and ensure the stability and growth of the industry.
Canada’s communities will benefit through the preservation over the long-term of thousands of jobs, which are at risk if Canada’s airline industry continues to decline.
A strong Canadian carrier will mean improved service, a better choice of flights on many routes and more non-stop flights to more destinations, including more international destinations.
The announcement by Onex is simply the first of a series of steps before their proposal becomes reality. While Canadian’s Board of Directors has approved Onex’s proposal, their proposal still hinges on acceptance by our shareholders and those of Air Canada.

We welcome your continued support as we help bring stability to Canada’s airline industry.

Sincerely,

Rob MacLean
Vice-President
Sales North America

shadow

This will put a crimp in the StarAlliance...