A Canadian conglomerate with the strong financial backing of American Airlines offered yesterday to buy and consolidate Canada's two major airlines for $2.55 billion.
The proposal by Onex Corp. would combine Air Canada and Canadian Airlines into a carrier flying as Air Canada, in a move prompted by the Canadian government earlier this month to save the Canadian airline industry.
"We feel strongly that this is the right private-sector solution--comprehensive, long-term, sustainable and requiring no government or taxpayer money," said Onex Chairman Gerald Schwartz. He said that if the transaction is approved, shareholders of the two airlines will be offered either cash or stock in the new airline.
Toronto-based Onex, founded in 1984, is Canada's 15th-largest company, with such holdings as Sky Chefs, the largest airline catering service; Celestica Inc., one of the world's largest providers of electronics manufacturing services; and other companies that make metal products for commercial construction and automotive castings worldwide. Onex has 53,000 employees and last year had consolidated revenue of $5.9 billion.
American Airlines, which currently holds a 34 percent stake in Canadian Airlines, will put up $335 million in loans and direct investment into AirCo, the proposed new parent company of the merged airline. Although it holds a 34 percent equity stake in Canadian Air, American can have only a 25 percent voting representation under Canada's foreign ownership rules.
Under yesterday's proposal, Onex would own 31 percent of the stock in the new airline parent company AirCo, and American would own 15 percent. The balance would be publicly owned.
On Aug. 6, faced with the prospect of two financially failing airlines, the Canadian transportation ministry authorized the carriers to hold merger discussions, an indication to industry analysts that the government might give its blessing easily to the Onex offer.
The Onex offer came less than a week after Air Canada proposed taking over Canadian Airlines' international business and having Canadian Airlines focus on domestic routes, a proposal quickly rejected by Canadian Airlines.
Air Canada yesterday described the Onex offer as "an unsolicited, below-market offer" but would not comment further on the situation. Canadian Airlines said it welcomed the proposal.
American spokesman Chris Chiames said the Dallas-based airline carried 750,000 passengers on its system through a marketing arrangement, known as code sharing, with Canadian Airlines. "Our interest in the Canadian marketplace has been a long one," Chiames said.
Chiames said American would be a passive investor in the new airline and eventually would sell its stock.
The merger would result in the loss of 5,000 jobs, mostly through retirement and attrition, according to Onex. Air Canada has 23,000 employees, and Canadian Airlines has 14,000.