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. Last Updated: 07/27/2016

Air Canada Extends $63M Offer




TORONTO -- Air Canada extended its offer Tuesday night to purchase its struggling rival, Canadian Airlines International, until Dec. 23 to give itself more time to negotiate with the AMR Corp., the parent of American Airlines, the largest shareholder in Canadian Airlines.


The 92 million Canadian dollar ($63 million) offer by Air Canada for Canadian Airlines had been scheduled to expire at 5 p.m. Tuesday. A combination of the two carriers would leave Canada with one coast-to-coast carrier.


In Chicago, Donald Carty, the chairman of AMR, said "substantial progress" had been made in working toward a deal with Air Canada. Spokesmen for Air Canada sounded similarly optimistic.


Air Canada of Montreal, the country' biggest airline, had said it would extend the bid only if its talks with AMR indicated that a settlement of their differences seemed likely. Its offer requires that just over 50 percent of Canadian Airlines shares be tendered. But AMR, which owns 25 percent of Canadian Airlines, has said that it wants compensation of 1 billion Canadian dollars ($680 million) if the deal with Air Canada means that Canadian Airlines will break its commercial agreements with American, including withdrawal from the Oneworld alliance.


At the same time, though, AMR wants Canadian Airlines to be rescued, and Air Canada seems to be the only viable candidate. Without help, Canadian Airlines will run out of operating cash by the middle of next year. If that happens, AMR's huge investment in the ailing Canadian company will be substantially lost.


Although the directors of Canadian Airlines had advised shareholders to offer their shares to Air Canada on Saturday, AMR has been bargaining from its own position of strength for several weeks.


Air Canada will make concessions, people close to the negotiations said, but its president and chief executive, Robert Milton, has described the $680 million compensation demand as "ridiculous."


AMR has invested almost $170 million in Canadian Airlines and was given a controlling vote on all important corporate decisions.


American Airlines also draws an estimated $204 million a year in passenger traffic through its affiliation with Canadian Airlines.


Control of Canada's air industry erupted into a struggle in August when the Ottawa government lifted competition restrictions to permit merger talks between Air Canada and Canadian Airlines.


The Calgary-based Canadian had been losing money for years and Air Canada, while healthier, had been unable to match the returns of airlines in the United States because of stiff domestic competition.


The Onex Corp., a Toronto-based leveraged-buyout specialist put together a bid to buy both airlines, but backed out early in November after a Quebec court ruled that its offer was illegal. National legislation prevents any one shareholding of more than 10 percent of Air Canada.


Virgin Atlantic Airways Ltd. may be flying into Canada early next year, The Associated Press reported.


"I don't know how soon we will be in Toronto, but we are an aggressive airline and we are aggressively opening up new markets in the new year," said Sharon Pomerantz, North American spokeswoman for the British company. "If the market is right in Canada, if there's going to be one dominant carrier, this is going to be a very ripe market to look at.


"We like markets that have very little competition. We are always looking for new markets around the world. And Canada is certainly on our wish list."


A year ago, Virgin boss Richard Branson said he wanted to be flying to Toronto and Vancouver within 18 months.


Virgin could be the first of a number of new entrants into the Canadian market to fill an expected void created by the purchase of Canadian Airlines by Air Canada.