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. Last Updated: 07/27/2016

Onex Offers $1.2Bln To Combine Airlines

MONTREAL -- In a surprise move, a Canadian conglomerate is offering $1.2 billion to buy and combine Air Canada and Canadian Airlines, saying bold action is needed to preserve the nation's airline business.

A single airline, which would retain the Air Canada name and its Montreal headquarters, would be more efficient and financially stronger than the separate operations, said Gerald Schwartz, the president and chief executive of Toronto-based Onex Corp., which made the offer Tuesday.

The board of Calgary, Alberta-based Canadian welcomed the Onex plan in a statement, saying it offered the chance of a "truly national airline for Canada.''

Air Canada said it had been informed of Onex's "unsolicited, below-market offer'' but would have no further comment until completing a review of the proposal.

Canadian Airlines, with 14,000 employees, has been seeking new investors to keep flying. It has said it needs up to $500 million to allow it to restructure and move away from what has been a chronic cash crisis over the past decade.

Onex, one of Canada's largest companies, controls such diverse companies as Sky Chefs airline catering, Lantic Sugar Ltd. and American Buildings Co. It offered $1.2 billion in cash and stock to acquire the companies and said it also would assume $2.6 billion in airline debt for a total obligation of $3.8 billion.

The buyout and merger would involve the loss of 5,000 jobs, Schwartz said. The cuts would be handled mostly through retirements and normal attrition, he said.

"This is a good deal for Canada and for all Canadians,'' said Schwartz, a takeover specialist.

Consumers were confused. Some said they feared reduced competition would raise air travel costs. Others said efficiencies of a merger could lead to lower prices.

The deal would give U.S.-based American Airlines greater ties to Canada. AMR Corp., the parent of American, which is helping Onex finance the proposed takeover, has 25 percent of the voting stock in Canadian Airlines, which is part of its Oneworld alliance.

The much larger Air Canada, however, is part of the Star Alliance with American's rival United Airlines.

Onex said its new AirCo unit would invest approximately $6.7 billion in the venture, with help from Fort Worth, Texas-based AMR.