Air Canada and Skyservice announced that they
would not proceed with plans for a strategic partnership as announced May 3.
An agreement reached today between Air Canada and the Air Canada Pilots
Association (ACPA) on the start up of a lowfare carrier precludes a
partnership with Skyservice as proposed.

“Today`s difficult economic climate with the resulting decline in our
traditionally strong business travel market makes it more important than ever
that we participate in the one growing and vibrant airline segment in North
America,” said Robert Milton, President and Chief Executive Officer. “Today`s
agreement with ACPA enables Air Canada to compete in the discount market with
the full involvement and cooperation of our pilots. It is because of the vital
importance of our relationship with our pilots that we have elected not to
proceed with the proposed strategic partnership with Skyservice. While that
partnership clearly would have provided us with tremendous business
opportunities, the support of our pilots is key to ensuring Air Canada`s
success.”

The agreement between Air Canada and ACPA on the low fare carrier
provides for an operation of up to 20 aircraft with more flexible terms and
working conditions.

“We will explore with Skyservice opportunities for the provision of third
party services such as those currently undertaken for other carriers. Our
respect for Russ Payson and his operation has only grown in the three months
since we began discussions with them,” Mr. Milton added.

“While I am obviously disappointed that we are not proceeding with the
strategic partnership as originally planned, I look forward to exploring the
business opportunities available to us in working with Air Canada,” said
Russell Payson, Chairman, CEO and President of Skyservice.
The lowfare carrier will be launched later this year. Further details on
timing of the start-up, branding, route network, infrastructure and executive
management of the carrier will be announced at a later time.

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