Air Canada To Mail Issuer Bid Circular Board Determines Air Canada Offer Provides Greater Value Than

Air Canada will mail its Issuer Bid Circular to shareholders by November 5, 1999 in connection with Air Canada`s revised offer to purchase up to 36.4 percent, or up to 68,750,000, of its Common Shares and Class A Non-Voting Shares at a price of $16. Air Canada`s increased price per share, announced Tuesday, represents a premium of 46 percent over the closing price Monday, November 1, 1999.

The Board of Directors of Air Canada has concluded that the Air Canada Offer is in the best interests of Air Canada shareholders and Air Canada. The Board has recommended that shareholders wishing to realize cash for a portion of their holdings now tender their shares under the Air Canada Offer.

“The Board has unanimously determined that the cash to be distributed to Air Canada shareholders - when taken together with shareholders` continued 100 percent ownership stake in one of the world`s great airline franchises - provides greater value than the Onex-AMR revised Offer,” stated Air Canada`s President and CEO, Robert A. Milton.
Under Air Canada`s revised Offer, shareholders will receive up to $1.1 billion in immediate cash. In addition, earnings per share are expected to increase by over 45 percent following the completion of the Issuer Bid. On a fully diluted basis, Air Canada shareholders will retain 90 percent ownership of the company, compared to only 60 percent under the Onex-AMR Offer.

“At $16, it`s better than today`s market price and better than the Onex-AMR offer,” said Mr. Milton. “With Air Canada, shareholders get more cash, more company ownership and the benefits of an additional $1 billion income stream over ten years from our participation in Star Alliance.”
Funding for the Issuer Bid comes largely from Air Canada`s commercial partners. The transactions completed with United Airlines and Lufthansa and CIBC provide $620 million in immediate cash of which $500 million is an incremental value contribution. An aggregate $480 million in Air Canada`s revised Issuer Bid will be provided from Air Canada`s substantial cash reserves. Air Canada is distributing all of this cash directly to its shareholders. Through these transactions, Air Canada will not incur additional debt.
“Our recent outstanding financial performance and continued upward trend have allowed us, in our revised Issuer Bid, to redistribute a further $300 million of cash on hand directly to our shareholders. It`s their company, it`s their cash,” added Mr. Milton.
Air Canada will retain $1.3 billion in available liquidity following the completion of the Issuer Bid. By contrast, under the Onex-AMR Offer, a substantial portion of that liquidity would be eroded by the $544 million in Airco debt that would be transferred to Air Canada, and ultimately its shareholders.
The Air Canada revised Issuer Bid is not conditional upon the outcome of the Onex-AMR Offer or on the special meeting of Air Canada shareholders requisitioned by Onex-AMR and scheduled for November 8, 1999.
“Any payment under the Onex-AMR Offer is highly conditional and may not be made for many months, especially if Onex-AMR challenge the validity of our Star Alliance agreements as they have threatened. This would result in value deterioration for existing Air Canada shareholders,” said Mr. Milton.
The Air Canada Issuer Bid is open for acceptance until 5:00 p.m. (Montreal time) on November 29, 1999, subject to certain rights of extension and withdrawal. Shareholders should receive their cash proceeds by the end of November 1999, and should benefit from any stock market appreciation resulting from the repurchase of shares by Air Canada.