Air Canada Challenges Legality Of Onex-American Airlines Bid

Air Canada and certain other shareholders yesterday instituted legal proceedings challenging the legality of the Onex-American Airlines offer on the basis that it contravenes the 10 percent maximum ownership rule of the Air Canada Public Participation Act.

Under an application filed yesterday in Quebec Superior Court, Air Canada and these shareholders are seeking to have certain terms and conditions of the offer declared illegal, and for the bid to be declared nul and void. Two other causes of action are included in these proceedings.

Air Canada and the shareholders are seeking a declaration that the Onex-American Airlines bid cannot proceed further unless and until the Air Canada Public Participation Act is amended to remove the 10 percent ownership limit, following due legislative process. Air Canada`s Directors` Circular mailed yesterday states that, if the constraints are removed, potential bidders, joint venturers, merger partners and other third parties could assess in an open and transparent fashion an investment or participation in Air Canada with uniform ownership rules that would not provide any one bidder an unfair advantage.

“The 10% ownership limit was introduced in conjunction with Air Canada`s privatization in 1988 as a matter of public policy as a result of the strategic importance of Canada`s flag carrier airline to the travelling public,” said Doug Port, Senior Vice President, Corporate Affairs and Government Relations. “It`s objective was to prevent the consolidation of economic power in the airline industry in too few hands and ensure that no one group could elect or effectively appoint Air Canada`s Board of Directors or control the Corporation. Purchasers of securities of Air Canada have, since the privatization, traded on the basis that no one could exercise voting control over more than 10% of the airline.

“Moreover, should the technique contemplated by Onex-American Airlines be allowed to succeed, it in effect could set a precedent, which would mean that similar individual and foreign ownership constraints imposed by law on Canadian companies, including the banks, privatized former Crown corporations, communications and telecommunications companies and other constrained share corporations could be rendered inoperative,” concluded Mr. Port.