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Air Canada Accepts Cerberus’ Investment Proposal

Air Canada announced today that pursuant
to the recently completed Private Equity Solicitation Process, it has accepted
an investment proposal from Cerberus ACE Investment, LLC, an affiliate of
Cerberus Capital Management, L.P., a New York based private investment firm.The Cerberus proposal provides for an investment of $250 million in
convertible preference shares under terms accepted and supported by major
financial stakeholders, the Company, the Board and the Monitor. The Cerberus
investment, in addition to the $850 million raised through the Deutsche Bank
Stand-By Purchase Agreement, brings the total equity raised by Air Canada
during this process to $1.1 billion, one of the largest equity amounts ever
raised by an airline.
  “We are pleased at having reached a successful outcome to the equity
process which has the solid support of our major financial partners and
creditors,” said Robert Milton, President and Chief Executive Officer of Air
Canada. “The Cerberus investment represents another concrete step towards our
emergence from CCAA targeted for September 30, 2004. The participation of a
highly successful financial investor like Cerberus, along with global business
leaders such as Deutsche Bank and GE Capital Services, will further strengthen
Air Canada’s financial position upon emergence and represents a powerful vote
of confidence in our business plan and the true potential of this airline
going forward.
  “Our investment reflects Cerberus’ confidence that Air Canada will emerge
from this process as an airline industry leader with true potential for
profitability and growth,” said Brett Ingersoll, Managing Director, Cerberus
Capital Management L.P. “The airline’s new business model, lowered costs and
rationalized fleet along with the strength derived from participation in Star
Alliance will transform Air Canada into a major competitor in the global
airline industry. We look forward to working with Robert Milton and the Air
Canada team as they execute the Company’s business plan going forward.”
  “This final step in the financing for Air Canada’s emergence further
validates the Company’s business plan and the strenuous efforts made by Robert
Milton and the entire team at Air Canada,” said Michael Cohrs, Global Head of
Investment Banking at Deutsche Bank. “The airline will now emerge with a
strong business model, healthy balance sheet and a long-term strategic partner
that will ensure the highest quality of service and value creation for all
  It is anticipated that Cerberus will make a $250 million investment in
convertible preference shares of Air Canada Enterprises, the new parent
holding company to be incorporated. The convertible preference shares will be
convertible into common shares at the option of Cerberus under certain
conditions and will initially upon issuance be convertible into approximately
9.2% of the common equity of Air Canada Enterprises.
  The convertible preference shares will have an annual non-cash payable
coupon of 5.0% which will be reflected in an increase in the value of the
convertible preference shares. Air Canada can cause Cerberus to convert the
convertible preference shares into common shares, when the trading value of
the common stock exceeds certain thresholds. On the seventh anniversary of the
date of issuance, Cerberus shall be required to convert into common shares, or
under certain conditions, Air Canada will be required to redeem the
convertible preference shares by making a cash payment to Cerberus equal to
the then fully accreted value on the tenth anniversary.
  The agreement is subject to approval by the Court.
  Air Canada’s Private Equity Solicitation Process was supervised by the
Court-appointed Monitor, Ernst &Young, Inc. Seabury Securities LLC of New York
acted as financial advisors.