AC challenges ONEX takeover of WS on foreign ownership loophole

[dagger]

https://www.theglobeandmail.com/business/article-air-canada-files-challenge-with-canadian-transportation-agency-over/

 

In its letter, Air Canada argues that foreign co-investors could take larger stakes in Onex subsidiary Kestrel Bidco Inc. − which is the actual purchaser − and take on greater control of the Canadian airline. “The opaque nature” of the private-equity structure “obfuscates where actual control in fact will, in fact, rest,” Air Canada said.

Air Canada also argues that Onex does not have sufficient controls in place to assure WestJet remains Canadian. For instance, it says that although Mr. Schwartz indirectly holds 100 per cent of Onex’s multiple voting shares (MVS), “the MVS structure provides no assurance that this will continue to be the case. The potential for the MVS extinguishment is real given Mr. Schwarts’ current career stage. At 77 years old and having served as CEO since 1983, his eventual retirement should not be considered a remote eventuality.”

Air Canada said in its letter to Canada’s transportation regulator that “due to the structure of the transaction and the capital and corporate governance structure of Onex, the transaction may result in an undertaking that is not ‘Canadian.’ "

 

 

[CanadaEH]

This should be fun. 

[Seeker]

Well, AC's objection is valid.  They are not against the buyout, just against it as structured.  Onex simply needs to ensure the rules are followed.  As an aside, you can be sure WS would object if AC was involved in a buyout  with the same concerns (and that would be appropriate).

[dagger]

9 hours ago, CanadaEH said:

This should be fun. 

It's more technical than anything, the deal in some form will certainly happen, it's just that ONEX may have to make legal changes to satisfy the government, perhaps maintaining a tracking mechanism to show ongoing compliance with the law and a mechanism to intervene if stock sales render the company non-compliant.

Basically, if Air Canada didn't object now, it wouldn't be in a good position to intervene years down the road if a sale of WS shares did go over the foreign ownership limit

For everyone else, employees, customers, communities, nothing is going to change because of this challenge. 

[CanadaEH]

I get it. Makes sense. 

Part of me hopes WJ challenges the AT purchase to bring some excitement back to the Canadian aviation scene. I mean, Porter quietly goes about its business. BORING.. Jetlines' never ending upcoming launch that never seems to get closer is old hat. So is the eigth or ninth CEO announcement that nobody cares about. And... That's it? 

But how about those food court announcements for YVR? Looking forward to the increase in intoxicated flyers. 

[Guest]

Brings back memories of when Onex was  trying to purchase Air Canada......https://money.cnn.com/1999/11/05/companies/aircanada/

[dagger]

13 hours ago, CanadaEH said:

I get it. Makes sense. 

Part of me hopes WJ challenges the AT purchase to bring some excitement back to the Canadian aviation scene. I mean, Porter quietly goes about its business. BORING.. Jetlines' never ending upcoming launch that never seems to get closer is old hat. So is the eigth or ninth CEO announcement that nobody cares about. And... That's it? 

But how about those food court announcements for YVR? Looking forward to the increase in intoxicated flyers. 

The government is doing what I would call an exhaustive review of the AT purchase that could last into Q2 2020. I expect that once the feds, including the Competition Bureau, get through with it, AC will have made some concessions in order to make the deal fly, and ,make it bullet proof. There is no way AC wants to own or manage hotels in the Caribbean or travel offices anywhere. It won't keep a Terminal 3 presence in Toronto, and might well agree to airport changes elsewhere (I haven't given that any thought). It will likely make job and possibly regional flying concessions to the Legault government to get its unequivocal endorsement. 

[rudder]

There is no room for any AT aircraft at T1. CYYZ just added a large number of T1 hard stands with bus ops due to overcrowding.

[FA@AC]

AC claims to have no plans to merge TS into AC or Rouge, although I don't think anyone believes it.  I don't see why TS wouldn't continue to operate from T3 at YYZ at least as long as they remain separate.

[MD2]

On ‎9‎/‎3‎/‎2019 at 10:35 AM, dagger said:

It's more technical than anything, the deal in some form will certainly happen, it's just that ONEX may have to make legal changes to satisfy the government, perhaps maintaining a tracking mechanism to show ongoing compliance with the law and a mechanism to intervene if stock sales render the company non-compliant.

Basically, if Air Canada didn't object now, it wouldn't be in a good position to intervene years down the road if a sale of WS shares did go over the foreign ownership limit

For everyone else, employees, customers, communities, nothing is going to change because of this challenge. 

"Satisfy the government"? The "government" already approved the deal. This is just part of Air Canada's old "bait 'n switch" tactic.

And it is to distract the competition bureau of the real threat to Canadian consumers due to the acquisition of Air Transat which eliminates competition.

Air Canada knows that there is no way its deal is going to be approved without major divestures and concessions. At minimum it will be required to relinquish all gates and space at T3, open Aeroplan to another airline (as back in 1999 take over of Canadian), and give up some routes that will be entirely be controlled by it after the merger, among perhaps other things. 

[MD2]

15 hours ago, CanadaEH said:

... Porter quietly goes about its business. BORING... 

First it was the prediction of imminent bankruptcy (13 years ago), now it's "boring"?!! Plus, looks can be deceiving...

[FA@AC]

11 minutes ago, MD2 said:

And it is to distract the competition bureau of the real threat to Canadian consumers due to the acquisition of Air Transat which eliminates competition.

Why doesn't Porter order a great big fleet of longer range aircraft to provide competition then?

[MD2]

6 minutes ago, FA@AC said:

Why doesn't Porter order a great big fleet of longer range aircraft to provide competition then?

In case you didn't notice, it did. Air Canada didn't like that idea either and through its proxies fought that too!!

[AIP]

7 minutes ago, MD2 said:

In case you didn't notice, it did. Air Canada didn't like that idea either and through its proxies fought that too!!

Have you considered decaf ???

[FA@AC]

9 minutes ago, MD2 said:

In case you didn't notice, it did. Air Canada didn't like that idea either and through its proxies fought that too!!

I must have missed that.  I have no recollection of Porter placing an aircraft order in order to provide competition on any of the AC/TS routes that you claim will lack competition once the takeover deal closes.  Was it recent?

[Turbofan]

1 hour ago, FA@AC said:

AC claims to have no plans to merge TS into AC or Rouge, although I don't think anyone believes it.  I don't see why TS wouldn't continue to operate from T3 at YYZ at least as long as they remain separate.

AC says they won’t merge TS into AC or Rouge.  They also say they will abide by the ACPA agreement.  The solution maybe to keep TS, expand it to the ACPA collective agreement and dissolve Rouge. The TS brand is much more valuable than Rouge and the existence of both is redundant.

[FA@AC]

8 minutes ago, Turbofan said:

AC says they won’t merge TS into AC or Rouge.  They also say they will abide by the ACPA agreement.  The solution maybe to keep TS, expand it to the ACPA collective agreement and dissolve Rouge. The TS brand is much more valuable than Rouge and the existence of both is redundant.

The existence of both Rouge and Air Transat is probably redundant from the marketing standpoint, but AC has incredibly cheap FA labour at Rouge and AC will want to keep it that way.  My understanding is that Pilot labour costs at TS are far low than they are at AC.  Management won't be in a hurry to change that either.  It'll be really interesting to see what pans out.  Negotiations around the workforce integration, if/when they occur, will be complex.

[boestar]

I still think that the acquisition of AT will absolve AC from the provisions of the ACPPA as it applies to AC Mainline and Rouge.  If AT is Owned by AC then they just have AT meet all the requirements for doing business in Quebec and having a headquarters there.  Get maintenance done in YUL and YWG and then the Mainline can do whatever it wants.

Transat can just go about its business.

[J.O.]

The other thing to keep in mind is “Common Employer”. That’s bound to come to the surface sooner rather than later if they do plan to maintain separate operations. 

[Seeker]

1 hour ago, J.O. said:

The other thing to keep in mind is “Common Employer”. That’s bound to come to the surface sooner rather than later if they do plan to maintain separate operations. 

My guess would be "sooner".

[Guest]

20 minutes ago, seeker said:

My guess would be "sooner".

Maybe the win would be to only take on the aviation part and let Onex or indeed WestJet have the hotel business. ? 

[dagger]

14 hours ago, seeker said:

My guess would be "sooner".

Sooner probably means mid-2020 or later since this deal isn't likely to be approved until Q2 2020.

[MD2]

I wouldn't bet on 2020 at all!

This merger, as proposed, is unlikely to be approved next year, even by a friendly liberal government. It eliminates competition and gives Air Canada a very dominant position in sun destinations and Europe, for instance a total monopoly between anywhere in Canada and LHR. Therefore, it likely requires extensive modifications and negotiations, including divesture of assets and routes. It is also possible that modifications will make the deal so unattractive to Air Canada that it will walk away from it altogether if the government can offer a "politically safe alternate".

[FA@AC]

5 minutes ago, MD2 said:

It eliminates competition and gives Air Canada a very dominant position in sun destinations and Europe, for instance a total monopoly between anywhere in Canada and LHR.

There is an airline called British Airways that operates between several points in Canada and LHR and that is free to add service to additional Canadian cities whenever it chooses.

[Maverick]

16 minutes ago, FA@AC said:

There is an airline called British Airways that operates between several points in Canada and LHR and that is free to add service to additional Canadian cities whenever it chooses.

I suspect that 30% of AC's LHR slots will be soon turned over to WestJet. It's the only fair way to protect the Canadian consumer.

All those shiny new 787's WJ has coming will fit into there nicely.