Air Canada wins control of Canadian, makes deal with AMR

Air Canada has won control of Canadian Airlines, while reaching a crucial deal with Canadian's largest shareholder, AMR Corp. That all but ensures Air Canada will soon have the lion's share of Canada's domestic airline business.

Air Canada announced Wednesday afternoon that more than 50 per cent of Canadian's stock had been tendered as part of its $92 million takeover offer. That was the minimum Air Canada said it needed to assume control.

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Its deal with American Airlines parent company, AMR, was announced at the same time. It completely settles the U.S. company's interest in Canadian, and at a cost considerably lower than AMR had originally demanded Air Canada pay.

Under terms of the deal, Air Canada will pay between $55 and $60 million to purchase AMR's convertible preferred shares in Canadian Airlines.

The Air Canada-AMR deal means the U.S. company will give up all its governing rights over Canadian.

AMR had previously demanded Air Canada pay it compensation of $1 billion. But after several weeks of negotiations with Air Canada, that penalty appears to have been drastically reduced.

Under the deal, Air Canada and Canadian's reservation systems will be merged. Air Canada has agreed only to "consider" using AMR's Sabre reservation system, but it doesn't appear to be locked into choosing it.

"While Air Canada is not obliged to select Sabre as its service provider, it will consider Sabre on a competitive basis," the company said in a release.

If Air Canada does not choose Sabre, AMR would receive up to $83 million from Air Canada to pay for some of Sabre's start-up costs. That brings the total cost to Air Canada of the AMR deal at no more than $143 million.

The deal allows American Airlines, a subsidiary of AMR, to maintain codesharing with Canadian for 10 years.

American Airlines will also maintain a non-exclusive frequent flyer relationship with Canadian Airlines. Members of Canadian Plus and American's frequent flyer program, AAdvantage, will continue to accumulate mileage benefits.

Air Canada says "should Canadian be fully absorbed into Air Canada within the ten year period, certain provisions will allow American to maintain its marketing presence in Canada."

The only obstacle now standing in the way of Air Canada's takeover plan is federal government approval.