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Report: UAL Eyes Air Canada

October 4, 1999

CHICAGO (AP) _ United Airlines reportedly is preparing a counterbid to an offer backed by rival American Airlines for control of Canada’s largest air carrier.

United’s parent, UAL Corp. based in suburban Elk Grove Village, and German airline Lufthansa are preparing a bid to buy 35 percent or more of the outstanding shares of Air Canada, the Chicago Tribune reported in Sunday’s editions.

The bid, which could come as early as today, could block the merger of Air Canada and Canadian Airlines proposed by Toronto-based investment firm Onex Corp. That combination is being backed by American Airlines and its parent, AMR Corp. AMR owns 25 percent of Canadian Airlines and would own 15 percent of the new carrier.

UAL spokesman Matthew Triaca on Sunday said the company would not comment on the report. United Airlines is the world’s largest air carrier.

Air Canada spokeswoman Nicole Couture-Simard said the Tribune report is based on speculation and ``we are not commenting on speculation. We’re not denying, we are simply not commenting.″

A spokesman for Lufthansa said he had no comment on the report but that the airline has ``never ruled out entering into even closer relationships for strategic purposes.″

Onex has offered $1.2 billion in cash and stock and would assume $2.7 billion in debt to take over the Canadian carriers.

Air Canada has rebuffed the offer as an American plot to take over the Canadian airline industry. Canadian Airlines has not responded to the offer and may be waiting for Air Canada to sweeten a bid to buy the smaller carrier’s international routes, its most profitable.

The Tribune reported that UAL Chairman Jim Goodwin last week briefed United’s pilots on the plan under which UAL and Lufthansa reportedly will each buy 10 percent of Air Canada’s shares.

A Canadian bank, reportedly the Bank of Montreal, would buy up to 15 percent of the airline’s shares, according to the Tribune. The Bank of Montreal owns Chicago’s Harris Bank. Harris is the stock transfer agent for UAL.

UAL is 55 percent owned by three employee groups, with the airline’s pilots owning the biggest stake. The arrangement obliges the airline to consult with the pilots and the machinists in any major undertaking.

A bidding war for a share of Air Canada would be a battle not only between United and American, but between two airline alliances: the United/Lufthansa-dominated Star Alliance, of which Air Canada is a member, and the American-dominated OneWorld Alliance, to which Canadian Airlines belongs.

UAL receives about $200 million annually as a result of Air Canada’s membership in the Star Alliance, while Lufthansa receives about $100 million.

American, meanwhile, receives about $120 million from Canadian because of its membership in the OneWorld Alliance. Canadian has said it will shut down next spring unless it has an infusion of cash.

If Onex wins its bid to merge the two carriers, it has pledged that the new carrier will join American’s OneWorld Alliance.

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