Air Canada managment gives insight into Star JV

Washington DC
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A joint venture in development by four members of the Star Alliance is likely to focus on revenue sharing rather than profit sharing, explains a senior executive of Air Canada's management.

Earlier this year Air Canada along with Lufthansa, United and Continental, who plans to join Star in October, secured approval from US regulators for a transatlantic joint venture. The carriers are still awaiting approval from the European Commission, says Air Canada CFO Michael Rousseau.

During the recent RBC Capital Markets 2009 Passport transportation Conference Rousseau explained while negotiations regarding the final structure of the joint venture are continuing, it is likely the revenue sharing agreements will be supported by one sales force that "will sell whatever metal works best for that customer" regardless if an Air Canada of Lufthansa livery is featured on the aircraft.

Rousseau explains the likely structure of the revenue sharing should cover point of departure to a point of arrival. If a customer departs from Montreal, flies to Frankfurt and then continues to India, for example, "we'll get a share of that Frankfurt to India component based on market share of the four airlines", explains Rousseau.

Responding to a question regarding Air Canada's major shareholder ACE Holdings, Rousseau explains the carrier is "not privy to ACE's plan going forward". However, he does highlight ACE has been "a very supportive shareholder" as evidenced by its supply of C$150 million (US$138 million) of a C$600 million crucial credit facility Air Canada secured last month. "They are fully supportive of our direction," says Rousseau.

In December 2008 ACE disclosed plans to seek a court approved liquidator to distribute net assets to shareholders, which includes its 75% stake in Air Canada, after outstanding liabilities and transaction costs were settled. But in March the company postponed a 7 April special shareholders meeting focused on approval of distributing assets and dissolution of the company.

Prior to the postponement ACE shareholder West Face Capital denounced the plan, arguing better alternatives existed for the companies shareholders.