David Knibb SEATTLE
Canada 3000 has taken another step toward consolidating Air Canada's rivals by agreeing to buy the Halifax-based start-up, CanJet. This follows close on the heels of Canada 3000's takeover of Royal Airlines in late March. In a no-cash deal, Canada 3000 has agreed to give CanJet's owner, the IMP Group, common stock worth nearly C$7 million ($4.5 million). In return it will acquire CanJet's important slots at Toronto airport, six leased Boeing 737-200s, a spares inventory, the airline's 450 staff, and some of CanJet's liabilities.
Ken Rowe, IMP's founder and chairman, will take a seat on Canada 3000's board. It is not clear if this is part of the deal, but Canada 3000 also may use IMP's Halifax maintenance base for all its heavy checks.
CanJet's takeover requires approvals from Canada's competition bureau and transportation department. The bureau has not aired its views, although it seems unlikely to be very concerned since Canada 3000 would control no more than 30% of the domestic market post-merger when Air Canada would still unquestionably be the dominant carrier. Transportation department approval also looks routine.
CanJet's most important asset to Canada 3000 is probably its Toronto slots. Angus Kinnear, Canada 3000's president, has frequently stressed the importance of slots at Canada's key hub in competing against Air Canada. CanJet also operates routes between Toronto and eastern Canada that have been a battleground between Air Canada, CanJet, and Royal Airlines. By acquiring both CanJet and Royal, Canada 3000 reduces competition on these important routes.
Finally, acquiring CanJet allows Canada 3000 to grow quickly. As Kinnear explains to local reporters: "If you do it one airplane at a time, it takes you an awful long time to build up this level of operation."
The leased aircraft that come with this deal offer short-term lift, but do not figure in the carrier's long-term plans. The combined Canada 3000-Royal-CanJet fleet of 40 aircraft will be a broad mix, including Boeing 737-200s and 757-200s as well as the Airbus fleet based on the A320, A330 and A310. With A319s and A340s coming, Canada 3000 plans to convert to an all-Airbus fleet.
Its biggest near-term change will be the addition by 1 June of business class in all Canada 3000 narrow-body jets. Canada 3000, Royal, and CanJet have each operated economy-only fleets before now, so this signals a major strategy shift. It also brings it into closer competition with Air Canada and start-up RootsAir, which launched full service flights in March.
The decision by CanJet's owner to sell may have been prompted by the start-up's inability to make money. Ken Rowe blames the federal government for forcing CanJet to launch at the wrong time. One of the conditions Ottawa imposed on Air Canada's takeover of Canadian Airlines was to force Air Canada to delay for one year its start of any discount carrier in eastern Canada if any new carrier entered that market by last September. While designed to give a newcomer some breathing room, it compelled CanJet to launch flights right before winter, traditionally Canada's worst airline season. Royal also entered the market with scheduled flights at the same time, sparking a fare war on routes CanJet had hoped to be able to operate alone.
Canada 3000 hopes to have its livery on all aircraft by early May and to integrate all operations by November. Once completed, Air Canada will face only three rivals - Canada 3000, WestJet, and RootsAir - each with a distinct vision of its own future.
Source: Airline Business
