Brian Dunn/MONTREAL Chris Jasper/LONDON

Air Canada and its Star Alliance partners are gathering their forces in a bid to fight off an attempted takeover of the flag-carrier masterminded by rival oneworld leader American Airlines, acting in tandem with the Toronto-based Onex conglomerate, owner of caterer Sky Chefs.

The Onex/American plan would see Air Canada merged with Canadian Airlines, which is already 33% owned by the US giant. The pair made their move after ailing Canadian was itself targeted by Air Canada, which had proposed a deal featuring the purchase of its rival's lucrative international routes.

The takeover battle brings into sharp focus the potential for conflict between airline groupings, with the alliance question also complicating Canadian concerns over the impact on competition a merger would have. Ottawa says it would welcome investment in the country's airline industry, but that a deal would need anti-trust approval.

The Onex/AMR offer is valued at C$5.7 billion ($3.8 billion), including C$3.9 billion in assumed debt. The pair have formed a new company, AirCo, as a vehicle for the takeover, with Air Canada stockholders offered C$8.25 cash per share, or one share in AirCo, and Canadian shareholders C$2 per share, or 0.24 of an AirCo share. AMR would put up C$625 million, taking a 14.9% share in the merged airline. Onex would control 31% and other investors 54.1%. AMR, reluctant to rescue Canadian single-handed, says it would ultimately dispose of its holding.

The new airline group would keep Air Canada's name and Montreal base, ranking it 14th in the world with a turnover of $6.1 billion. It would have centres in Toronto, Montreal and Vancouver, regional bases in Calgary and Halifax and a maintenance site in Winnipeg. About 5,000 jobs - or 10% of the workforce - would go.

Air Canada rejected the proposal, and continues to push its plan to take Canadian's international routes and allow it to operate solely as a domestic carrier. Star airlines responded with guarded - but forceful - reactions. Lufthansa warned that the alliance would take a "firm stance" and explore "all sensible options in order to secure the continued presence of Air Canada in the team", while United Airlines says its relationship with the airline is "of fundamental importance".

Source: Flight International