Air Canada has filed a challenge with the federal government over Onex Corp.’s proposed takeover of WestJet Airlines Ltd., arguing that the deal could see Canada’s second largest airline fall under foreign control.
Air Canada (AC) filed a letter with the Canadian Transportation Agency (CTA) in August raising concerns over the Onex (ONEX) takeover and the private equity firm’s structure, which the airline says could “skew control” and see “disproportionate allocation of the risk and reward of ownership” in the hands of foreign investors.
“The uncertainty and flexibility of co-investor participation introduces significant risk that non-Canadian co-investors will have control-in-fact of WestJet following the transaction,” Air Canada wrote in its submission.
Onex, a Canadian private equity firm, announced in May that it would be buying WestJet (WJA) for $5 billion, including debt, and taking the airline private. The transaction was overwhelmingly supported by WestJet shareholders in July, and has since received approval from the Canadian Competition Bureau and Canada’s Transport Minister.
Under Canada’s Transportation Act, foreign ownership of a Canadian airline is restricted to 49 per cent. A single international investor or carrier is unable to control more than 25 per cent of voting interests of a Canadian airline.
In its submission to the CTA, and a separate letter addressed to CTA chief executive Scott Streiner and deputy Transport Minister Michael Keenan, Air Canada argued the transaction could flout Canada’s foreign ownership rules. The airline said that Onex will have support from several co-investors that may include foreign wealth funds, airlines and other non-Canadians “without required limitations on ownership and control.”
“For some airlines to be required to operate under one set of rules and others under a different one, would not only unfairly skew competition, but would harm the interest of Canadians,” Air Canada’s general counsel David Perez wrote in the letter addressed to Streiner and Keenan.
Air Canada did not provide additional comment.
More to come.