By BRENT JANG
From Saturday's Globe and Mail
The Canadian Transportation Agency said yesterday that it has approved Air Canada's plan to stay within the federal government's limits on foreign ownership.
The key for the regulator is whether Air Canada's new parent, ACE Aviation Holdings Inc., will "in fact" be controlled by Canadians. By law, foreign investment in any Canadian airline must be under Ottawa's 25-per-cent cap on voting interests.
Based on industry estimates, the proportion of ACE shares in foreign hands will easily exceed 70 per cent initially. That's a record high for foreign shareholders, double historical levels of non-Canadian investors at the national airline.
To stay onside with Ottawa, the airline's restructuring plan for emerging from bankruptcy protection will introduce a system where foreign investors will receive ACE variable voting shares — pro-rated to reduce their voting rights.
Transportation agency spokesman Jadrino Huot said ACE meets requirements for "Canadian status."
Previously, Air Canada's share structure consisted of common voting shares solely for Canadians and class A non-voting shares. Foreigners had accounted for less than 35 per cent of the total equity in Air Canada shares.
ACE shares are slated to begin trading soon after the airline exits bankruptcy protection on Sept. 30.
There will be a heavy presence of non-Canadian investors and lenders in ACE, but in a recent letter to Air Canada's lawyers, the regulator expressed confidence ACE will be able to comply with restrictions on foreign control. Canadian shareholders could play a greater role as ACE is added to domestic stock indexes, prompting Canadian institutional investors to acquire shares.
For now, a New York-based vulture fund, Cerberus Capital Management LP, has been lined up as the largest new foreign shareholder in ACE. Other foreign investors are waiting in the wings to acquire ACE shares.
(c) Globe and Mail UPDATED AT 12:18 AM EDT Saturday, Sep 4, 2004
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