The extraordinary move came after Canadian Airlines told the government last week that it may be unable to continue flying some routes unless the industry is allowed to restructure, transport minister David Collenette said. The minister invoked a section of the Transportation Act that bypasses competition laws for 90 days to avert disruption of the national transportation system.

Canadian Airlines spokeswoman Renee Smith-Valade said the Calgary, Alberta, carrier is "not in any imminent danger of ceasing flying." Collenette said travellers should feel confident the airline will continue to service its coast-to-coast and international routes. But analysts warn the money-losing airline could run out of cash by the end of next winter.

Canadian Airlines has said it hopes toraise 300 million Canadian dollars ($202.1 million) to C$500 million in fresh capital by year end. But investors aren't likely to provide more equity until the airline is profitable, company officials added.

Canadian Airlines posted a net loss of C$125.6 million for the 1999 first half, on C$1.53 billion in revenue. Air Canada, the country's biggest airline, and Canadian Airlines said Friday it is premature to "speculate" on the possibility of a merger. The two companies met earlier this year to discuss international routes. But legal restrictions prohibited talks about other issues, such as reducing excess capacity on domestic routes flown by both the carriers. "We are pleased that the minister has recognised the need for freer discussions," Canadian Airlines' Smith-Valade said. She added that the carrier plans to talk with "a number of entities" in the country's transportation industry, including Air Canada, of Montreal.

Canadian Airlines chief executive Kevin Benson indicated earlier this year thecompany probably would need to attract equity from outside the country. Industry observers speculate that funds could come from AMR Corp, the Fort Worth, Texas, parent of American Airlines, and other carriers in the global alliance linking American and Canadian. But that would require that Canada lift its restriction on foreign ownership. AMR has a 25 per cent voting stake in Canadian, the maximum permitted, and a 33 per cent equity stake.

Collenette said Friday the government doesn't have any plans to relax the foreign-ownership limit. An AMR spokesman said "We are supportive of Canadian Airlines, and their efforts to find some level of financial success." He declined to comment on the possibility of a merger with Air Canada. AMR invested $192 million in Canadian Airlines in 1994 as part of a previous rescue plan, but two years later took a one-time charge to write down the stake. The two companies have close management ties. The AMR chairman and CEO Donald J Carty, a Canadian, once worked for a carrierthat was merged into Canadian Airlines. His brother, Doug Carty, is Canadian's chief financial officer. Canadian Airlines' troubles stem partly from the weak Canadian dollar and the economic slowdown in Asia, an important market for the carrier. But the government's extraordinary move renews the politically touchy question of whether Canada is big enough to support two major airlines.

The Wall Street Journal