Failing Firm
PWA Corporation / Wardair Inc. (1989-1990)
In January 1989, PWA Corporation, the parent of Canadian Airlines International Ltd. (CAIL),
announced its proposed acquisition of Wardair Inc. The acquisition would have resulted, with few
exceptions, in scheduled domestic airline service in Canada being provided solely by CAIL and Air
Canada or their alliance partners. In March 1898, following the commencement of a comprehensive
examination of the proposed acquisition, the Director informed Wardair that evidence in support of a
search for alternative buyers was required. In March, 1989, the Director received an application by six
Canadian residents and as a result, initiated a formal inquiry under section 10 of the Competition Act.
Then Bureau concluded that the transaction raised serious concerns for competition in the domestic
airline industry. The evidence established that the merger would result in the elimination of a vigorous
and effective competition, that significant entry barriers existed and that there was little potential for
foreign competition. Balanced against these negative factors was the financial situation faced by
Wardair. Careful analysis of Wardair’s financial situation i ndicated that it would likely fail within a
matter of months. In considering the failing business factor under the Competition Act, two issues
arose: the extent to which failure was, in fact, likely to occur; and, whether there were any likely
alternatives to the merger that likely would be less restrictive of competition. During the course of the
merger examination, no possible alternative merger proposals to the acquisition by PWA Corporation
arose and accordingly the Bureau concluded that any anticompetitive effects arising in the market
subsequent to the merger could not be attributed to the merger because there were no alternatives
that would likely result in a more competitive environment.
Corporación Internacional de Aviación, S.A. de C.V. / Aerovías de México, S.A. de C.V. / Corporación
Mexicana de Aviación, S.A. de C.V (1995)
In 1995, Cintra, Aeroméxico, and Mexicana notified an operation that involved Cintra purchasing the
stock of Aeroméxico and Mexicana, giving Cintra control over the two other companies and their
subsidiaries.
In 1993, Aeroméxico had acquired control over Mexicana, with the authorization of the Ministry of
Communications and Transport of Mexico, before the Federal Economic Competition Law came into
force. The worsening of the airlines' economic and financial situation led to their being taken over by
creditor banks. Thus, when the notification was served, the banks held more than 60% of
Aeroméxico's capital, which in turn, either directly or indirectly, controlled 54.6% of Mexicana's stock.
Cintra was created at the initiative of the creditor banks in order to put Aeroméxico and Mexicana's
finances back on a sound footing. Thus, following the acquisition, Cintra would strictly be a holding
company. The corporate purpose of Cintra, in addition to solve the two airlines financial problems,
involved acting as a common ground between both companies' shareholders and creditors and
promoting the injection of fresh resources into the airlines. In other words, the operation would allo w
the corporate restructuring necessary to strengthen the two airlines and guarantee their survival. The
operation implied no modifications to the vertical and horizontal integration of Aeroméxico and
Mexicana.
The relevant market was restricted to that of regular cargo and passenger air transportation services,
given the scant substitutability between air travel and other modes of transport. Since Aeroméxico
and Mexicana have such a small participation in the international market, the relevant market was
restricted to the Mexican territory.
In the analysis of the companies' power over the relevant market, the Federal Competition
Commission of Mexico (FCC) took into consideration the effects observed within it during the years
the two airlines had been associated. The airlines had a joint market share of 65.3% in terms of
passengers transported. The FCC considered that to preserve the level of competition, the companies
had to be kept separate.
The analysis of the relevant market and of the power of the economic agents involved led to the
conclusion that competition would be affected by the weakening or disappearance of either
Aeroméxico or Mexicana. The Commission therefore decided to allow their financial and
ICN Merger Guidelines Workbook April 2006 Page 99