Canada 3000 seeking damages against former Royal top execs

Canada 3000 Inc. is seeking $45 million in damages in a lawsuit against former top executives of Royal Aviation Inc., a Montreal-based airline it took over earlier this year, reports the Canadian Press.

The airline filed a statement of claim in Ontario Superior Court of Justice, seeking $40 million in damages from Michel Leblanc, former chairman and president of Royal; the company itself, Groupe Royal Aviation Inc.; and Roland Blais, former chief financial officer.

Canada 3000 also wants another five million in punitive and other damages.

The airline, Canada’s second largest, has accused the executives of fraud, negligence, breach of contract and misrepresentation with regard to financial status of Royal Aviation, Inc.

The statement of claim alleges that during negotiations in late 2000 and early this year, Leblanc assured Canada 3000 that Royal was in a position to make $12 million in annual profits for fiscal 2001, all the while knowing that that representation was false.

Canada 3000 says it would have been essential to have an accurate statement of Royal’s actual and anticipated profits because the price it paid for Royal was based on a multiple of the Montreal-based airline’s pre-tax profits.

Canada 3000 bought Royal and Halifax-based CanJet Airlines earlier this year. The $84-million, stock-swap deal for Royal was announced in January while news of the CanJet takeover, worth $7 million, came out in late March.

The deals were made as the North American economy began slowing down, squeezing revenues of the major air carriers. Meanwhile, rising fuel prices and other cost increases took a bite out of profits at most airlines.

“We have made considerable progress in integrating Royal’s operations with those of Canada 3000 and CanJet, but we are disappointed with some of the issues we were forced to deal with when we formally took over Royal,” Canada 3000 chairman John Lecky said in a release late Tuesday announcing the lawsuit.

In the year ended April 30, Canada 3000 reported profits of $18.1 million, more than double the $8.5 million it made last year.