Royal Aviation Inc. and Canada 3000 announced Monday they plan to join forces and become Canada's second largest passenger airline. Montreal-based Canada 3000 will buy Royal for $84 million in shares.

Canada 3000 says it is offering one of its shares for every 2.5 shares of Royal, adding the plan is supported by the boards of directors of both companies.

The combined company says it will employ 4,000 people across Canada and around the world.

"We are delighted that Royal and Canada 3000 have agreed to come together," John Lecky, chairman of Canada 3000, said in a release.

"Truly international airline"

"The combined airline represents an excellent fit and brings together Canada 3000's long-haul, international services with Royal's short-haul domestic capabilities. This will be a truly national and international airline, offering frequency, the lowest fares and broad-based excellent service," he said.

Canada 3000 said it has a lockup deal for 45 per cent of Royal's shares, held by a single shareholder. If Royal backs out, the breakup fee is $3 million and the offer requires the acquisition of two-thirds of the shares.

"The combined company represents an excellent platform for dynamic growth in the business market," said Royal chief executive Michel Leblanc, adding he expects more jobs to be created.

Leblanc would join Canada 3000 as vice-chairman and managing director for Canadian scheduled services, based in Montreal.

"The creation of a larger alternative airline should also be welcome news for Canada's travelling public," said Angus Kinnear, president of Canada 3000.

"The enhanced organization will have a fleet of 34 aircraft, with further 10 aircraft on order. The current 30 domestic city pairs served by the combined airline is expected to grow to over 40 domestic city pairs by this summer," he said.

Investors pleased

Investors liked the news of the merger, as Royal shares jumped 36.72 per cent in early morning trading Monday to $3.50 up 94 cents. Canada 3000 dropped 20 cents however, to $10.

Canada 3000 began flying in 1988 and now serves over 90 destinations worldwide, with global routes extending from Sydney, Australia, to Vienna and connects 25 city pairs across Canada. It employs 2,500 people and carried three million people last year.

Royal Airlines was founded in 1992 and is headquartered in Montreal. It employs over 1,500 people across Canada.