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Air Canada's parent company could file an Aeroplan preliminary prospectus as early as today for a $300-million initial public offering of trust units in the loyalty program.

The board of ACE Aviation Holdings Inc. discussed the Aeroplan spinoff late yesterday on a conference call, a source familiar with the transaction said.

The expected approval of converting ACE's Aeroplan subsidiary into an income trust would pave the way for an announcement for the IPO. ACE plans to sell a minority stake of less than 20 per cent in Aeroplan, which would be valued at more than $1.5-billion in total, sources say.

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ACE shares surged yesterday after The Globe and Mail reported that the frequent-flier IPO is imminent. ACE class B voting shares for Canadians jumped $2.40, or 7 per cent, to close at $36.40 on the Toronto Stock Exchange. ACE's restricted voting shares for foreigners also rallied for a gain of $2.35 to $36.40 on heavy volume. ACE shares have risen 82 per cent since they began trading last October.

Air Canada spokeswoman Laura Cooke declined comment yesterday. But industry observers say that Aeroplan's total value could rise to $1.8-billion, or double its estimated worth two years ago.

Aeroplan has more than 100 partners and has been diversifying its business into a variety of arrangements, including deals with retailers such as Future Shop Ltd. and Imperial Oil Ltd.'s Esso gasoline chain. Financial partners include Visa and American Express.

"Aeroplan isn't dependent on one customer. Otherwise, if Air Canada sneezed, Aeroplan would catch a cold. But with a bunch of partners, it increases Aeroplan's portfolio. It makes it more attractive as a business," said Karl Moore, a business professor at McGill University.

"There's growth potential there because Aeroplan competes for building customer loyalty broadly, not just as an airline frequent-flier program."

Donald Bell, WestJet Airlines Ltd.'s executive vice-president of guest service, said the discount carrier will remain competitive with Air Canada when it comes to wooing passengers with reward miles.

Montreal-based Air Canada founded Aeroplan in 1984, while Calgary-based WestJet joined the rival Air Miles program in 2000.

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"Aeroplan has had years and years to build its program up, but Air Miles works great for us," Mr. Bell said. "Our Air Miles program is definitely part of our strategy, and it's widely used and widely accepted, and we're seeing great uptake."

Competition for frequent fliers continues to heat up, with the goal of enticing consumers to earn miles. For instance, Hong Kong-based Cathay Pacific Airways Ltd. is introducing a Visa Platinum credit card with Royal Bank of Canada, said the head of Cathay's Canadian operations, Philippe Lacamp, who visited Toronto yesterday.

Air Canada, which emerged from bankruptcy protection last September, has been seeking ways to unlock what it sees as hidden value in its subsidiaries, including Aeroplan, the regional Jazz airline and Air Canada Technical Services, which performs aircraft maintenance internally and for outside parties. The technical services division has been the subject of recent speculation surrounding ACE's interest in investing $125-million (U.S.) in a planned merger of US Airways Group Inc. of Arlington, Va., and America West Airlines Inc. of Tempe, Ariz.

If ACE does decide to pump money into a US Airways-America West combination, the technical services unit would benefit by winning new maintenance contracts. Air Canada is also attracted by the prospect of expanding its base of U.S. passengers, including those wanting to catch flights to Asia via Vancouver.

Aeroplan stands to become a potential winner if ACE injects equity in a US Airways-America West deal, since the Canadian entity could administer the U.S. loyalty programs.

Jacques Kavafian, an analyst with Research Capital Corp., said ACE will be carefully weighing its options, knowing that the U.S. airline industry is fiercely competitive.

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"US Airways just may be the first of many opportunities that ACE will examine," he said in a research note yesterday. Mr. Kavafian added that if Aeroplan becomes involved with the U.S. airline merger deal, it could inherit management of the U.S. rewards programs.

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