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VANCOUVER, British Columbia (Reuters) - Jazz Air LP has dropped its damages suit against small Canadian rival Porter Airlines Inc and the Toronto Port Authority, Porter said on Tuesday, as Jazz gears up for a hoped-for return to Toronto's downtown airport next year.
Porter, a privately held, three-year-old airline flying short-haul routes in Eastern Canada and the U.S. Northeast, has a monopoly on commercial flights out of Toronto City Center Airport until next spring.
The airport is located on the Toronto Islands, just minutes from the downtown financial district, and has become a hit with business travelers because of its proximity and Porter's business-class-for-all service.
"The assumption would be that there has been some back-room negotiations. Perhaps we will see an announcement about Jazz flights resuming in the next few months," said analyst Michael Mills, who researches Jazz for Halifax-based investment dealer Beacon Securities.
Jazz, which flies regional routes for Air Canada, the country's biggest carrier, is continuing its action in Federal Court against the Toronto Port Authority, the federally regulated agency that oversees the island airport.
"We are looking for fair and equal access to a federally owned and operated facility ... Our ultimate aim is to return to the island airport and resume service," said Angela Mah, a spokeswoman for Air Canada, which has pursued Jazz's claim that it should be allowed to operate from the airport.
Jazz flew out of the airport until 2006 when it was forced to leave by a company controlled by Porter Chief Executive Robert Deluce. It now flies out of the much larger and busier Pearson International Airport, some 45 minutes by car from downtown.
Jazz launched a C$10 million-plus ($9.5 million) suit in the province of Ontario against Porter and the port authority in 2006, seeking damages for, among other things, an alleged conspiracy and breach of the Competition Act.
It has now dropped these claims as well as allegations it made that Porter had been acting unlawfully and in bad faith, Porter said.
The Toronto Port Authority announced last week that it had received "expressions of interest from several parties" about introducing additional commercial flights at City Center Airport. It said it was looking into these.
Deluce told Reuters last month that he expects Porter to be profitable this year, no small feat for an upstart carrier in one of the severest downturns in the airline industry.
Porter said it hasn't dropped its counterclaim against Jazz and Air Canada for damages of C$850 million and a declaration that a capacity purchase agreement between the two carriers is unlawful.
"The litigation by Jazz was entirely without merit and a heavy-handed attempt to overwhelm Porter when it was just starting up," Deluce said in a statement.
Jazz's units were up 1 Canadian cent at C$4.44 on the Toronto Stock Exchange on Tuesday afternoon. Air Canada's B shares were off 2 Canadian cents at C$1.42.
Reporting by Nicole Mordant; editing by Rob Wilson