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Call it the return of Hollis Harris. Just 12 months after losing his job as chief executive at Continental Airlines Inc., Harris is back--in a fashion. Now CEO at Air Canada, Harris is preparing a bid for Continental. Government watchdogs and airline insiders say Air Canada will join two Texas investors to offer $400 million for 71% of the troubled carrier. Such a bid would top two others for Continental--one by Houston investor Charles Hurwitz and a second by Alfredo Brener, whose family owns a stake in Mexicana Airlines.

Air Canada, which lost $246 million in its first half, is no white knight. But its bid isn't bad. The Hurwitz offer includes just $25 million in equity, while Air Canada's includes $100 million, half from the airline and half from Fort Worth investors David Bonderman and James G. Coulter. "It's certainly less desirable than having a British Airways invest in you," says analyst Philip Baggaley at Standard & Poor's Corp., but he calls Air Canada's offer the best so far. Counters a Hurwitz spokesman: "Continental doesn't need an alliance with a money-losing carrier."

SURVIVOR. Since taking Air Canada's top job in February, Harris has desperately sought to position the airline for survival in a world increasingly dominated by megacarriers. It serves a market 10% the size of the U.S. and is thought too small to go it alone. Earlier plans for a merger with Canadian Airlines fell through on Aug. 14. Air Canada recently announced a marketing link with United Airlines Inc., and a stake in Continental would give it a firmer position in the U.S. market and help it cut costs by combining some operations. Sources say Air Canada considers it a "win-win situation."

Still, some warn that Air Canada, already highly leveraged, endangers itself by buying into an airline that's financially weak, too. Michael Tretheway, a transportation expert advising the Canadian government, notes that Continental "has been a bottomless pit for a lot of investors." At the least, a third bid may well inspire still others to come in and kick the tires. Says a lawyer for the creditors: "The more the merrier."Seth Payne in Washington, William C. Symonds in Toronto, and Andrea Rothman in New York

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