Air Ontario Inc. was established in June 1987, when James Plaxton purchased Great Lakes Airlines prior to its bankruptcy, and Air Ontario Ltd. (formerly Great Lakes Airlines, formed in 1958) was formed.
In January 2001, a newly merged carrier called Air Canada Regional Inc. was established. A wholly owned subsidiary of Air Canada, this company combined the individual strengths of four regional airlines—Air BC, Air Nova, Air Ontario, and Canadian Regional Airlines. Consolidation of these four companies was completed in 2002 and was marked by the launch of a new name and brand—Air Canada Jazz.
On March 10, 1989, Air Ontario Flight 1363, a Fokker F28-1000 Fellowship C-FONF, crashed near Dryden, Ontario immediately after take-off en route from Thunder Bay to Winnipeg via Dryden. The aircraft crashed after only forty-nine seconds after liftoff because it was not able to achieve enough altitude to clear the trees beyond the end of the runway due to ice and snow on the wings, causing the death of 21 of 65 passengers and 3 of 4 crew members. Some of the survivors were able to escape from the plane on their own but the others were carried to safety. The accident happened because the APU (auxiliary power unit) did not work, so the crew had to keep one of the engines running at Dryden. However, the necessary de-icing was only authorised if both the main engines are stopped, Air Ontario forbidding the use of de-icing if one of the engines was running due to the possibility of the fumes being sucked into the air conditioning. Furthermore, if the pilots had shut down the engines, with no APU and with Dryden airport not having the facility to restart the engines, the plane would have been stranded - a catch 22 situation that was exacerbated by an extended wait on the taxiway while priority was given to an incoming Cessna.