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Air Canada will not buy Air Transat

To the point

Air Canada decided not to conclude Air Transat's acquisition, especially because of the serious economic consequences of COVID-19.

Air Canada's agreement to acquire Transat terminated

Air Canada and Transat A.T. Inc. Agree to Terminate Arrangement Agreement

As previously disclosed, the acquisition was conditional on the approval of various regulatory authorities, including the European Commission (“EC”). In order to meet that key condition, Air Canada offered and enhanced a significant package of remedies, which went beyond the commercially reasonable efforts required of Air Canada under the Arrangement Agreement and what has been traditionally accepted by the EC in previous airline merger cases. Following recent discussions with the EC, it has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package.

And to follow:

After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic. Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.

Air Canada will pay a termination fee of $12.5 million to Transat.

Our Comment

The first memorandum of understanding in June 2019, prior to COVID-19, had a purchase price of $720 million. This was later reduced to $190 million as a result of the pandemic.

As of February 15, the parties were no longer bound by this acquisition and could withdraw from it at any time. So that’s what Air Canada and Air Transat are doing together today.

Air Transat is therefore in a very delicate position with a dry cash flow and grounded aircraft. The airline needs to raise $500 million to get through its fiscal year-end on October 31.

The CEO Jean-Marc Eustache has been working for several weeks to find an alternative solution, especially with Pierre Karl Péladeau having shown interest. He is also in talks with Investissement Québec.

Air Transat has a fleet of A321 LR aircraft, which is ideally suited for transatlantic flights in the current market conditions: however, these flights must be able to resume without the hotel quarantine and other measures that have plagued the sector in recent months.

A321LR AirTransat MSN8755 02
Air Transat A321LR - Credit: Airbus

It should also be noted that Transat does not plan to reimburse approximately $574 million in deposits made by its customers. Unless the federal government comes up with a plan to support the sector.

It’s a delicate situation for employees, customers and shareholders (the share closed at CAD 5.49 on April 1: what will happen when the markets open at the beginning of the week?)

Unless Transat pulls a card out of its hat this weekend!

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