Air Canada

Transat merger with Air Canada hangs in the balance

Airline says industry has been “completely transformed” since merge was announced

Transat still hopes to complete its merger with Air Canada by the end of the year

Transat
An Air Transat Airbus A330 departs Vancouver International Airport in July 2019 (photo: Brett Ballah).

Air Transat’s planned merger with Air Canada appeared less certain Thursday, with Transat executives making their most extensive comments on the acquisition since the pandemic began.

Transat reported a $259 million loss in the first nine months of the year, including an operating loss of $132 million in the second quarter. As a result of COVID, the airline flew only nine days in that time. Transat said revenues were only $9.5 million between May 1 and the end of July. Sales were down 98.6% from the same time last year.

The airline suspended all flights April 1. It resumed a limited schedule July 22.

“It’s time for the government to provide targeted support for the airline sector to ensure the existence of a competitive industry in Canada over the long term,” said Transat President and Chief Executive Officer Jean-Marc Eustache.

He warned Transat may be forced to lay off 2,000 employees, 40% of its staff. And he does not expect a significant recovery in flights until the Canadian government lifts border restrictions that ban most non-citizens from the country and impose quarantine periods on those entering the country.

“What really matters now is our liquidity,” he said.

Conserving cash

Transat is flying to 17 destinations this summer, using six new Airbus A321 long-range aircraft. The airline said load factors were 58% in July and 53% in August. Most passengers were younger people going to visit friends and relatives.

To conserve cash, Transat is negotiating with leasing companies to return its shrinking fleet of Boeing 737 and some of its Airbus A330s. The plan is to be left with only two types, the A330 and the A321.

Uncertainty around the pandemic is raising doubt about the proposed merger with Air Canada. The two airlines announced their marriage more than a year ago in a blockbuster $720 million deal. Since then, Transat executives have been supportive, but largely reserved comment. Until today.

The company said it remains committed to the deal, but that factors beyond its control “could influence the outcome of the proposed arrangement.”

Merger conditions loom

Canadian and European regulators are examining the Transat merger, particularly for its impact on trans-Atlantic travel. Europe has set a deadline of December 11 to issue a decision, though Eustache cast doubt on whether regulators would be able to meet it. “I would not bet on it,” he said.

Eustache said European regulators have been particularly demanding.

“It’s unbelievable,” said Eustache in a conference call with analysts. “They’re asking for thousands and thousands of documents. I think we sent more than 100,000 pages of reports to Europe. Europe, I don’t know, they live in another world from me, that’s for sure.”

“I never thought that i would wait so long to do a transaction.”

The merger agreement allows the airlines to extend their final deadline in one-month increments until the deadline, something Eustache said he intends to do.

“Today, it is the 27th of December,” he said. “So tomorrow if they push more, we will have to have a discussion with Air Canada and decide together do we want to continue and do they want to continue? Yes or no?”

“Among other things, the vast majority of North American, European and international air carriers have requested financial assistance measures, but have had to implement reductions in capacity (as the Corporation did),” the company said in a statement. “This context could impact the obtaining of approvals from regulatory authorities, especially regarding the appropriate package of remedies aimed at obtaining those approvals.”

“We are still awaiting regulatory approvals,” said Eustache in a conference call with analysts. “In Canada, the decision may come at any time.”

Uncertain outlook

On top of cutting costs, Transat is looking to shore up its cash reserves. Transat burned through $157 million in cash in the second quarter.

“We are in advanced discussions to set up additional financing,” said Denis Pétrin, the Chief Financial Officer. Those negotiations could be vetoed by Air Canada.

Guérard said passengers are waiting to the last minute to book. The domestic market is the strongest, she said, followed by France and Portugal. That follows a world-wide pattern.

“We have prepared multiple scenarios ready to be deployed,” said Transat Chief Operating Officer Annick Guérard. “We have no clear visibility on what’s going to be the upcoming demand.”

The key will be the airline’s ability to quickly add or reduce capacity in the fall and winter.

“We see that the south market is picking up compared to the summer,” said Guérard. Transat plans to add popular leisure destinations such as Cancun and Punta Cana for the winter.

“It seems that in Canada our industry doesn’t exist,” said Eustache. “Look at the airports, it’s the same problem. Look at NAV Canada. Look at all the tourism companies in Canada. Nobody is helping this industry.

“I don’t know why,” he said. “We’re all crying, talking to every minister that we know. They all say ‘yes, yes, we’re going to help you one day. We understand you.’ And thank you very much and good-bye. That’s it. We don’t hear about them any more.”

Executives said they were hopeful leisure travel would rebound to pre-pandemic levels, especially once a vaccine is developed.

“We know from all [previous] crises, once the people feel comfortable, they will start to travel again,” said Eustache.

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Categories: Air Canada, Air Transat

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