Air Canada has proposed buying its Montreal-based competitor in $720 million deal
A microscopic virus is raising fresh doubts about a business deal that would reshape the future of Canada’s aviation industry. For the first time, Transat, one of the world’s largest tour operators, warned Thursday that factors outside its control, including the global pandemic, “could influence the outcome” of a proposed merger with Air Canada.
“One thing is certain,” said Transat President and Chief Executive Officer Jean-Marc Eustache in a conference call with industry analysts. “The travel industry is going to be profoundly transformed.”
“We remain firmly committed to this transaction and to the commitments we made to Air Canada,” he said. “However, it must be noted that several factors beyond our control could influence the outcome of our arrangement.”
Read: we hope this deal goes ahead, but we’re not so sure anymore.
“The market conditions of the world industry have been completely transformed by COVID-19,” said Eustache. “On the one hand this is impacting our operation and cash flow and could force us to take a number of measures in response” including taking on more debt.
Transat’s deal limits how much debt it can take on without Air Canada’s approval.
“On the other hand, it could also impact the ability to reach an agreement with the regulatory authorities on an adequate set of corrective measures to secure the necessary regulatory approvals.”
Transat and Air Canada agreed to merge in August in a blockbuster deal worth $720 million. The merged company would control a whopping 60% of the market between Canada and Europe, raising concerns from competition watchdogs on both sides of the Atlantic.
In buying Transat, Air Canada would get a leading leisure airline, along with its overseas hotel properties. Perhaps the biggest prize for Air Canada would be Transat’s fleet of brand new Airbus A321neo long-range aircraft, and its slots in Paris, Rome, and other European hotspots. Air Canada has said it would continue to operate Transat as a separate company.
Canadian Transport Minister Marc Garneau has received reports from Canada’s Competition Bureau – which worries about the deal’s impact on competition – and from his own ministry. Garneau has not said whether the deal will be allowed to proceed.
“In normal circumstances we were expecting answer I would say before the politicians go on holidays,” said Eustache. “Today, with what’s happening, same thing I suppose for the government, they are very busy so when the minister will give his decision, we have really not an idea. We hope it will come soon.”
Transat has already pushed back a June 27 deadline by one month, but said the deal must cannot be extended beyond December 27, 2020.
Transat also announced Thursday it will relaunch a limited schedule of flights to Europe, Mexico, and the United States starting July 23, subject to government border restrictions. Executives said Air Canada did not have a say in the decision.
Transat expects Canadians to spend between $36 billion and $62 billion this year on tourism, down 35-59% from last year. That drop directly affects leisure carriers like Transat. The trick is for Transat to remain viable until its merger closes.
“We will do everything to continue and we hope really to do it with Air Canada it will be a stronger airline Transat and Air Canada,” said Eustache. “But, as I said, today, nobody knows what’s going to happen tomorrow. Can you tell me when the borders are going to be open? Can you tell me when the people will travel, will go on the plane?
“Tell me what’s going to happen, and I’ll tell you what’s going to happen for Transat.”
A June 2 report in the Journal de Montréal quoted three unnamed sources suggesting Air Canada was looking for ways to back out of its deal.
Eustache said his company has seen plenty of crises over its 42-year history. The pandemic, he said, is just the latest, suggesting it should not dissuade Air Canada from going ahead with the purchase – or regulators approving it.
“In this one, we had a bit of cash in the bank account,” said Eustache, “we took all the measures to go through this terrible crisis, and we will take all the measures to continue, like we did all the time. Nothing new for us, we’re used to that.”
As for his suitor’s intentions, Eustache sounded a slightly frustrated tone.
“If you want to ask questions about Air Canada, you should ask Air Canada. Because me, I cannot answer for Air Canada.”