The Canadian government has approved the merger of Air Canada and Air Transat, despite competition concerns. Federal Transport Minister Omar Alghabra announced the decision Thursday afternoon.

“Given the devastating impact of the COVID-19 pandemic on the air industry, the proposed purchase of Transat A.T. by Air Canada will bring greater stability to Canada’s air transport market,” he said. “It will be accompanied by strict conditions which will support future international competition, connectivity and protect jobs. We are confident these measures will be beneficial to travellers and the industry as a whole.”

The announcement ends doubt about the Canadian government’s position. It comes after what’s called a public interest review. The government heard from Canadians and interest groups. The review was completed in May 2020. The minister did not say why the Cabinet waited another nine months before issuing its decision.

The approval comes despite concerns from the Competition Bureau about the deal’s impact on trans-Atlantic competition. Before COVID, the combined airline would have controlled more than two-thirds of the market between Canada and Europe. There’s no clear indication how that market will shape up post-pandemic. Canada’s airlines argue their share of the overseas market has diminished.

COVID-19 was a key factor in the government’s decision, the minister said. Transat executives cast doubt on their ability to continue operations. The leisure carrier would need $250 million in financing to survive the year, if the merger did not go ahead.

Air Canada originally agreed to pay $18 a share for Transat. But when the pandemic hit, Canada’s largest carrier slashed its offer to $5 a share. Transat shareholders approved the revised offer December 15.

Disapproval in Quebec

“The Government of Canada has determined that the proposed acquisition offers the best probable outcomes for workers, for Canadians seeking service and choice in leisure travel to Europe, and for other Canadian industries that rely on air transport, particularly aerospace,” the minister decided.

The approval drew swift condemnation in Quebec.

“Wrong decision by the minister,” wrote Bloc Québécois MP Xavier Barsalou-Duval on Twitter. “COVID is not forever and there were other options.”

Quebec businessman Pierre-Karl Péladeau fought the takeover, making his own offer to buy Transat. But Transat executives dismissed his overtures.

“Always difficult, if not impossible to understand the [Trudeau government],” Péladeau Tweeted. He accused the government of authorizing the creation of a “dominant player who will raise prices.”

“The government should have helped the aviation sector,” said Barsalou-Duval.

Mauvaise décision de la part du ministre @OmarAlghabra. La COVID n’est pas éternelle et il existait d’autres options.

Il s’agit d’un précédent dangereux en matière de concentration des parts de marchés.

Le gouvernement aurait dû aider le secteur aérien.https://t.co/mx9uo7WNnd

— XavierBarsalouDuval (@XBarsalouDuval) February 11, 2021

Ottawa attaches conditions to the Air Canada – Transat merger

Ottawa says the Air Canada – Transat merger is subject to a number of conditions. Among them, according to the government:

• Measures to facilitate and encourage other airlines to take up former Transat A.T. routes to Europe;
• Preserving the Transat A.T. head office and brand in Quebec;
• Commitment to facilitate aircraft maintenance in Canada, prioritizing contracts in Quebec;
• A price monitoring mechanism;
• Launch and operation of new destinations within the first five years; and
• Employment commitment of 1,500 employees around the new entity’s leisure travel business.

Before the pandemic, Transat employed some 7,000 people. It has shut down operations until at least April as a result of COVID-control policies. The company did not reply to a request for comment.

The decision comes on the eve of Air Canada publishing its annual results for 2020. The airline has been bleeding cash as a result of the pandemic and has cut dozens of routes and thousands of employees.

The European Union is conducting its own assessment of the merger. A decision is expected any day.

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