Transat chief executive expresses incredulity at absence of government help for the aviation industry

Plea comes as company prepares for shareholder meeting that could derail a planned merger with Air Canada

A little more than nine months to the day since the global pandemic was declared, the Transat chief executive sounds bewildered by his own government.

“Where is the Canadian government?” asked Transat President and Chief Executive Officer Jean-Marc Eustache rhetorically during a conference call with analysts Monday. “And why is it not acting more resolutely to support the aeronautics and airline industry in this unprecedented situation?

“I have to say, it is impossible to comprehend,” he said.

Transport Minister Marc Garneau laid out his conditions for airline support on November 8. Conditions include such measures as refunding passengers their money for cancelled flights.

“A month has elapsed since then, and we’re still waiting for a phone call. Time is now of the essence,” said Eustache.

He, along with others in the airline industry, had hoped to hear some inkling of what the government had in mind last month when the finance minister delivered her Fall Economic Statement. While there were some measures for airports, for airlines, nothing.

“We have been very disappointed, to say the least, not to hear anything about our industry in the fall Economic Statement,” said Eustache.

His comments come on the eve of a crucial vote by Transat shareholders.

Will the Transat-Air Canada merger proceed?

Transat owners will meet virtually Tuesday morning to decide the fate of a merger with Air Canada. The blockbuster deal has been on the books since June 2019 – 18 months ago and well before the pandemic. It has gone through ups – Air Canada boosted its offer in August – and downs. In October, Air Canada revised its offer from $18 to just $5 a share.

That is the deal shareholders are being asked to approve.

A yes vote and the company’s fate will be in the hands of regulators. Transat is among the largest leisure companies in Canada. It specializes in flying routes to Europe in the summer and to sun destinations for people looking to escape the Canadian winter.

European regulators are conducting an in-depth review of the case. They are evaluating whether a merged airline would have too much control of the trans-Atlantic market. They have given themselves until February 9 to decide.

Canada’s competition bureau has already weighed in, expressing concerns about the merger’s impact. The deal is now in the hands of Transport Minister Marc Garneau who is conducting what’s called a public interest review. He has not indicated when he might act.

Air Canada and Transat have set a mid-February deadline to conclude their agreement. Transat’s board has unanimously urged a yes vote.

‘Are we prepared to continue on our own?’

If, however, shareholders vote no, Transat will be left to fend for itself.

In that case, Eustache estimates Transat will need $500 million in financing just to survive the next year. That’s on top of a net shareholder loss of almost half a billion dollars last year.

In that case, Eustache said management is considering a range of options. That could include Transat negotiating government financing that critics have said is more expensive than can be found on the open market.

“No company is built to operate at close to zero revenue for nine months,” said Eustache. “The mere fact that we are still standing is a tribute to how solid the balance sheets before the pandemic hit.”

The airline has received $106 million in federal wage subsidies since March, though Eustache said much of that went to people who would otherwise have been laid off. The real benefit to the airline was closer to $38 million.

The company has cut its workforce by around 75%, has suspended lease payments on some aircraft, and streamlined its fleet. Transat has seven new Airbus A321 long range aircraft in the fleet, with another three on the way in the coming months. That’s in addition to four older-generation A321CEOs. Transat is also trying to reduce its wide-body A330 fleet from 15 aircraft to 12. There is one lone Boeing 737-800 remaining in Transat colours, though Chief Operating Officer Annick Guérard said it “will not fly any more.”

“We strongly believe that when the crisis ends, we will have among the most efficient models in the market,” she said.

Executives believe leisure travel will be the first segment to pick up – whenever that might be.

Promise of the vaccine shines

For now, Transat is flying 20 weekly routes, with planes that were 58% full in November. Still, that’s better than an industry average of 43% load factor, they stressed.

“Travel demand is still low,” said Guérard. But news of the COVID vaccine’s deployment is giving the airline a shot in the arm – and some hope. “Over the last week, we have seen a little bit more booking, more movement, than what we have seen in November. So we are seeing a pick up, mostly for winter.”

That leaves Transat in a dark place, but with things looking brighter.

“The absolute desolation that COVID-19 has sewn across the aviation industry has not spared Transat,” said Eustache. “However, there we are. Ready for restart. Now that the promise of the vaccine shines.”