Skip to main content

Report on Business Air Canada and Transat, Onex and WestJet: A guide to Canadian airline deals

Latest news

  • Airline and travel company Transat A.T. Inc. has agreed to be purchased by Air Canada
  • Onex Corp. had slashed its offer for WestJet Airlines Ltd. due in part to the grounding of 737 Max aircraft

The Onex-WestJet deal

Private-equity firm Onex struck a friendly, all-cash deal to acquire Calgary-based WestJet for $3.5-billion, announced on May 13.

Under the terms, Onex would pay $31 apiece for all outstanding shares, or a 67-per-cent premium to the previous Friday’s closing price. The deal, which is subject to shareholder and regulator approvals, would take Canada’s No. 2 carrier private, after spending much of its lifetime as a publicly traded company.

Onex initially made a written, non-binding offer on March 25 of $35.75 a share. But the deal was lowered in part because Boeing Co.’s 737 Max planes – of which WestJet operates 13 and has another 57 on order – were grounded following two fatal crashes.

Story continues below advertisement

WestJet shareholders will vote on Onex’s offer on July 23.

This is not Onex’s first foray into aviation. In 1999, the company offered $1.8-billion to acquire and merge now-defunct Canadian Airlines with Air Canada. The hostile bid was eventually called off by Gerry Schwartz, head of Onex, following a legal setback in Quebec.

The WestJet deal came together quickly. Onex managing director Tawfiq Popatia said he first contacted WestJet in March. That led to a “pretty intensive period of dialogue" that finished with an agreement that WestJet’s board of directors approved on Sunday night.

After including WestJet’s debt, the deal is the biggest private-equity takeover of an airline in history, according to data provider Refinitiv.

The deal is likely to go through, according to a research note from Doug Taylor, an analyst at Canaccord Genuity Capital Markets. Notably, Onex is Canadian-based – there are foreign-ownership limits for airlines – and it has offered a high premium.

“We see no obvious reason why a sale to Onex would get struck down by regulators or shareholders,” Mr. Taylor said Monday.

Onex shakes up Canada’s airline industry with all-cash deal to buy WestJet

What does this mean for WestJet?

In many respects, WestJet has been struggling for some time, and the Onex takeover would give it some breathing room as its strategy evolves.

Story continues below advertisement

The airline industry is notoriously difficult and highly competitive; in WestJet’s case, rising fuel costs and the threat of a pilots’ strike have offered recent setbacks.

The struggles are reflected in its share price: Prior to Monday’s announcement, WestJet shares were down 46 per cent from a peak in December, 2014.

WestJet was launched in 1996 as a scrappy and price-competitive rival to major players, namely Air Canada. The company’s strategy has shifted over time, and now it is investing in new planes, adding new routes and looking to drive margins with higher-priced, business-class seats. WestJet also launched the discount subsidiary Swoop last year to compete with no-frills airlines flying to the U.S., Mexico and the Caribbean.

“WestJet was generally well funded and was already embarking on a large and highly competitive expansion plan,” Mr. Taylor said in his client note. “In our view, a private equity owner of an airline is likely to remain rational with respect to its approach to yields and profitability versus market share.”

WestJet currently employs 14,000 people, has a fleet of roughly 180 planes, and flies to more than 100 destinations throughout the world. The company’s founder, Clive Beddoe, said in a press release that WestJet would remain headquartered in Calgary after the Onex deal.

With Onex on board, WestJet gains much-needed breathing room to compete with Air Canada

The Air Canada-Transat deal

Transat has agreed to be purchased by Air Canada, marking the conclusion of a 30-day period of exclusive talks. The deal is worth $520-million, and if approved, would allow Canada’s largest carrier to take over the third-largest.

Story continues below advertisement

In May, Air Canada said it had entered exclusive talks to buy Transat at that sum, equivalent to $13 a share. At the time, Transat said its board of directors was approached by “several parties,” but opted to work exclusively with Air Canada.

“We are delighted to have reached this definitive agreement to combine Transat with Air Canada to achieve the best possible outcome for all stakeholders,” said Air Canada CEO Calin Rovinescu in a statement. “For shareholders of Transat and Air Canada, this combination delivers excellent value, while also providing increased job security for both companies’ employees through greater growth prospects. Air Canada intends to preserve the Transat and Air Transat brands and maintain the Transat head office and its key functions in Montreal.”

Pending regulatory approvals, the companies expect the deal to be completed in 2020.

Transat agrees to be bought by Air Canada for $520-million, shares slide

The reaction to Air Canada-Transat

The deal has come under scrutiny, in part because it would consolidate power in Canada’s airline industry.

In May, news of the exclusive talks news was generally welcomed by Quebec Premier François Legault. “If Air Canada buys Transat, we’ll find ourselves in Quebec with a solid head office that will be able to continue to develop,” he told reporters.

However, Mr. Legault said he wanted to make a deal with Air Canada to cap ticket prices on regional routes; Canada’s No. 1 air carrier is the only one that serves several smaller destinations in the province.

Story continues below advertisement

“Right now, there is abuse because there is a monopoly on certain domestic routes,” he said.

Further, shareholders have spoken up, saying Transat is worth more than Air Canada’s $13-a-share bid. Montreal-based Letko, Brosseau & Associates – which owns 17 per cent of Transat, according to recent filings – has already said it opposes the deal.

Moreover, Vancouver’s Penderfund Capital Management, which owns 4 per cent of Transat, said the company is worth at least $15 a share.

Two other Quebec-based investors, Fonds de solidarité FTQ and Caisse de dépôt et placement du Québec, hold a combined 18 per cent of Transat, according to Bloomberg data. In theory, the top three shareholders could work together to block the deal.

From April: Transat’s takeover offers send stock soaring, but stoke Quebec protectionist tones

The rival bid

Quebec real estate developer Group Mach Inc. made a competing offer for Transat in June.

Group Mach said it wanted to buy Transat for $14 a share, or higher than what Air Canada had proposed. Its offer was subject to various conditions, including that it would require financing from the Quebec government, along with a 25-per-cent investment from a Spanish real estate developer. It later amended its offer to scrap the need for Quebec funding.

Story continues below advertisement

What exactly does Transat do?

Transat sells flights, hotel stays and holiday packages to destinations in more than 25 countries across the Americas and Europe.

Based in Montreal, it has 5,000 employees. (When Transat first announced it was considering offers, there were concerns that Corporate Quebec would lose a homegrown company. However, Air Canada is also based in Montreal.)

Transat holds a 20-per-cent share of the summer transatlantic air travel market, according to a forecast from Transat’s most recent quarterly report. Should the Transat acquisition go through, Air Canada would have a clear majority of the market.

total transatlantic seats

Summer 2018

5.1 million

Forecast

Summer 2019

5.5 million

transatlantic market share*

Forecast Summer 2019

Transat:

20%

Air Canada:

43%

Air France-KLM: 11%

Lufthansa: 6%

WestJet: 6%

British: 5%

Other:10%

*By seat capacity between Canada and 15 European countries

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: transat inc.

total transatlantic seats

Summer 2018

5.1 million

Forecast

Summer 2019

5.5 million

transatlantic market share*

Forecast Summer 2019

Transat:

20%

Air Canada:

43%

Air France-KLM: 11%

Lufthansa: 6%

WestJet: 6%

British: 5%

Other: 10%

*By seat capacity between Canada and 15 European countries

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: transat inc.

total transatlantic seats

Summer 2018

5.1 million

Forecast

Summer 2019

5.5 million

transatlantic market share*

Forecast Summer 2019

Transat:

20%

Air France-KLM:11%

Air Canada:

43%

Lufthansa: 6%

WestJet: 6%

British: 5%

Other: 10%

*By seat capacity between Canada and 15 European countries

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: transat inc.

Transat does not break out sales by business segment, nor by geographic area, in its financial reporting. That said, company revenue has been flat for several years, and its share price remains a fraction of where it was in years past.

News of the Air Canada talks received a positive reaction from analysts.

“We think this is a great deal for Transat shareholders given it represents [a] 149-per-cent premium over the 20-day weighted average trading price prior to the [April announcement], particularly given the company’s profitability profile has remained volatile for some time,” said Laurentian Bank Securities analyst Mona Nazir in a client note. “Furthermore, the firm’s strategic shift to expand into the southern hotelier market had put pressure on valuation, and any positive results from this strategy shift would have taken years to materialize.”

Story continues below advertisement

With files from Globe staff

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter