The termination of the proposed merger of Canada’s biggest and third-biggest airlines throws the future of the money-losing Montreal-based Transat into question.
The deal, announced in June, 2019, was slashed in price from $720-million in October, 2020, owing to the collapse in demand for air travel during the pandemic.
The deal received Canadian approval in February but was under examination by the European Commission, because both have large presences there. In a statement on Friday, Air Canada said it became apparent the EC would not approve the deal even after the airline offered concessions.
“After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic,” the company said in a press release. “Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.”
John Gradek, who teaches aviation leadership at McGill University, said it appears Air Canada walked away from the deal rather than suffering the embarrassment of being told what to do by a foreign regulator. “The European Union was playing chicken with Air Canada,” Mr. Gradek said, by demanding concessions and being patient. “It was a messy type of transaction.”
Margrethe Vestager, executive vice-president of the EC, said Air Canada and Transat did not offer enough concessions to allay antitrust concerns.
“The Commission’s preliminary findings were that the proposed transaction would raise competition concerns on a large number of transatlantic routes,” Ms. Vestager said in a statement. “Based on the results of the market test, the remedies offered appeared insufficient.”
Air Canada said the decision to cancel the takeover was mutual, and it will pay $12.5-million to Transat as a termination fee.
The end of the deal means Transat is free to seek another buyer or attempt to operate alone. The travel and tour operator halted operations on March 11 and also suspended service for four months in 2020 because of the pandemic, which caused demand for air travel to collapse amid border closings and travel restrictions.
An investment company headed by Quebec entrepreneur Pierre Karl Peladeau in December made an offer to pay $5 a share for Transat if the Air Canada deal fell apart. Mr. Peladeau said on Friday the offer still stands. In a statement, Mr. Peladeau said his bid “includes a rigorous business plan focusing on areas of the company with high growth potential, on expertise and job creation in Quebec and on the development of the head office in Montreal. It ensures, by maintaining an independent Air Transat, a competitive market for the benefit of Quebec and Canadian consumers.”
Christophe Hennebelle, a Transat spokesman, said the airline will pursue three priorities, including securing government financing, finalizing a restart plan and exploring “all strategic options, standalone or not, including examining Mr Péladeau’s offer.”
In March, Transat chief executive Jean-Marc Eustache said the airline was in talks to borrow $500-million after securing $250-million months earlier. “Our discussions with the government are at an advanced stage and we are confident we can do that in the next few weeks,” Mr. Hennebelle said in an e-mail.
Omar Alghabra, the federal Transport Minister, said in a statement that he had spoken with Transat and the two sides were “examining next steps.”
Pierre Fitzgibbon, Quebec Economy Minister, said the provincial government “will not leave Transat without support.” Quebec Premier François Legault, who co-founded Transat in 1986, has said the province was looking at different scenarios for Transat, with or without Air Canada.
WestJet Airlines Ltd., which had lobbied against the deal, applauded the work of the EC regulator. “We previously outlined the negative impacts this transaction would have on competition, consumer choice and airfares and remain focused on contributing to Canada’s recovery from COVID-19,” said Morgan Bell, a WestJet spokeswoman.
Air Canada did not say what concessions it offered the EC, nor what the regulators demanded. The EC’s investigation had been suspended on at least two occasions while it sought more information from the companies. An Air Canada spokesman did not immediately respond to a request for comment.
Air Canada’s deal, approved by the Canadian government in February with conditions, was worth $5 a share in cash, or a ratio of 0.2862 Air Canada share to a Transat share.
The conditions included that Air Canada retain 1,500 of Transat’s 5,000 employees, keep the Quebec headquarters and somehow protect Canadian consumers from higher prices and poorer service.
The Canadian government’s approval came despite a report from the country’s Competition Bureau in March, 2020. The antitrust watchdog criticized the proposal as bad for travellers, noting it would reduce choice and lead to higher airfares. Based on the airline market prepandemic, the combined companies would have controlled about 60 per cent of transatlantic flights, more when Air Canada’s partner carriers were taken into account, the Canadian watchdog said. The merged airlines would have controlled the majority of slots at airports in Toronto, Montreal and eastern Canada.
Air Canada has laid off more than 20,000 of its 38,000 employees and grounded much of its fleet. The airline has been in talks with the federal government for financial aid.
Canadian stock markets were closed on Friday for the Good Friday holiday. Transat shares closed at $5.49 on Thursday on the Toronto Stock Exchange. Air Canada shares closed at $26.45.
With files from Reuters
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