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Air Transat and Air Canada aircrafts on the tarmac at Montreal-Trudeau International Airport in Montreal on April 8, 2020.

Paul Chiasson/The Canadian Press

The head of Transat AT Inc. Transat AT Inc. says the pandemic-related collapse in air travel underscores the need for Air Canada’s Air Canada’s takeover of the company even as the Montreal-based leisure airline seeks $500-million in financing in case regulators or shareholders reject the deal.

Shareholders of the airline and tour company will vote on Dec. 15 on Air Canada’s revised takeover offer, worth $5 a share, or $180-million. Air Canada slashed its offer from the $18 a share or $720-million agreed to in 2019 because of the impact of the pandemic on the air travel market.

Jean-Marc Eustache, chief executive officer of Transat, urged investors and regulators to approve the deal. “We have said many times in the past that the alliance with Air Canada was the best way forward for Transat and all of the stakeholders,” Mr. Eustache said on a conference call with analysts on Monday. “That is even more true in the context of the pandemic.”

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To weather a 96-per-cent drop in revenue, Transat has furloughed 75 per cent of its 5,000 employees, postponed the bulk of its plane-lease payments, refused to provide refunds for cancelled fares and permanently grounded part of it fleet. Transat secured a $250-million line of credit that expires at the end of March, and will have to borrow $500-million to make it through 2021, Mr. Eustache said, adding the federal government is one of the possible lenders.

Transat said the European Commission is expected to say by Feb. 9, 2021, if the agreement meets antitrust laws. The government of Canada also must approve the deal, and there is no deadline on its decision. Assuming approvals are received, Transat said the deal is expected to close by Feb. 15.

Benoit Poirier, a stock analyst at Desjardins, said Transat’s financial results, reported after markets closed on Friday, fell short of expectations. For the three months ended Oct. 31, Transat’s net loss attributable to shareholders was $238-million, and revenue was $28-million, a drop of $664-million in the fourth quarter of 2019. Transat had $426-million in cash on Oct. 31, and is burning through $50-million a month in expenses.

Transat’s share price fell by 8.8 per cent on Monday to close at $5.29 on the Toronto Stock Exchange. Mr. Poirier of Desjardins notes Air Canada’s offer, if taken entirely in shares, is worth about $7.49, and said Transat’s trading discount reflects doubt the deal will be completed, and raises doubt about Transat’s ability to avoid failure as a standalone company.

“As at October 31, 2020, there exists material uncertainty that may cast significant doubt on the corporation’s ability to continue as a going concern,” Transat said in a statement accompanying the financial results.

“No company is built to operate at near-zero revenue for nine months,” Mr. Eustache told analysts.

Transat said the source of the $500-million financing could be the federal government’s large employer lending program, or long-awaited airline sector financial aid. Mr. Eustache harshly criticized the federal government for failing to announce any airline aid, contrasting it with the assistance put forth by other governments to Transat’s global rivals, which are taking market share from Canadian carriers.

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“If this does not change, our foreign competitors will be in a much stronger position,” he said. “It looks like the Canadian airlines are being punished for their strong balance sheets before the crisis.”

Transat said it is not issuing a forecast, but said the rollout of vaccinations and airport testing will speed the recovery of the leisure air travel market.

Annick Guerard, Transat’s chief operating officer, said the carrier is flying 20 weekly routes, down about 90 per cent from the same period last year, in a period of “semi-hibernation.” However, Transat’s planes are 58 per cent full, exceeding the industry average of less than 50 per cent.

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