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Transat shareholders approved a $720-million acquisition offer from Air Canada in August, but the deal also faces scrutiny by European regulators.Ryan Remiorz/The Canadian Press

Canada’s Competition Bureau has issued an unfavourable opinion of Air Canada’s proposed takeover of Transat A.T. Inc., throwing the deal into further uncertainty as the airlines fight to stay viable amid a cratering of revenue.

“Eliminating the rivalry between these airlines would result in increased prices, less choice, decreases in service and a significant reduction in travel by Canadians on a variety of routes where their existing networks overlap,” the watchdog said in a news release issued late Friday.

The bureau’s analysis found that the deal would affect 83 overlapping routes, including 49 between Canada and Europe and 34 between Canada and sun destinations in Florida, Mexico, Central America and the Caribbean. It said Air Canada and Transat, which operates Air Transat, are the only two carriers offering non-stop service on 22 of those routes.

The bureau said its assessment draws on information collected before the COVID-19 pandemic, which has destroyed airline revenues and cancelled bookings as borders close and travel demand plummets. The airlines are widely expected to receive financial aid from Ottawa to help them get through the crisis.

Transat shareholders approved a $720-million acquisition offer from Air Canada in August, but the deal also faces scrutiny by European regulators eyeing the impact of a takeover that would see Canada’s biggest airline control more than 60 per cent of transatlantic air travel from the country.

Air Canada is offering $18 per share for Transat, a price that appears rich under the current circumstances, said Jacques Roy, a transportation management specialist at Montreal’s HEC business school. Transat shares are now trading at barely half that level, closing Friday at $9.49 on the Toronto Stock Exchange.

“If I were Air Canada and the Competition Bureau imposed conditions on me to get a deal done, I’d probably refuse and step away,“ Mr. Roy said. “We might be heading toward a renegotiation of the deal.”

Transat said in a statement that it remained confident a takeover will win approval from the government. It said the bureau’s role is limited to studying the impact on competition in the marketplace and does not take the public interest more broadly into account.

“Transport Canada’s assessment will provide a more comprehensive overview of the nuts and bolts of the transaction and of all the benefits for the Canadian public and economy,” Transat chief executive Jean-Marc Eustache said in a statement.

"Particularly against the background of the COVID-19 crisis, our transaction requires a broad perspective that takes into account the company's future, the protection of jobs, the advantages for travellers and the interests of all our other stakeholders.”

Air Canada said its priority for the moment is to cut costs, conserve liquidity and safeguard employees and passengers. “Given the unprecedented impact of the COVID-19 crisis on the airline industry and the state of emergency worldwide, we will consider the findings of the Competition Bureau in due course,” the airline said.

The Competition Bureau said its concerns are outlined in a report delivered to Transport Minister Marc Garneau. The report will inform Transport Canada’s own public interest review, which is scheduled to be provided to the minister by May 2.

The final decision rests with cabinet, based on a recommendation by the minister.

With files from Canadian Press

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