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Tails of Air Transat and an Air Canada aircraft are seen on the tarmac at Montreal-Trudeau International Airport, in Montreal, on April 8, 2020.Paul Chiasson/The Canadian Press

Transat AT Inc.'s largest shareholder called Air Canada’s reduced offer for the Montreal-based airline and travel company attractive but said he will wait to see whether another suitor comes forward before backing the revised bid.

Transat said on Saturday it is recommending shareholders accept a takeover worth $5 in cash or shares from Air Canada, a steep discount from the all-cash $18 offer the two sides agreed to in 2019, before COVID-19 devastated demand for air travel. The deal, which requires Transat investors’ approval at a vote expected to be held by early December, requires approvals of regulators in Canada and Europe and expires on Feb. 15.

Peter Letko of Montreal-based money manager Letko, Brosseau and Associates, which owns 15 per cent of Transat and 9 per cent of Air Canada, said the new offer of $190-million, down from $720-million, is fair and reflects the damage caused by the pandemic. He said Air Canada’s move to offer shares instead of cash is a “clever” one that could allow battered Transat investors a shot at seeing gains after steep stock-market declines.

“I’m pleased to see that Air Canada is still interested in Transat. It speaks to the value of the franchise that Transat has built over the years,” Mr. Letko said, adding he is not ready to commit to the deal. “I want to wait and see if anything else comes up,” he said by phone.

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Fear of illness and government travel restrictions have caused demand for air travel to collapse since March. Air Canada has reduced its capacity by as much as 90 per cent, laid off 20,000 workers and posted deep losses as fixed costs eat up about $16-million a day. Air Transat resumed a sharply reduced schedule on July 23 after a four-month halt, and posted a net loss of $45-million in the latest quarter. Sales fell by $690-million to $9.5-million. Doubts about the fate of the Air Canada takeover and the pandemic sent Transat’s share price plummeting to less than $4 last week, from $16 in February.

Transat’s share price rose by 26.1 per cent to close at $4.83 on the Toronto Stock Exchange on Tuesday, reflecting investor confidence the Air Canada takeover will proceed.

Mr. Letko was among the Transat investors who pushed for a higher price from Air Canada in 2019, before the airline raised its offer to $18 a share. Montreal real estate investor Groupe Mach Inc. joined the bidding war, while FNC Capital was preparing a bid.

In August, 2019, Transat shareholders accepted the offer made by Air Canada, giving the country’s biggest airline access to Transat’s coveted fleet of Airbus planes at a time its 24 Boeing 737 Max planes were – and remain – grounded.

According to the revised deal unveiled on Saturday, Transat must pay at least $10-million to Air Canada if it accepts an unmatched offer worth $6 a share or more. If the deal fails to receive regulatory approval, Air Canada will pay Transat as much as $30-million.

Dominik Pigeon, president of FNC Capital, said on Tuesday he has no interest in making an offer for Transat. “In the current situation, with the [COVID-19 pandemic], the market is no longer the same and without the help of governments for Transat, the [Air Canada] scenario could perhaps be the only viable solution today,” Mr. Pigeon said in an e-mail.

Alfred Buggé, an executive vice-president of Groupe Mach, said the company will not mount a rival bid, given Transat and Air Canada appear “joined at the hip.” He noted the takeover was far from a sure thing, given the required shareholder and regulators' approvals.

Asked about Air Canada’s revised offer for Transat during a news conference Tuesday, Quebec Premier François Legault struck a cautious tone. The Premier, a former Air Transat executive, said the market capitalization of both companies has declined as the outlook for the air travel industry has worsened.

He characterized the possibility that a competing offer will emerge to challenge Air Canada as “hypothetical.” “I’m not aware that there is a private buyer that would be interested in buying Transat for the time being,” Mr. Legault said. A “serious” buyer would need to materialize before Quebec weighs throwing its support behind a rival bid, he said.

The Quebec government has said previously that it would consider requests for financial backing from bidders for Transat that support its political objectives for the company – namely, maintaining Transat’s brand, head office and as much employment as possible in Quebec.

European Union antitrust regulators have set a Dec. 11 deadline for their report on the proposed deal. In Canada, a decision from Transport Minister Marc Garneau is required, but has no deadline.

A report from Canada’s Competition Commissioner in March criticized the proposed takeover as bad for consumers, noting it would likely lead to higher airfares, fewer choices and decreased service. That report, along with a public-interest assessment by Transport Canada, will inform Mr. Garneau’s decision.

Transat said the new agreement allows it to borrow $250-million, a move restricted under the original deal, which had an expiry date of Dec. 27. Transat said it was likely that the first agreement would have fallen apart on that date, given the challenges of receiving regulatory approvals by then.

“It’s good news to see the transaction go ahead and it’s good news to have access to some financing,” Christophe Hennebelle, a spokesman for Transat, said on Tuesday.

Air Canada declined an interview request. A spokesman for the Fonds de solidarité FTQ, the second-biggest Transat investor at 11 per cent, said the labour fund is still analyzing the revised offer and hasn’t made a decision to support it.

The Caisse de dépôt et placement du Québec, Transat’s third-biggest shareholder at 6 per cent, declined to comment.

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