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Transat’s share price fell almost 3.5 per cent to about $5.30 on Monday on the Toronto Stock Exchange.

Fred Lum/The Globe and Mail

Transat A.T. Inc. has again delayed the closing deadline of its takeover by Air Canada, amid mounting questions about the fate of the $720-million deal.

Transat said on Monday it has delayed the closing date of the deal until Aug. 27, after pushing it back until July 27, as both sides await approvals by Canadian and European Union regulators.

“Since the European Union’s decision is now expected between Sept. 30 and Nov. 19, and there is no defined date for Canada’s decision, we intend to use as many of those one-month periods as necessary,” said Christophe Hennebelle, a spokesman for Montreal-based Transat.

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The initial date on which either side was able to walk away from the deal was June 27. Air Canada or Transat are allowed to extend this date at their “sole discretion” by one month on three occasions, and another three times provided certain conditions are met.

The agreement approved by Transat shareholders requires Air Canada to pay Transat as much as $40-million if the deal fails to receive regulatory approval.

Transat’s share price fell almost 3.5 per cent to about $5.30 on Monday on the Toronto Stock Exchange, well below the $18 Air Canada agreed to pay. The shares plunged in March as the COVID-19 pandemic spurred governments to close borders and advise against travel.

Transat halted operations and laid off much of its workforce in response, but recently resumed a small number of flights.

Air Canada spokesman Peter Fitzpatrick confirmed in an e-mail the date has been extended but did not address questions about how the pandemic has changed the business case for the deal.

Transat shareholders in August approved Air Canada’s takeover, after the larger carrier raised its offer from $13 a share amid pressure from Transat shareholders and would-be rival bidders. Transat’s updated fleet of fuel-efficient Airbus planes made it an attractive target for Air Canada, which found itself facing the prospect of stiffer competition from WestJet, recently purchased by deep-pocketed Onex Corp.

Jacques Roy, a professor and transportation expert at HEC Montreal, said the takeover still has a chance but at a reduced price.

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The Transat deal offered Air Canada access to new European holiday markets as well as its tour business. “For Air Canada, it was a way to diversify,” he said by phone. “But this is all history now.”

Air Canada has said travel demand will not recover to 2019 levels for three years, and that business and international travel fares will be laggards.

An optimist would say the deal will still be attractive in two or three years, Prof. Roy said, “but I’m not sure it’s worth the same money.” He noted Transat struggled to be profitable in the past few years – before the pandemic struck – even as Air Canada and other carriers expanded their operations and enjoyed rising profits.

Airlines are low-margin businesses dependent on favourable currency-exchange rates, low fuel prices and robust economies that facilitate travel.

Transat lost $33-million in 2019, after making $6.5-million in 2018 and $148-million in 2017. Transat had $1-billion in cash or cash equivalents on April 30, and is not in immediate danger of running out of money. “But the whole idea is not to survive – it is to be successful,” Prof. Roy said.

The combined companies would control about 60 per cent of transatlantic traffic and 45 per cent of seats to Caribbean holiday destinations, warned Canada’s Competition Bureau, which said the combination of the two companies would limit travellers’ choices and drive up air fares. The Competition Bureau’s report and an assessment by Transport Canada will inform a decision on the merger by the Canadian government.

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As it launched a closer study of the deal, the European Union’s competition regulator said in May the takeover could limit competition on 33 routes, and that Calgary-based WestJet Airlines is too small to present much of an alternative.

Air Canada has laid off 20,000 people – more than half its work force – and cancelled much of its schedule. The airline recently added some routes, but has ceased serving several communities. Calin Rovinescu, Air Canada’s chief executive, has been a vocal proponent for opening borders and lifting travel restrictions, saying the rules are hampering the industry’s recovery. The airlines point to heightened efforts to prevent the virus from spreading, including mandatory masks in airports and on planes, and heightened sanitation efforts.

However, the Canadian government has not withdrawn its travel quarantine requirements and advisory against non-essential travel, saying the measures are needed to limit the spread of the deadly virus.

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