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Report on Business Airline battle heats up as Montreal real estate investor submits rival bid for Transat

The battle for Transat A.T. Inc. appears set to heat up as Montreal real estate investor Group Mach Inc. submits a formal offer for the airline and vacation company that is still in talks for a friendly takeover with Air Canada.

Vincent Chiara, chief executive officer of Mach, said Thursday afternoon he would file a formal takeover proposal with Transat by evening for a deal worth $14 a share – trumping Air Canada’s preliminary $13 offer.

Earlier in the day, Transat CEO Jean-Marc Eustache said he did not consider Mach’s interest in the company, announced in a June 4 news release, to be an official bid yet and therefore wouldn’t comment on it. The Air Canada talks that began in late May will continue until June 26, he added. ”Should any other proposal be communicated to the company before or after the end of the exclusivity period, it will be addressed by our board of directors,” Mr. Eustache said.

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Some investors, however, are betting that the company will be sold for more than Air Canada is offering. Transat shares crept up on Thursday to close at $13.39, just shy of last week’s high of $13.40 and 3-per-cent higher than the Air Canada bid.

Two big shareholders in Transat have said Air Canada’s all-cash offer, worth $520-million, is too low or poorly timed, raising doubts it will receive the required two-thirds approval from shareholders. FNC Capital of Montreal has also told The Globe and Mail it is interested in submitting an offer for Transat.

Mach said in a news release last week that its offer is conditional on $120-million in Quebec government financing. It has lined up a minority partner in TM Grupo Inmobiliario, a Spanish vacation property developer and hotel operator that does business in Mexico and the Mediterranean.

Mr. Chiara said Mach has submitted a business plan to the Quebec government’s finance arm, Investissement Québec, and expects to know within a week if the government will provide the loan.

He said he is optimistic his bid is superior to that of Air Canada, given the higher price, in addition to the lack of overlapping airline operations that would be expected to draw the scrutiny of the Competition Bureau.

Transat employs 5,000 people and has a fleet of about 40 planes, depending on the season. It sells tour and hotel packages in Europe and the Caribbean. In 2018, it spent $76-million on beachfront land in Puerto Morelos, Mexico, to build a resort, but has agreed to limit spending on that project while in talks with Air Canada.

Transat on Thursday posted a smaller profit in the second quarter as fuel costs rose and the Canadian dollar slipped against the U.S. greenback.

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Transat’s net income fell to $2.3-million or 6 cents a share from $7.9-million or 21 cents in the same period a year earlier. Updating the company’s plane fleet also added costs.

Excluding a court settlement and other items, Transat’s adjusted net loss was $6.3-million or 17 cents a share, compared with a loss of $500,000 or 1 cent in the second quarter of 2018. Revenue rose by 3.5 per cent to $897-million.

Expenses rose by 5.4 per cent, driven by a 13.5-per-cent jump in fuel costs and a 9-per-cent rise in salaries and benefits, outpacing the increase in revenue.

Annick Guerard, chief operating officer of Transat, said the company is facing “fierce competition” on its transatlantic routes this summer as WestJet and other carriers add new service and slash ticket prices.

“We are seeing pressure … from WestJet in Europe this summer. They have added additional flights from Calgary to Paris and Dublin, and out of Toronto to Gatwick and Barcelona ... . They are increasing their presence, not only WestJet but others as well,” Ms. Guerard said.

For this summer travel season, Mr. Eustache said bookings are up by almost 2 per cent and 64 per cent of seats are sold. Ticket prices are little changed from a year ago, and Transat said the third-quarter results will be “slightly higher” than those of the same period in 2018.

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