Transat won’t resume flights until June, looks to borrow more as uncertainty clouds Air Canada deal

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Airline and tour operator Transat AT Inc. said it will not resume flights until mid-June and is seeking to borrow money to stay afloat in case a takeover by Air Canada falls apart.

Montreal-based Transat suspended normal service at the end of January after agreeing to a demand by the federal government that all carriers halt flights to and from Mexico and the Caribbean to combat the COVID-19 pandemic.

Transat made the announcement as it released its financial results for its first quarter on Thursday morning.

For the three months ended Jan. 31, Transat lost $60-million, compared with a loss of $34-million in the same period a year earlier. Revenue totalled $42-million, compared with almost $700-million a year earlier. The results follow a loss of $497-million for the year ended Oct. 31, 2020.

“These results are for a quarter where it was once again impossible to operate our business in a sustainable manner,” said Jean-Marc Eustache, chief executive officer of Transat. “With the arrival of vaccines, we’re now preparing ourselves for a resumption of operations in the summer and particularly next winter.”

Most of Transat’s 5,000 employees have been laid off or sent home to collect the federal government’s 75-per-cent wage subsidy.

Transat shareholders agreed in December to an all-cash takeover by rival Air Canada worth $180-million. The Canadian government approved the deal in February, with conditions intended to foster competition. However, the deal requires the approval of the European Commission, which has yet to finish its antitrust investigation.

Air Canada refused to extend the deal’s “outside date” of Feb. 15, and either company can walk away from the transaction.

Peter Fitzpatrick, an Air Canada spokesman, declined to comment on his airline’s plans for the deal. “Our agreement remains in place,” he said.

Transat tapped a $250-million credit facility to keep it afloat until the takeover is complete. The company said on Thursday it has extended that credit and is working to borrow “at least” $500-million from government and commercial lenders.

Transat said a decision from the European Commission is expected in the first half of 2021, but it is “far from certain that the decision rendered will be favourable.”

“Our priority for the current quarter, while continuing to work on obtaining EU approval, is to secure financing, finalize our recovery plan and review all our options in the event the transaction with Air Canada will not take place,” Mr. Eustache said.

On a conference call with analysts on Thursday, Mr. Eustache said the Air Canada deal is the preferred option, but Transat will explore other options if it fails. These options include operating independently or exploring an offer to purchase by a company led by Quebec businessman Pierre Karl Péladeau. Mr. Eustache added that the Air Canada deal prevents Transat from engaging in any discussions with other bidders.

“There is no need to worry about a Plan B,” Mr. Eustache said. “A lot of work is being done in the background.”

Transat’s stand-alone plan is ready and robust, said chief operating officer Annick Guerard, who declined to elaborate on the strategy while the Air Canada deal remains a possibility. “The plan is ready and solid. Transat has a solid future,” Ms. Guerard said.

Transat’s cash balance fell to $300-million as of Jan. 31, from $680-million at the end of the first quarter of 2020. The drop was offset by borrowing $50-million.

Transat has issued $520-million in credits to ticket buyers for flights cancelled in the pandemic and has placed 44 per cent of this amount in trust.

The Canadian government has said any taxpayer bailout for airlines will require refunds to customers.

Transat is considering borrowing through the government’s large employee emergency financing facility (LEEFF) by the end of March, or might wait for the sector-specific aid Ottawa has said is on the way, Mr. Eustache said, expressing impatience at the delay.

“The government is still talking,” he said. “They are talking a little bit with us. They are talking to Air Canada. We know they are talking to all the airlines. But in the meantime nothing is happening with that. We are crying and we are asking. Everybody is asking for that.”

The CEO of aircraft maker Airbus Canada said Canada’s lack of sector-specific aid to its aerospace industry is “very surprising” and has been noticed by companies operating in countries where financial assistance has been provided. “Airlines are suffering,” Philippe Balducchi told a parliamentary committee on Thursday.

“We will not leave Transat without support,” said Mathieu St-Amand, spokesman for Quebec Economy Minister Pierre Fitzgibbon. “We will follow the situation very closely.”

Andy Gibbons, WestJet Airlines’ director of government relations, told the same committee the government needs to plan for a safe return to air travel in the summer, prioritizing domestic travel. He called on Ottawa to replace the “blunt instrument” of quarantine hotel stays for travellers with airport testing programs that can lead to reduced isolation and greater freedom of movement, similar to a project at Calgary’s airport.

With files from Nicolas Van Praet

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