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Air Transat and WestJet craft near the gates at Toronto Pearson International Airport's Terminal 3 on Mar. 19, 2020.

Fred Lum/The Globe and Mail

WestJet Airlines Ltd. has urged the federal government to reject Air Canada’s takeover of Transat AT Inc. or impose conditions that would limit the combined companies’ market dominance.

The industry devastation caused by the pandemic must not be used as an excuse to allow Canada’s biggest airline to buy its third-biggest, WestJet said in a Jan. 3 submission to then-transport minister Marc Garneau.

“A fundamental element of Canada’s national transportation policy is to have at least two strong national airlines,” WestJet said in a summary of the document, a copy of which was obtained by The Globe and Mail. “WestJet’s ability to contribute to the Alberta economy and more broadly to the Canadian economy is imperilled by the proposed transaction.”

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The federal cabinet is expected to make a decision on the $180-million takeover in the coming days or weeks, after reviewing submissions from such parties as WestJet, Transport Canada and the Competition Bureau, which has criticized the takeover as bad for consumer choice. The European Commission is also expected to make a ruling by Feb. 9.

On Feb. 15, the deal falls apart unless both companies agree to extend the date.

“For 25 years, WestJet has always stood for fair and transparent competition. For this reason we do not believe the proposed transaction should proceed unless the government imposes critical mitigation measures,” said Ed Sims, WestJet’s chief executive officer, in a statement to The Globe.

“An approval without significant remedies would provide Air Canada with an unprecedented government-sanctioned monopoly to the unavoidable detriment of the travelling public through higher air fares and lower service.”

As a condition of approving a deal, WestJet asked the federal government in its submission to prevent Air Canada from offering its Aeroplan loyalty program to Transat passengers, a request that Montreal-based Air Canada is likely to contest.

WestJet claims letting Air Canada extend loyalty rewards to Transat clients would “lock up otherwise contestable customers” and preserve the combined carrier’s near-monopoly on key international routes, including flights from Canada to Europe. Air Canada paid $495-million to acquire Aeroplan in 2019 and the program has more than five million members.

WestJet is also demanding the government require the combined airlines to give up airport slots, to help offset their market dominance. WestJet singled out London’s Heathrow, Amsterdam’s Schiphol and Toronto’s Pearson airports as hubs where Air Canada’s market grip would gain even greater power with the purchase of Transat. WestJet wants Air Canada and Transat barred from using Pearson’s Terminal 3 to ensure room for other airlines.

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WestJet’s growth plans are focused on ramping up transatlantic routes, including direct flights to Britain and Europe from Alberta and Atlantic Canada. The company has acquired six Boeing 787 Dreamliner aircraft to augment its fleet of smaller Boeing 737 jets.

WestJet is also taking its concerns with the planned takeover to European Union competition watchdogs. WestJet executives said they are unable to detail those conversations because of non-disclosure agreements with EU regulators.

Transat shareholders in December voted to accept Air Canada’s per-share offer worth $5 in cash, or 0.2862 of an Air Canada share. Transat shareholders had in 2019 voted for Air Canada’s offer worth $720-million, or $18 a share, a deal the two sides renegotiated after the pandemic hammered demand for air travel.

WestJet, in its submission, urged the cabinet not to view Transat as being at risk of failure because of the pandemic, which has reduced demand for air travel by about 90 per cent.

Transat has been able to borrow $250-million and could borrow another $500-million, possibly through a federal government program, to carry on as a stand-alone company, Jean-Marc Eustache, Transat’s co-founder and CEO, said in December.

Other parties have expressed interest in Transat. Quebec businessman Pierre Karl Péladeau has also urged cabinet to block the deal and was in talks with Transat about a competing offer in the days before shareholders accepted Air Canada’s offer.

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Cabinet’s review, which has no deadline, is informed by a confidential Transport Canada report and a public report from the Competition Bureau. The antitrust watchdog said in March the combination of two of Canada’s four big airlines would likely result in a “substantial lessening or prevention of competition” in airfares and vacation packages.

A Transat spokesman declined to comment. An Air Canada spokesman did not immediately respond to questions sent by email.

Allison St-Jean, a spokeswoman for Transport Minister Omar Alghabra, who took the job last week in a cabinet shuffle, declined to say when a decision is expected.

“Our government is conducting a rigorous review of the considerations raised by the proposed purchase of Transat A.T. Inc. by Air Canada, and will be taking a decision that is in the best interests of Canadians and Canada’s air sector,” Ms. St-Jean said by e-mail. “Our government will continue to support greater choice, better service, lower costs, and rigorous passenger rights for Canadian travellers.”

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