Calin Rovinescu is doing everything he can to steer clear of catastrophe as the lawyer-turned-chief-executive leads the airline through the COVID-19 crisis. Saturday’s announcement of Air Canada’s reworked takeover of Transat AT Inc. – an offer cut to $190-million from a prepandemic $720-million – is the latest example of Mr. Rovinescu’s deal-making skills, and willingness to use hardball tactics.
Air Canada is poised to close a takeover at a time when many deals stuck before the pandemic are falling apart acrimoniously – witness the lawsuits launched between theatre chains Cineplex Inc. and Cineworld Group PLC over their failed $2.8-billion marriage. Mr. Rovinescu’s common-sense strategy is to pick off a rival and become the market leader on transatlantic and vacation routes. He can now reach that goal while spending far less money.
Mr. Rovinescu took advantage of Transat’s need for cash to strike a sweeter deal, tapping negotiating skills honed during three deal-filled decades as a lawyer at Stikeman Elliott and banker at investment dealer Genuity Capital Markets. The 65-year-old CEO is in his second stint as an Air Canada executive, first working at the airline for four years starting in 2000, then coming back as CEO in 2009.
On Saturday, Montreal-based Transat explained that the original takeover agreement, struck back in the summer of 2019, restricted the company’s ability to borrow more money without Air Canada’s consent. With the pandemic now keeping passengers off planes, Transat lost $140-million on revenues of just $9.5-million in the most recent quarter, which ended July 31. In September, the company said it was in “advanced discussions” on new loans.
To remain in business, Transat announced on the weekend that it received Air Canada’s permission to borrow an additional $250-million on a short-term credit facility. The company also amended covenants on its long-term debt.
In return for allowing this extra debt, Air Canada received the Transat board’s blessing for cutting its Transat offer to $5 a share, from the original price of $18. Jean-Yves Leblanc, chair of the Transat board committee overseeing the sale, said Saturday in a press release: “Securing Air Canada’s consent to put in place the new loan facility was critical in the decision to revisit the terms of the original agreement.”
The Transat acquisition is one element of an Air Canada restructuring that’s played out before and during the pandemic. On Mr. Rovinescu’s watch, the company has struck long-term deals with its unions, reversing an adversarial relationship that dominated his first stint at Air Canada, 15 years ago.
Since the pandemic hit, Air Canada has built up $6-billion of liquidity by refinancing much of its fleet, retiring aging planes, selling stock and bolstering its credit lines. This month, the airline announced it plans to buy 25,000 COVID-19 rapid-response test kits from drug maker Abbott.
“Having achieved a groundbreaking labour deal that gave management the tools and flexibility to completely restructure operations, Air Canada remains in the early stages of executing on this transformation,” analyst Walter Spracklin at RBC Dominion Securities Inc. said in a report published prior to the announcement of the revised Transat transaction.
In a line that proved prescient, Mr. Spracklin said: “We believe the deal will likely be renegotiated at a lower price, and see any cash savings from the potentially amended transaction as a positive for the shares.”
Air Canada still needs regulators and Transat shareholders to sign off on the revised offer. Fund manager Letko Brosseau & Associates Inc. fought hard to get the original $18 bid and was unavailable for comment on the new terms during the weekend. If approved, the transaction is expected to close by February.
For his part, Mr. Rovinescu is looking past both this deal and the pandemic to clear skies. In a press release on Saturday, Air Canada’s CEO said: “This combination will provide stability for Transat’s operations and its stakeholders and will position Air Canada, and indeed the Canadian aviation industry, to emerge more strongly as we enter the post-COVID-19 world.”
Airline passengers often clap for pilots who stick a smooth landing at the end of a turbulence-plagued flight. If he can close the Transat takeover and keep Air Canada flying smoothly through the pandemic, Mr. Rovinescu deserves the same tribute.
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