August 2, 2021

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Air Canada Merger Plan with Transat Enters Headwind

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The much-touted merger plans between Air Canada and Transat seems to have run into headwind last Friday, with Air Canada saying European regulators had signalled the merger was unlikely to pass antitrust concerns.

The proposed partner, Air Transat, is in talks with the federal government for aid but industry players said it may not reach a deal by an April debt deadline.

However, Canada’s largest carrier first bid for Transat in 2019 and discounted its offer last year as the pandemic decimated the travel and tourism sector.

Airlines have been in talks with Ottawa since last year about a possible aid package. Transat’s aborted deal adds fresh urgency to the talks, given the jobs at risk if the carrier fails and the political importance of Quebec ahead of an expected federal election this year.

Transat, which last month suspended flights until June due to pandemic guidelines, has said it needs at least C$500 million in financing this year.

TCCAA means – Transport Canada Civil Aviation Authority

It has obligations due on 29th April, for a $50 million revolving facility and a C$250 million short-term loan that will mature on 30th June. If it does not meet the 29th April requirements, or obtain another extension, creditors could accelerate the repayment obligation.

A source privy to the merger arrangement and on tabs with bank facilities extended to the airline said, “there are ongoing negotiations and there is a budget coming up and there is no guarantee at this point that they will get there before the budget,” referring to the federal budget slated for 19th April.

The source further analyzed that, “Transat has more of a cachet in Quebec (than Air Canada)”, and added, “I think politically it would be a problem in Quebec. The federal government therefore absolutely has to come up with a solution,” the source added.

Both airlines are Montreal-based but Air Canada originated in Winnipeg before moving its headquarters to Quebec in the 1940s. Transat was founded by a group of Quebec businessmen, including the province’s current premier, in 1986 and grew to become the country’s third-biggest airline.

The airline was “confident we will be able to secure the necessary financing in the coming weeks,” spokesman Christophe Hennebelle said on Sunday, reiterating it was at an “advanced stage” of discussions with Ottawa on sector aid and accessing specific pandemic-aid to businesses.

Asked about the status of government talks with Transat, a spokeswoman for Canada’s finance minister said: “I can’t speak to which creditors or lines of financing Air Transat is pursuing. As a private company, they’d be best placed to answer that.”

Ottawa said on Friday that protecting jobs and securing the long-term viability of Transat was a priority for the government. The carrier employs 5,000 people, mostly in Quebec, home to much of Canada’s aerospace sector.

By-: Ayoola Ola Olaitan

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