Industry reaction and what’s next: The fallout from the terminated Air Canada - Transat deal

Industry reaction and what’s next: The fallout from the terminated Air Canada – Transat deal

MONTREAL — Just shy of two years ago Air Canada and Transat announced their proposed merger with a deal that took the industry by storm.

Who would have thought that the end of that deal would come like this?

We’re more than a year into a pandemic and travel is still at a virtual standstill. The industry has changed dramatically since May 2019.

And yet Air Canada and Transat were still forging ahead with the proposed acquisition, getting the green light from the Canadian government in Feb. 2021.

But the European Commission indicated it would not follow suit. And so on Good Friday Air Canada and Transat announced the termination of their agreement.

In its April 2 statement Air Canada said that to meet the EC’s conditions it went above and beyond what has been traditionally accepted by the EC in previous airline merger cases.

And even if Air Canada went even further, with more safeguards to secure the deal, there was still no guarantee the EC would give its approval. “After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic,” said the airline.

 

WHAT’S NEXT?

Both airlines say their top priority, as it has been for more than a year, is navigating the pandemic and staying nimble as the industry waits out the travel restrictions.

Transat is also now free to consider other offers. Quebecor Inc.’s chief executive, Pierre Karl Péladeau, has long made his intentions clear.

At the start of 2021 Transat said it had received an unsolicited proposal from Péladeau’s investment company, Gestion MTRHP, in December 2020, but that the proposal was not supported by binding, fully committed financing.

Péladeau persisted nevertheless, and in a lengthy tweet sent out after the outside expiry date for finalizing the Air Canada – Transat deal came and went in mid-February 2021, Péladeau again stated his “interest and determination, as well as my means” to acquire Transat. The entire tweet can be seen via Twitter at @PKP_Qc.

Transat cited Péladeau’s $5 per share offer in its April 2 statement announcing the termination of its agreement with Air Canada. The price tag for the Air Canada deal had also landed at $5 per share, for a proposed purchase price of $190 million, as announced in fall 2020. Back in June 2019 Air Canada offered $520 million, later upped to $720 million.

“In addition, now that the Arrangement Agreement has been terminated, Transat is free to hold discussions with potential strategic and financial acquirers, including Mr. Pierre Karl Péladeau, whose investment company, Gestion MTRHP Inc., previously made (and since reiterated) a proposal to acquire all of the issued and outstanding shares of Transat for 5$ a share,” said Transat in its April 2 statement.

Transat’s statement also notes that among the strategic alternatives, Transat’s board will also look at the pursuit of the company’s stand-alone business plan. No matter what happens, Transat has said it requires new financing totalling at least $500 million in 2021.

 

 

The airline notes that, as a smaller operator, it can be nimble and quickly adapt to market conditions. “There is significant pent-up demand among customers in the Corporation’s primary segments of leisure travel and visiting friends and relatives (VFR), which are expected to recover sooner than business travel,” says Transat. In addition, “Transat’s smaller aircraft fleet provides greater flexibility and efficiency, and the Corporation benefits from a well-respected brand that customers love, as well as committed staff members and a strong distribution network.”

But the top priority is still getting through the pandemic. Says Transat’s President and CEO Jean-Marc Eustache: “I would like to thank our employees for their unwavering dedication and commitment throughout this process. Although we are disappointed with this outcome, we are confident in the future of Transat and look forward to building back stronger as we exit the throes of the pandemic.”

Eustache added: ”The global air transportation and tourism industry has been among those most affected by the COVID-19 crisis. However, the arrival of vaccines brings us a light at the end of the tunnel, and Transat is well positioned to bounce back. In close to 40 years of existence, we have traversed numerous crises and each time, we emerged stronger than before, demonstrating our resilience as an organization. We look forward to a safe and healthy future, as we hopefully put this pandemic behind us.”

 

“GOODBYE VOUCHERS AND REFUNDS”

With Air Canada and Transat as key supplier partners for so many retailers in the industry, agents have watched the deal from start to finish.

Agents commenting on the Facebook page of Travelweek’s sister publication ProfessionVoyages.com, were in favour of anything that keeps the industry competitive. “Better for travellers to have more competition,” said one agent.

Others cited their desire to keep Transat as its own Quebec-based entity, without ownership by a larger company like Air Canada. However some said the Air Canada deal would have brought better chances for survival.

The federal government’s airline industry bailout, first announced in November 2020 but not yet finalized almost five months later, is critical, others say. “A disaster if no buyer and if no state aid. It is the end! Goodbye vouchers and refunds.”

Just today, the EU approved $4.7 billion in state aid for Air France. It’s the latest announcement of government aid for an airline amid the pandemic. 

On April 3 Mississauga.com reported that Transport Minister Omar Alghabra said the federal government is in “active discussions regarding financial support” for Transat and Canada’s other airlines. The site also quotes Transat spokesperson Christophe Hennebelle saying that talks are in advanced stages, and that financial relief will arrive in the coming weeks.

Although everyone involved in the bailout talks have signed non-disclosure agreements, reports in recent weeks suggest the talks truly are in the final stages, and many believe an announcement will be part of the April 19 federal budget.

 

MORE INDUSTRY REACTION

Over at The Travel Agent Door, company founder Flemming Friisdahl says TTAND has enjoyed “an amazing relationship with both Air Canada  and ACV and Transat” from TTAND’s start seven years ago.

Friisdahl says: “When originally we heard the news of the proposed deal two years ago, we could not have been happier for both companies. Now with the EC effectively putting a stop to the sale and, at the same time, an end in sight for our industry from the pandemic, the world of travel is very different from two years ago.

“We are confident that both companies will bounce back when travel rebounds and I am 100% certain that with the leadership of both of these great companies, we will be working with both of them in the years to come and we wish them both all the best.”

Richard Vanderlubbe, President of tripcentral.ca, tells Travelweek: “It’s hard to really have any take on this one way or another. To use the cliché – ‘it is what it is’. On the one hand, more competition amongst supply is a good thing for consumers and agents alike. On the other hand, a firm financial footing and stability is good for consumers and agents. At this point, I think the most important thing everyone in our industry can focus on is survival. There’s light at the end of the tunnel, but there are still difficult months ahead. The whole industry has a different path to recovery. The pandemic has reset all the fundamental assumptions, so the Transat – Air Canada deal rationale and assumptions has also changed.”

Meanwhile Zeina Gedeon, CEO of TPI, says that while the termination of the Air Canada – Transat wasn’t completely unexpected, it was nevertheless “very unfortunate and very disappointing.”

Gedeon tells Travelweek: “Coming out of COVID-19 the merger would have created a solid new entity. Now we have two companies trying to rebuild themselves and with the financial situation of Transat, this will create a lot of uncertainty among travel agents.”

She added: “We all need to focus on rebuilding our businesses, and look out to a positive future.”

Kathryn Folliott