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Transat’s Q3 2020 results include the latest on its proposed acquisition by...

Transat’s Q3 2020 results include the latest on its proposed acquisition by Air Canada

Thursday, September 10, 2020

MONTREAL — Transat’s Q3 results reflect the disastrous impact of the COVID-19 pandemic, however the quarter ended with some optimism as Transat resumed operations on July 23, after a  112-day hiatus.

Transat’s net loss for Q3 2020 was $45.1 million, compared to a loss of $1.5 million for Q3 2019. Revenue was $9.5 million, down from $698.9 million.

Airlines around the world continue to struggle after months of travel lockdown followed by very reduced demand. However many are receiving government aid.

So far Canadian carriers, while assisted by programs like the wage subsidy program CEWS, have not received industry-specific government financial support.

That lack of support, combined with Canada’s 14-day mandatory quarantine, still in place after close to six months, and Canada’s ongoing advisory against all non-essential travel, have brought Canada’s airlines to the precipice, says Transat’s President and CEO, Jean-Marc Eustache.

“The reduction of operations to just one week for this quarter is unprecedented for Transat and for the industry as a whole. Given the dynamic measures we took to protect the Corporation and its cash flow, we’re ready for the recovery,” says Eustache.

“However, with Canada maintaining some of the most stringent border restrictions and still requiring quarantine for people returning from abroad, it’s time for the government to provide targeted support for the airline sector to ensure the existence of a competitive industry in Canada over the long term,” Eustache added.

With the collapse in global air traffic and demand, Transat says it can’t predict all the impacts of COVID-19 on its operations and results, or when the situation will improve. However the company notes it has implemented a series of operational, commercial and financial measures, including cost reduction, aimed at preserving its cash flow, and is assessing the situation on a day-by-day basis.

 

RESUMPTION OF FLIGHTS

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Transat resumed flights on July 23 and is now flying to 17 destinations, including 11 in Europe (in France, the UK and Portugal) and three sun destinations (Mexico, D.R. and Haiti) from Montréal or Toronto. There’s also as well as a domestic program linking the main Canadian airports (Montréal, Toronto, Calgary and Vancouver).

Meanwhile, at the height of the 2020 / 2021 winter season, Transat anticipates it will be operating flights to over 40 destinations in the Caribbean, Mexico, Central and South America, the U.S., Europe and Canada.

The winter launch came on the heels of Transat’s cancellation of its Western Canada program, except for connectors. In an exclusive interview with Travelweek last month, Joe Adamo, Chief Distribution Officer, Transat and President, TDC, said the decision to cancel Transat’s Western Canada program was “very painful.” Part of Transat’s strategy amid the pandemic, he added, is streamlining its focus on Ontario and Quebec.

 

DEPOSITS AND VOUCHERS

Deposits from customers for future travel amounted to $638.1 million, compared with $611.1 million as at July 31, 2019, an increase of $27.0 million.

Transat notes that, like other Canadian carriers, it decided to issue travel credits for cancelled trips in the wake of unprecedented travel restrictions. The company says that customer deposits as of July 31, 2020 included these travel credits amounting to $564 million.

As at July 31, 2020, Transat’s cash and cash equivalents totalled $576.4 million, compared with $723.8 million in 2019.

“As it is impossible to assess the pace of recovery or the possible evolution of the pandemic and its effects, the Corporation, similarly to the vast majority of air carriers and other travel industry players in the normal course of their operations following the impacts of COVID-19, is currently reviewing various opportunities to increase its cash flow. In particular, the Corporation is continuing discussions initiated in the second quarter with its financiers and the various levels of government to improve its cash flow,” says the company.

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AIR CANADA DEAL

In reporting its Q3 results, Transat also addressed the issue of its sale to Air Canada, first announced on May 16, 2019 as an exclusive agreement that would see Air Canada buying Transat in a $520 million deal, later upped to $720 million.

The acquisition appeared to be potentially on track before the COVID-19 pandemic hit. In March 2020 Canada’s Competition Bureau raised its own concerns. The deal is also under scrutiny from the European Commission. Last week the EC announced it will deliver its guidance by Dec. 12.

Transat said today that while it remains firmly committed to completing the transaction with Air Canada, factors beyond its control and related to the pandemic could influence the outcome of the proposed deal.

As Transat notes, the market conditions of the global industry post-pandemic “have been completely transformed.”

The negative impact from the pandemic has seen Transat actively pursue additional sources of financing. “The covenants undertaken under the arrangement agreement with Air Canada restrict and govern the Corporation’s capacity to obtain additional sources of financing and may require Air Canada’s prior consent,” notes Transat.

Although the agreement provides that Air Canada’s consent may not be unreasonably withheld, “there is no certainty that Air Canada will consent to the obtaining of additional sources of financing by the Corporation,” says Transat.

That said, if the required approvals are obtained and the conditions are met, Transat says the acquisition could be completed during Q4 2020.

Under the arrangement agreement, the deadline for obtaining the regulatory approvals cannot be extended beyond Dec. 27, 2020.

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