Ottawa approves Air Canada’s $180-million takeover of Air Transat

Open this photo in gallery:

The federal government has approved Air Canada’s $180-million takeover of rival airline Transat AT Inc. but applied conditions to a deal that still requires approval of the regulator in Europe.

The federal government said in reviewing the deal it took into account the effect of the COVID-19 pandemic on the companies, and said the takeover was in the public’s best interest.

The conditions it imposed include a minimum number of jobs that must be preserved, the use of a price monitoring mechanism and a commitment to protect Transat’s Montreal head office and brand.

“The government of Canada has determined that the proposed acquisition offers the best probable outcomes for workers, for Canadians seeking service and choice in leisure travel to Europe, and for other Canadian industries that rely on air transport, particularly aerospace,” the federal government said in a statement on Thursday evening.

The federal Competition Commissioner was critical of the takeover in a report released last March, noting it would limit customer choice and drive up airfares. The federal cabinet, in deciding on the deal, reviewed the commissioner’s report as well as a confidential one from Transport Canada.

“Given the devastating impact of the COVID-19 pandemic on the air industry, the proposed purchase of Transat AT by Air Canada will bring greater stability to Canada’s air transport market,” Transport Minister Omar Alghabra said in a statement. “It will be accompanied by strict conditions which will support future international competition, connectivity and protect jobs. We are confident these measures will be beneficial to travellers and the industry as a whole.”

Ottawa’s announcement comes days before the Feb. 15 deadline set out by the takeover agreement. Air Canada can walk away from the deal on that date without mutual agreement. The two companies could also agree to extend the deadline if no decision is released by the European Commission by Monday.

European approval is a condition of the deal because of the two companies’ large presence in that market. The EC in late December suspended its investigation of the deal as it awaited more information from the two carriers. An EC spokeswoman did not respond to interview requests.

Air Canada and Transat did not immediately respond to e-mails.

Air Canada is expected to address the deal and the acceptability of the conditions when it reports its financial results for the fourth quarter of 2020 and the full year on Friday morning.

Transat shareholders in December approved Air Canada’s offer worth $5 a share in cash, or 0.2862 of an Air Canada share for each Transat share. This is worth $6.06 based on Air Canada’s closing share price on Thursday. The price was slashed from $720-million owing to the collapse in demand for air travel during the pandemic.

Air Canada and Transat announced the deal in 2019, shortly after WestJet Airlines Ltd. said it was being bought by Onex Corp. That move meant Air Canada was facing a tougher competitor from Calgary, one with deeper pockets and a greater ability to push ahead with WestJet’s strategy of expanding in the lucrative international and business class markets.

The takeover as proposed by Air Canada would have given Canada’s flag carrier control of about 60 per cent of transatlantic routes, and the vast majority of flights by a domestic carrier to Europe.

Transat recently suspended its schedule to comply with the federal government’s request to halt flights to Mexico and the Caribbean.

The conditions the federal government announced Thursday include:

• Measures to facilitate and encourage other airlines to take up former Transat routes to Europe;
• The preservation of Transat’s head office and brand in Quebec;
• The new entity must employ 1,500 people in the “leisure travel business.” (Transat employed 5,000 people in good times.)
• A commitment to facilitate aircraft maintenance in Canada, prioritizing contracts in Quebec;
• An airfare price monitoring mechanism;
• The companies must launch new destinations within the first five years.

“In determining the proposed purchase is in the public interest, the government of Canada considered a broad range of factors, such as level of service, wider social and economic implications, the financial health of the air transportation sector and competition,” the federal government said.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.