Transat says it may not survive if Air Canada deal is not approved

Transat AT warned Monday that its future may be in doubt if Air Canada’s proposed takeover of the airline is not approved by regulators.

“We are signalling that there might be a question mark on our ability to continue as a going concern, considering that additional financing will be necessary if there is no transaction,” Denis Petrin, Transat’s chief financial officer, said on a conference call with analysts Monday.

Air Canada had initially agreed to acquire Transat in Aug. 2019, before the coronavirus pandemic devastated the airline industry, for $18 a share. The two companies agreed to a revised terms in October that will see Air Canada pay $5 a share for the company. The deal is now worth $190 million, far less than the original $720 million.

The deal still needs to be approved by the European Union and Transport Minister Marc Garneau.

If it is not approved, Transat said that the company’s survival will depend on its ability to obtain $500 million in financing. The Montreal-based travel and tour operator said it is talking to potential lenders as well as government authorities about the financing.

“The COVID-19 pandemic significantly strained the corporation’s ability to return to profitability,” Transat said in a financial statement released Friday.

“Therefore, there can be no assurance that the corporation will be able to generate positive cash flow from operating activities in the next twelve months.”

The COVID-19 pandemic, subsequent border closures and quarantine restrictions have led to cratered demand across the global airline industry. Transat is currently operating approximately 20 routes on a weekly basis, with overall capacity down 90 per cent. On Friday, the company reported a net loss attributable to shareholders of $238.1 million, or $6.31 per share, in the fourth quarter ending Oct. 31.

The airline industry has been calling on the government to provide sector-specific financial air, but the government has yet to do so. Transat chief executive Jean-Marc Eustache said the government has been missing-in-action when it comes to providing airlines with support through COVID-19.

“Where is the Canadian government and why is it not acting more resolutely to support its aeronautics and airline industries in this unprecedented situation?” Eustache said on a conference call with analysts Monday.

“It somehow looks like the Canadian airlines are being punished for their strong balance sheets before the crisis. We had the capacity to weather the onset of the crisis, so no action was taken to support us.”

The federal government said last month that it is developing a financial relief package to help the Canadian airline industry that will be contingent on airlines providing refunds to passengers whose flights were cancelled as a result of COVID-19. Transport Minister Marc Garneau released a statement on Nov. 8 saying discussions with airline representatives were scheduled to begin the following week.

“A month has elapsed since then. We’re still waiting for a phone call,” Eustache said.

He also said the government’s inaction will strengthen foreign competitors and diminish the Canadian airline sector. He said that Canadian airlines have given up 11 per cent market share points to European airlines between May and August.

“If it does not change, our foreign competitors will be in a much stronger position to cater to recovering demand,” he said.

Transat expects operations will not reach pre-pandemic levels until at least 2023.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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