Air Canada Cuts Air Transat Purchase Price By 72%

Filed Under: Air Canada, Other Airlines

Well, I guess there’s some small silver lining to the coronavirus pandemic for Air Canada.

Air Canada renegotiates Air Transat takeover

In June 2019 it was announced that Air Canada would acquire Canadian low cost carrier Air Transat:

  • Initially Air Canada was going to pay $13 per share, for a total purchase price of $520 million
  • However, after intervention from some large Air Transat shareholders, Air Canada increased its offer to $18 per share, for a total purchase price of $720 million

Well, in light of the coronavirus pandemic, and given that the deal still hasn’t been finalized, Air Canada has now revised its offer:

  • Air Canada will now pay $5 per share, valuing Air Transat at $190 million
  • Air Transat investors can choose between receiving a $5 cash payment or 0.2862 Air Canada shares per Air Transat share
  • Air Transat’s shares are down 76% for the year, and the $5 purchase price is still significantly higher than Air Transat’s $3.83 closing price last Friday
  • So yeah, the purchase is going from $13 to $18 to $5, which is quite some movement

The deal had been delayed a bit earlier this year when the Canadian Competition Bureau expressed concern about two of Canada’s four largest airlines merging. In retrospect I’m sure Air Canada was happy about the delay.

As Air Canada CEO Calin Rovinescu describes this renegotiated deal:

“COVID-19 has had a devastating effect on the global airline industry, with a material impact on the value of airlines and aviation assets. This combination will provide stability for Transat’s operations and its stakeholders and will position Air Canada, and indeed the Canadian aviation industry, to emerge more strongly as we enter the post-COVID-19 world.”

I’m sure at this point Delta Air Lines is regretting how quickly it closed its deal to acquire a stake in LATAM, as Delta paid more for a 20% stake than the entire airline is now worth.

Air Canada will still acquire Air Transat, but at a lower cost

Will Air Transat still be a standalone brand?

When this deal was first announced, Air Canada insisted that Air Transat would be maintained as a separate brand. That seems illogical on the surface, given that Air Canada Rouge is Air Canada’s low cost carrier.

What’s the point of maintaining two separate low cost carriers with largely overlapping route networks?

  • Initially I figured this was being done in order to make it appear that competition is being maintained as much as possible
  • However, the pandemic will be radically transforming many airlines, and even more so than before, I can’t imagine that Air Canada will have two low cost carriers
  • Assuming there’s not regulatory guidelines to the contrary, I’d be shocked if Air Canada Rouge and Air Transat didn’t fully integrate

Will Air Transat be merged into Air Canada Rouge?

Bottom line

Air Canada will be saving about $530 million on its purchase of Air Transat, as the airline has reduced its offer from $18 per share to $5 per share. I certainly can’t blame Air Canada — if the airline could renegotiate the deal, why wouldn’t it?

Heck, one has to wonder to wonder if Air Transat would survive the pandemic independently, given that this isn’t exactly a great time to be a mostly international low cost carrier.

I’m still curious to see what the future holds for a merged Air Canada and Air Transat, especially as it pertains to Air Canada Rouge.

What are you expecting Air Canada to do with Air Transat?

Comments
  1. If the deal gets approved, think Air Transat brand will be preserved, being quite popular in Quebec. AC Rouge will be incorporated with Air Transat, most probably.
    On the other side, Air Transat employees will be the ones loosing the most in this deal, most probably will be let go by Air Canada…which would be a real loss for both sides.
    At one point travel will pick up rapidly and both airlines will need rapidly employees with hands on airline experience in all areas, which takes a very long time to build and are not easy to find.

  2. Irrelevant to air travel, but makes me wonder how strong is Tiffany’s case in forcing LVMH to go through with it’s full acquisition 2019 price when airlines can reneg.

  3. If they have the money to buy a competitor then I guess it means they won’t be needing any more bailout money

  4. Umm, Air Canada Rouge is gone. Done. Finito.

    They fired all their flight attendants and got rid of all the aircraft. So I think we should move on from AC Rouge.

    It was a low-cost concept for the airline, but never for the consumer. I guess they will use TS aircraft and crew where appropriate, mostly on leisure routes/restart some of the defunct AC Rouge routes if air travel ever picks up again.

    Lucky, did you not notice you flew mainline Air Canada from FLL to YUL this summer?

  5. It makes even more sense now that AC would integrate Rouge and Air Transat, given that AC has axed all Rouge long hauls.

  6. They did not fire rouge FAs, rouge will come back as a narrow body operation. I do think the widebodies will just be integrated into AC seeing as they already have an healthy A330 fleet for European ops. They could also just use the narrow bodies from AT to combine them and create rouge 2.0. Incredible deal though, considering the value of all those aircraft. Sadly though I doubt Air Transat employees will be making the move to AC.

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