Air Canada has entered exclusive negotiations to acquire Transat AT, the parent of Montreal-based leisure carrier Air Transat.
Canada’s largest carrier said on 16 May the proposed transaction is valued at C$520 million ($387 million) or C$13 per Transat share, and will create a "a Montreal-based global travel services company in leisure, tourism and travel distribution operating across Canada and internationally".
The two companies will negotiate during a 30-day exclusivity period, during which they are expected to finalise a definitive agreement, says Transat.
Air Canada says it has the funding required to complete the deal, which will allow the carrier to grow its Montreal hub. The transaction remains subject to finalisation of definitive agreements, due diligence, and regulatory and shareholder approvals.
"A combination with Transat represents a great opportunity for stakeholders of both companies," states Air Canada chief executive Calin Rovinescu, citing the "increased job security and growth prospects" from which employees will benefit.
The deal includes Transat’s accommodation and travel package operations, along with real estate investments for resorts in Mexico. Air Canada has retained Morgan Stanley as its financial adviser. The announcement of the sale comes two days after private equity firm Onex announced its plan to purchase Calgary-based WestJet, the second largest carrier in Canada.
Transat AT chairman Jean-Marc Eustache first disclosed during the annual shareholders meeting in April that a special committee of independent directors was reviewing bids from multiple suitors to buy the company.
Air Canada’s proposed acquisition comes at a time when Transat seeks to return to profit through 2022 by investing in new aircraft and land for accommodations. Transat reported an adjusted operating loss of C$37.7 million for the first quarter amid higher costs in investments and fuel expenses. Revenues remained stable at around C$648 million for the first quarter of 2019 compared with the same period in 2018, but the company has not forecast whether revenue could offset costs in the second quarter. Air Transat posted a C$45 million operating loss in 2018 amid a jump in fuel prices and fluctuation in the value of the Canadian dollar.
Air Transat in May took delivery of the first of 15 Airbus A321LRs as part of its fleet renewal programme to replace older aircraft including six A310s it has in service. The A321LRs will be deployed on its longer international flights to Europe, the Caribbean, along with Central and South America.
The airline has a fleet of 39 in-service aircraft, Cirium's Fleets Analyzer shows. It has 16 more on order, comprising 14 A321LRs and two A321neos.
Source: Cirium Dashboard