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On Oct. 10, Air Canada and Transat A.T. concluded an amended transaction for the combination of the two companies, which will see Air Canada acquire all shares of Transat for $5 per share. The transaction is now valued at approximately $190 million, which is a significant decrease from the previous $720 million value.
The original announcement made by Air Canada to purchase Montreal-based tour operator Transat A.T. and its airline division, Air Transat, came on May 16, 2019. Air Canada had initially offered to buy all of the company’s outstanding shares at $13 per share. This offer was increased to $18 per share in August 2019, when the transaction was approved by Transat stakeholders.
In a press release issued on Oct. 10, Air Canada said the amended transaction is a reflection of the significant decline in air travel as a result of the unprecedented COVID-19 crisis.
“COVID-19 has had a devastating effect on the global airline industry, with a material impact on the value of airlines and aviation assets,” said Calin Rovinescu, president and CEO of Air Canada. “Nonetheless, Air Canada intends to complete its acquisition of Transat, at a reduced price and on modified terms. 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.”
The deal will allow the newly merged companies, based out of Montreal, to compete in the leisure travel market. It will also permit growth at Air Canada’s Montreal-Trudeau Airport hub, while the existing Air Canada network will be complemented by Transat’s international presence.
Transat A.T. said in an Oct. 10 press release that the company needed to put additional sources of financing in place due to the impact of the pandemic-related interruption of operations on its cash position. However, the terms of the original transaction with Air Canada restricted Transat’s ability to do so without Air Canada’s consent.
As part of the negotiation leading to the amended transaction announcement, Transat has been able to implement a new $250 million short-term loan facility, as well as certain critical amendments to its existing senior loan facility, providing the company with additional flexibility.
“This is the worst crisis since the founding of Transat 33 years ago, and with a second wave of the pandemic underway, the timing of an eventual recovery remains uncertain,” said Transat president and CEO, Jean-Marc Eustache, in a statement.
“More than ever, having a national airline with the scale to weather current industry turbulence, which is expected to continue for several years, is in the best interests of our shareholders, customers, employees and other stakeholders.”
The transaction remains subject to shareholder approval, court approval, the approval of the Toronto Stock Exchange, and certain customary and other conditions, the Air Canada press release states. Regulatory approvals, including the ongoing approval process of regulatory authorities in Canada and the European Union, are also required. Air Canada expects to complete the transaction in late January to early February 2021, pending the aforementioned approvals.
Transat’s board of directors is in favour of the amended transaction at $5 per share, stating it is “in the best interests of Transat and its stakeholders,” and has recommended that Transat shareholders also vote in favour. Transat shareholders would have the opportunity to be paid in either cash, Air Canada shares, or a combination of the two. The shareholders are expected to vote on the amended transaction in early December.