MONTREAL — Air Canada's acquisition of Transat AT Inc. is up in the air after Canada's largest airline said it will not allow more time for the deal to go through.
The acquisition was set to be completed by Feb. 15, but since the deal has not yet received approval from the European Union, both parties now have the right to terminate the agreement at any time, Transat said in a statement Tuesday morning.
"Transat and Air Canada are continuing their discussions regarding potential amendments to the arrangement agreement that may be required," Transat said.
Despite the discussions, there is no guarantee that any new agreement will be reached, or that the existing one will not be terminated altogether, Transat said. The transaction had previously been approved by the Canadian government on Feb. 11.
As of the end of the trading day Tuesday, Transat's stock was down 7.8 per cent to $4.85 on the S&P/TSX composite index, while Air Canada shares were up 4.9 per cent to $23.42.
"The agreement remains in place unless and until either party terminates it," Air Canada spokeswoman Pascale Dery said. "There is no update to provide and ... our ability to discuss the transaction is limited by various confidentiality, governance, contractual and other considerations."
Air Canada's decision not to extend the date for the transaction comes amid an uncertain and rapidly changing business environment for the airline industry.
Canada's airlines recently suspended all flights to Mexico and the Caribbean until April 30 at the request of the federal government, in addition to a mandatory hotel quarantine for air travellers entering Canada, which goes into effect on Feb. 22.
The restrictions further hampered travel demand and forced widespread layoffs and route cuts. Transat, for its part, has suspended virtually all of its operations until April 30.
Calin Rovinescu, Air Canada's CEO and president until his retirement earlier this week, said during the company's most recent earnings call on Feb. 12 that he was encouraged by signs of progress in talks between the industry and the federal government regarding a bailout for the airline sector.
Rovinescu also said that he expected the federal government to roll out a co-ordinated testing program at airports that would replace some aspects of the current quarantine measures.
Benoit Poirier, an analyst for Desjardins, said the update about the agreement was negative for Transat, despite the possibility that other interested buyers could approach the company with offers.
"At this time, it is difficult to gauge Air Canada’s commitment/engagement regarding the proposed transaction as market conditions have deteriorated over the last months," Poirier wrote in a memo Tuesday.
In January, Transat disclosed that it had received a separate offer from the investment firm of Quebecor Inc. CEO Pierre Karl Peladeau, although Transat's board preferred the Air Canada offer.
This past weekend, Peladeau addressed the deal in a post on Facebook, calling on Transat to reach an agreement with his firm. "I want to take over Transat so that Quebecers can continue to benefit from the choice that competition provides," Peladeau wrote.
The president and chief executive of WestJet Airlines Ltd., Ed Sims, has criticized the federal government's approval of the deal between Air Canada and Transat, arguing that it would significantly reduce competition and have a negative impact on consumers.
This report by The Canadian Press was first published Feb. 16, 2021.
Companies in this story: (TSX:AC; TSX: TRZ)
Jon Victor, The Canadian Press
