Air Canada (AC, Montréal Trudeau) has abandoned plans to acquire Air Transat (TS, Montréal Trudeau), after efforts to secure antitrust consent from the European Commission (EC) failed.

In a joint statement, the two Canadian carriers said they had mutually agreed to terminate plans for Air Canada to acquire the airline's parent Transat Inc., initially announced in June 2019 and then revised in October 2020 as a result of the severe economic impact of the COVID-19 pandemic, after the EC rejected Air Canada's enhanced package of remedies aimed at placating European competition concerns.

"Following recent discussions with the EC, it has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package," Air Canada said in a statement.

"After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada's ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic. Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture."

In response, the EC's executive vice-president in charge of competition policy, Margrethe Vestager, said the bloc had to maintain stringent anticompetitive benchmarks even in times of economic crisis to ensure recovery in the travel market is equitable to all sides concerned.

"EU merger control policy standards and framework also apply in times of severe shocks affecting the economy," she said.

"Every case has to be assessed on its facts and merits. In this case, the Commission investigated the extent to which the coronavirus crisis would impact Air Canada, Transat and their competitors' operations and, based on the information available to date, reached the preliminary conclusion that in the long-run Air Canada and Transat would likely remain actual or potential competitors on the vast majority of the routes between the European Economic Area and Canada, which they both operated before the crisis.

"Based on the in-depth analysis carried out during the Phase II investigation, the Commission's preliminary findings were that the proposed transaction would raise competition concerns on a large number of transatlantic routes. Based on the results of the market test, the remedies offered appeared insufficient.”

Both Air Canada and Transat have agreed to terminate their agreement with Air Canada paying Transat a termination fee of CAD12.5 million Canadian dollars (USD10 million), and with Transat no longer under any obligation to pay Air Canada any fee should it be involved in another acquisition or similar transaction in the future.

In the meantime, Transat has now turned to the Canadian federal government for financial aid, sources have told Global News Canada.

According to the report, Transat, which suspended flights last month until June due to strict new COVID-19 travel curbs, needs at least CAD500 million (USD400 million) in financing this year. However, the source said a deal with Ottawa might not be reached by an April 29 deadline when a CAD50 million (USD40 million) revolving facility is due. If Transat fails to meet that deadline or secure an extension, then creditors could accelerate the repayment obligation. On top of that, Transat also has a CAD250 million (USD200 million) short-term loan that matures on June 30.

“There are ongoing negotiations, and there is a budget coming up, and there is no guarantee at this point that they will get there before the budget,” a source close to the situation told Global News, referring to the federal budget slated for April 19. As such, Transat may look to pressure the Quebecoise government for help as well to help stave off its impending distress.

Groupe Mach has also declined to return to the negotiating table with its president, Vincent Chiara, telling the Canadian press last week that his firm is no longer interested in any bid for Transat. It is recalled that in 2019, the Montreal real estate developer, supported at the time by a Spanish partner and the Quebec government, had unsuccessfully tried to bid for Transat only to lose out to what was then a more competitive offer from Air Canada.

“I've moved on,” he said, adding that the partners he was involved with in 2019 are no longer around today.