Air Canada scraps Transat deal on EU headwinds, other bidder returns

By Arunima Kumar and Allison Lampert

(Reuters) - Air Canada scrapped its proposed acquisition of Transat AT Inc on Friday after being advised by the European Commission that it would still face high regulatory hurdles, clearing the way for other domestic suitors for the tour operator.

Canada's largest airline said that after recent discussions with the European Commission (EC), it had become evident the EC will not approve the acquisition based on the offered remedy package the carrier made earlier this year.

Quebec businessman Pierre Karl Péladeau said on Friday that his December offer for Transat was still available.

Montreal-based Air Canada said it had offered "a significant package of remedies" to satisfy EC anti-trust concerns around competition.

"Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise" its ability to compete internationally and recover from the effects of the pandemic on air travel, the airline said in a statement.

Air Canada in February refused to extend the deadline for its C$188.7 million ($150.19 million) deal for Transat, after European regulators did not give the go-ahead for the buyout.

The two companies had agreed in June 2019 on the acquisition, the terms of which were subsequently amended in August 2019 and then revised in October 2020 as a result of the severe economic impact of the COVID-19 pandemic.

EU antitrust chief Margrethe Vestager said Air Canada offered insufficient concessions to address competition concerns.

"While the coronavirus outbreak has strongly impacted the airline sector, the preservation of competitive market structures is essential to ensure that the recovery can be swift and strong," she said in a statement.

"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."

The Canadian government said protecting jobs at Transat and preserving the long-term viability of the company, also based in Montreal, is the most important thing for the government.

Transport Minister Omar Alghabra said in a statement that he had spoken with Transat and the two sides were "examining next steps".

Airlines have been in talks with the federal government since November about a possible aid package, so far to no avail.

Quebec Economy Minister Pierre Fitzgibbon also said the provincial government "will not leave Transat without support."

Québecor Inc Chief Executive Péladeau said he had made a new offer for Transat in December and that it was still available. Péladeau, who previously attempted to acquire Transat in his personal capacity as a businessman, said his offer would keep the tour operator independent and competitive.

"This proposition is still valid and included certain conditions that Mr. Peladeau wants to lift quickly in order to to remove the uncertainty the company has found itself in during several months," the statement said.

A Transat spokesman said the airline's priority was securing financing and its recovery plan.

"We will also review all our options, including the pursuit of the corporation’s business plan and Mr. Péladeau’s proposal," Christophe Hennebelle said in an emailed statement.

Transat has said it needed at least C$500 million in new financing in 2021. It also has a C$250 million short-term subordinated credit facility due on June 30.

The tour operator said it was at an "advanced stage" of discussions on federal government support for the airline sector and accessing Ottawa support for business affected by the pandemic.

Quebec Premier Francois Legault, who co-founded Transat in 1986, said in February that the province was looking at different scenarios for Transat, with or without Air Canada.

Air Canada has agreed to pay a C$12.5 million termination payment to Transat.

($1 = 1.2564 Canadian dollars)

(Reporting by Arunima Kumar in Bengaluru and Allison Lampert in Montreal, additional reporting by Foo Yun Chee in Brussels; writing by Amran Abocar; Editing by Marguerita Choy; Editing by Matthew Lewis, Marguerita Choy)