Air Canada scraps Transat merger after EU regulatory headwinds

(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.

FILE PHOTO: Air Canada airplanes are pictured at Vancouver’s international airport in Richmond, British Columbia, Canada, February 5, 2019. REUTERS/Ben Nelms/File Photo

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.

The Montreal-based carrier said it had offered “a significant package of remedies” to satisfy 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 about its planned acquisition of Transat.

Vestager said she had strong concerns about the impact of the deal which Air Canada had failed to allay.

“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 airline, 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.”

Canadian businessman Pierre Karl Péladeau said in February that he wanted to start talks to acquire Transat after Air Canada declined to extend a deadline for the deal amid the EU opposition.

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

Péladeau, chief executive of Québecor Inc and who previously attempted to acquire Transat in his personal capacity as a businessman, was not immediately available for comment.

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

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