LONDON – The European Commission (EC) has delayed its decision on Air Canada (AC) acquiring Air Transat (TS) until January next year from its original deadline of next month.

The decision will be made on January 8, 2021, instead of December 11 this year, following revisions to the sale of the airline. AC now revised its valuation of TS to US$190m instead of the initial US$720m set by the airline, with deadlines for the sale also postponed until February 15 next year.

Photo: Liam Funnell

Significant Devaluation

This devaluation means that Transat is valued at around $5 per share compared to $18 per share in the original valuation. Such a devaluation now needs to be voted on once again, requiring two-thirds support from the TS shareholders.

The vote in question will take place at TS’s securities meeting which is scheduled for December 15. This low valuation is also why the EC has got involved. There need to be findings presented to the Commission that state whether competition could disappear from 33 routes that are served by the two carriers.

If that does prove to be the case, then the acquisition could get rejected on grounds of competition law, as AC will need to have a credible competitor on the routes it serves.

Photo: John Leivaditis

Negative View of the Acquisition?

In Canada itself, it appears as if the citizens are not fans of this acquisition happening, which comes as no relative surprise. Other competitors such as WestJet (WS) don’t serve many European destinations, whereas AC serves a significant portion of routes into Europe.

If the acquisition went ahead, then it could mean that the airline would raise the price of airfares when it comes to going across the pond, which will put a lot of Canadians off from flying.

March this year saw the Competition Bureau of Canada receive “a negative reception to the transaction”, according to The Star, as well as the news outlet reporting that the federal government has not given a blessing as of yet.

Photo: Liam Funnell

COVID Consolidation on the Cards?

The COVID-19 pandemic is decimating a lot of the Canadian aviation industry already with those in the industry providing the idea that consolidation could be on the cards.

With AC, in particular, ramping up its COVID-19 strategy, and shares in TS jumping massively as a result of the future deal, the downturn may be offset by such consolidation taking place. Even with the argument of fares potentially rising as a result of AC holding close to a monopoly, there may be no choice at this given stage but to reduce fares to acquire consumer confidence in flying again.

Because of passenger demand already being significantly lower, rising fares could be seen a further kill-joy to the industry and would put AC in more of a irreparable position.

Photo: Max Langley

So What Next?

What we do know is that December 15 this year and January 8 next year are important dates to look out for. The first hurdle of course is for the TS shareholders to approve the new deal. Secondly, we have to see whether the EC will allow this deal on competitive terms, but also on the COVID perspective as well.

We mention the COVID perspective because if the deal ends up benefitting the European Union in terms of tourism and much needed economic prosperity, then the competition side may be avoided on a short-term basis until recovery takes place.

All we can do in the meantime is sit back, relax and wait for this to come to a conclusion.

Featured Image: Air Transat Airbus A330. Photo Credit: John Leivaditis