Air Canada Merger

Doubt cast on Air Canada/Air Transat Merger

It’s not often that a company lobbies against a deal that it drafted itself. In this case, it seems to be the odd reality. It has been reported that Air Canada is actively lobbying against its own merger with Air Transat.

Why on earth would a company do that?

Lots has changed since the deal. LOTS. You would be hard pressed to find an industry that has been more affected by COVID than air travel. The only reason why a company would lobby against an agreement is to try to block it. With that, there are numerous reasons why Air Canada may want out of the deal.

  • Now is not the time for growth. With the carnage that has been happening to air travel, extra capacity is now a liability. Sitting on the tarmac costs money.
  • The shares have tumbled. Air Canada agreed to buy the shares at 18$ a piece. Since then, Air Transat’s shares have plummeted and are currently sitting at around 6.40$ a share. This is despite the outstanding offer from Air Canada. I’m sure Air Canada is not thrilled about the prospect of paying triple.
  • Breaking the agreement carries penalties. A merger failure does not. If Air Canada initiates the cancellation of the offer, they may have to pay Air Transat for any penalties stipulated in the agreement. If a merger is blocked by Government, those same penalties would not apply.

Does this mean the end for the Air Canada merger?

For their part, Air Canada maintains that they are committed to the deal. A spokesperson said the following:

“All meetings registered by Air Canada with government ministers relate to the impact of Covid-19, not the Transat acquisition”

Whether this is true remains to be seen. Whether this merger will go through remains to be seen. This deal has already raised eyebrows with authorities in Canada and the EU. There appears to be little business case for Air Canada to proceed with this merger under these conditions. The Air Transat share price speaks volumes about investor confidence in this agreement. 

What is clear is that nothing is clear at this point in time. 

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