From the Toronto Star – link to source story
By Sandrine Rastello, Bloomberg | Thu., March 11, 2021
With its purchase by Air Canada in jeopardy, tour operator Transat AT Inc. said it’s exploring government loans and even cast doubt on its survival.
Montreal-based Transat said it needs at least $500 million in long-term financing to cover its needs in case the transaction, which is still under European Union review, falls through. It said options include the federal government’s emergency program for large businesses, which has been used by only one airline as the industry negotiates a bailout.
“As at January 31, 2021, there exists material uncertainty that may cast significant doubt on the Corporation’s ability to continue as a going concern,” the company said in a statement that also disclosed a quarterly adjusted loss of $2.89 per share. Revenue fell 94 per cent from a year ago.
The company suspended all regular flights on Jan. 29 after the Canadian government asked carriers to halt travel to Mexico and the Caribbean and toughened quarantine rules for returning passengers.
In an effort to preserve cash, Transat had previously cut its schedule, returned some leased planes early and negotiated better payment terms with suppliers, while using a government wage subsidy to help pay staff. It had $302.8 million in cash at the end of January, less than half the size of its stash a year earlier.
While it extended the maturity of a $250-million short-term credit facility, Transat said it is looking for financing before it expires on June 30. It mentioned the government’s Large Employer Emergency Financing Facility (LEEFF), whose funding comes mostly in the form of an unsecured facility that carries a five per cent interest rate on the first year and rises afterward, according to the government agency running the program. There are also strings attached, including a possibility of the federal government taking an equity stake.
“Our priority for the current quarter, while continuing to work on obtaining EU approval, is to secure financing, finalize our recovery plan and review all our options in the event the transaction with Air Canada will not take place,” chief executive officer Jean-Marc Eustache said in the statement. The EU decision is expected in the first half of this year, according to Transat.
Air Canada agreed to buy Transat, one of Canada’s largest sellers of vacation packages, in June 2019 and later raised its bid to $18 a share to win over recalcitrant shareholders and seal a friendly deal. After the coronavirus pandemic struck, they revised the deal down to $5 a share in cash or 0.2862 Air Canada shares, valuing Transat at about $200 million.
Transat shares rose 1.3 per cent to $5.61 at 9:48 a.m. in Toronto on Thursday. Air Canada rose 3.4 per cent to $29.67. At the latter price, a Transat investor receiving Air Canada shares would get $8.49 worth of stock.
The deal has been thrown into doubt by regulators, with the EU failing to approve it by a Feb. 15 deadline. Air Canada declined to extend the deadline — meaning that the transaction is still alive but either company now has the legal right to walk away from it.
Since then, the provincial government and the Caisse de Depot et Placement du Quebec pension fund have urged Transat to find a Plan B.
One possibility is a takeover by Pierre Karl Peladeau, the chief executive officer of Quebecor Inc., who previously made an offer for Transat through his investment company.
“No evidence of a binding, fully committed financing has been provided,” Transat said of the offer, adding that it could undertake discussions with Peladeau’s firm only if the agreement with Air Canada was terminated.
Canadian Aviation News 