Air Canada Purchase of Transat Approved by Trudeau Government, With Conditions

February 11, 2021 ctn_admin

The controversial Air Canada-Transat merger has been approved by the Canadian government.

The Canadian Transport Association today ruled that Air Canada’s proposed $180-million purchase of rival Air Transat could go ahead despite concerns the proposed merger would stifle competition and result in higher prices for travellers.

Omar Alghabra, Minister of Transport, today announced that the Government of Canada has approved the proposed purchase of Transat A.T. Inc. by Air Canada, “subject to strict terms and conditions that are in the interests of Canadians.”

In determining the proposed purchase is in the public interest, the Government of Canada considered a broad range of factors, such as level of service, wider social and economic implications, the financial health of the air transportation sector, and competition. The COVID-19 pandemic was a key factor in the final decision.

As Transat A.T. itself noted in December 2020, current uncertainty casts doubt on its ability to continue, as it faces significant financing challenges. Noting the effects of the pandemic on air service in general, and on Transat A.T. in particular, the Government of Canada has determined that the proposed acquisition offers the best probable outcomes for workers, for Canadians seeking service and choice in leisure travel to Europe, and for other Canadian industries that rely on air transport, particularly aerospace.

The public interest assessment conducted by Transport Canada was complex, and necessitated a rigorous analysis and consultation with Canadians and stakeholder groups. Online public consultations ran from November 4, 2019, to January 17, 2020. The public interest assessment also included input from the Canadian Commissioner of Competition, who looked at how the proposed purchase would affect competition in the air sector; and his report was published in March 2020.

Transport Canada completed the public interest assessment in May 2020. This proposed acquisition, which was endorsed by Transat A.T.’s shareholders on December 15, 2020, provides clarity and stability with regard to the company’s future, despite the effects of the pandemic

It will also result in enforceable terms and conditions intended to facilitate future connectivity and competition on routes to Europe previously operated by Transat A.T. These terms and conditions reflect extensive engagement with Air Canada and Transat A.T. regarding measures they were prepared to undertake to address issues raised by the public interest assessment.

The Government of Canada is aware that some Transat A.T. customers are still waiting for refunds for flights cancelled due to COVID-19. Refunds are an integral part of the negotiations with airlines regarding any assistance plan, and the government will continue to take into account the needs of Transat A.T. customers. Above and beyond the terms and conditions, Air Canada will have a duty to ensure that, as a subsidiary of Air Canada, Transat A.T. will provide communications and services to the public in both official languages.

The terms and conditions associated with the proposed acquisition include:

• Measures to facilitate and encourage other airlines to take up former Transat A.T. routes to Europe;
• Preserving the Transat A.T. head office and brand in Quebec; –
• Employment commitment of 1,500 employees around the new entity’s leisure travel business;
• Commitment to facilitate aircraft maintenance in Canada, prioritizing contracts in Quebec;
• A price monitoring mechanism;
• Launch and operation of new destinations within the first five years.

As per the legislative process, the final decision rests with the Governor in Council.

“Given the devastating impact of the COVID-19 pandemic on the air industry, the proposed purchase of Transat A.T. by Air Canada will bring greater stability to Canada’s air transport market” Alghabra said. “It will be accompanied by strict conditions which will support future international competition, connectivity and protect jobs. We are confident these measures will be beneficial to travellers and the industry as a whole.”

In a report dated March 27, 2020, Canada’s Competition Bureau made the following statement:

Based upon analysis of facts and information prior to the COVID‑19 pandemic, the Commissioner has determined that the Proposed Transaction is likely to result in substantial anti‑competitive effects through the elimination of rivalry between Air Canada and Transat in the areas of overlap between their networks. In particular, the Proposed Transaction is likely to result in the following if it proceeds in its current contemplated form:

• A substantial lessening or prevention of competition in the provision of air passenger services or vacation packages on 83 routes between Canada and Europe, Mexico, Central America, the Caribbean, Florida and South America;
• A merger of the only two carriers offering non‑stop service on 22 of these 83 routes; and
• A significant reduction in travel by Canadians in the overlap markets.

“The Proposed Transaction is likely to result in substantial competitive effects, such as increased prices, less choice, decrease in service, and a significant reduction in travel by Canadians for air passenger services and vacation packages,” the bureau said.

It’s important to note that the bureau also said that Air Canada and Transat “have indicated a willingness to work with the Commissioner to try to resolve the competition concerns and may propose certain measures they are prepared to undertake to address these concerns.”

The European Union also has expressed concerns about the deal, which was to expire Feb. 15 without an extension agreed upon by both sides.

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