ISSUE/SOURCE: GOVERNMENT OF CANADA APPROVAL OF AIR CANADA’S PROPOSAL TO ACQUIRE TRANSAT A.T.
DATE: FEBRUARY 16, 2021
- On February 11, 2021, the Government of Canada approved the proposed purchase of Transat A.T. (Transat) by Air Canada, subject to strict terms and conditions to protect the interests of Canadians.
- Government considered a broad range of public interest factors, such as connectivity, wider social and economic implications, the financial health of the air transportation sector, and competition.
- Noting effects of COVID-19 on air service in general, and on Transat in particular, Government determined that an acquisition – with terms and conditions – offers best outcomes for workers, for consumers, for the stability of Canada’s air transport sector, and for industries that rely on air transport, particularly aerospace.
MOTION TO FURTHER APPEAR
- The Minister of Transport and Departmental Officials have been happy to support the Committee in its study of the pandemic’s impacts on the air sector either by providing answers in person, or by sharing the public interest assessment and other information.
- Transport Canada is pleased to continue assisting the Committee as it sets its future agenda for this work.
REFUNDS AND VOUCHERS
- Transat will become a subsidiary of Air Canada and will have continued liability on its obligations to passengers with tickets cancelled due to the pandemic.
- Government has been clear that there will be no assistance to airlines without refunds for travel cancelled due the pandemic.
- Canada’s Competition Commissioner examined the proposed transaction only through the lens of competition. The Government took this into account, while legislation indicates broader factors must be considered.
- COVID-19 means that many of the competition impacts will not materialize for some time, due to the lack of demand for travel.
- Future impacts are uncertain, but we ensured strict conditions are in place to encourage new entrants on routes where Air Canada and Transat previously competed.
- Transat has spoken publicly about its financial challenges, and the fact that absent the merger it will require hundreds of millions of dollars in new financing.
- The merger allows for a commercial solution to this situation that promotes greater connectivity to Europe.
- The law is clear. The Minister’s obligation is to review proposed transactions put forward by consenting parties. Government carefully analyzed and considered all information and comments submitted to it during the formal review process leading up to the February 11 decision.
- Exercising its fiduciary duty to Transat, Transat’s board of directors concluded that the merger with Air Canada was in the best interest of Transat and its stakeholders.
- While we were made aware of the alternative offer, it was not accepted by Transat and did not form the basis of a notifiable transaction under the Canada Transportation Act.
- The existence of the offer was considered in our assessment of the current marketplace. But Transport Canada has no jurisdiction to review incomplete offers which are not notifiable under the Act.
[RESPONSIVE] OFFICIAL LANGUAGES OBLIGATIONS
- The Government expects Transat to continue to operate largely in French, particularly as it is obligated to maintain its head offices in Montréal.
- As a subsidiary of Air Canada, Transat will also be subject to provisions of the Official Languages Act.
- On June 27, 2019, Air Canada and Transat (the Parties) announced that they had concluded a definitive Arrangement Agreement regarding the proposed purchase by Air Canada of all issued and outstanding shares of Transat and its combination with Air Canada.
- As per the Canada Transportation Act, on August 26, 2019, the Minister of Transport (Minister) communicated to the Parties that the proposed transaction did raise significant public interest considerations, and that a public interest assessment would be launched by the Department.
- The Commissioner of Competition provided a report to the Minister on March 27, 2020. The Department then considered the input of the Commissioner as it provided its public interest assessment to the Minister on May 2, 2020.
- There followed a series of meetings and conversations among Transport Canada officials, the Parties and their legal counsels to discuss, question, review and request additional information respecting the concerns that were shared.
- The COVID-19 pandemic led the Parties to renegotiate certain terms of the proposed transaction, most notably the purchase price. On October 10, 2020, the Parties announced a revised agreement for the proposed transaction.
- The Minister made his final recommendation to the Governor in Council in February 2021. His recommendation took into consideration various factors, including the measures presented by the Parties and the Commissioner’s assessment of them, in determining whether the proposed transaction is in the public interest as it relates to national transportation.
- The transaction is still pending regulatory approval from the European Commission. A decision is expected no earlier than March 2021.
- In December 2020, the media reported that Pierre Karl Péladeau had put forward an alternative offer to purchase Transat. Transat’s board determined that it was not superior to Air Canada’s offer, and did not recommend it to shareholders for approval. Mr. Péladeau has put forward a subsequent offer that matches that of Air Canada, which he says would be available to Transat shareholders for 24 hours following the rejection of the Air Canada offer by regulators in Canada or Europe.
TERMS AND CONDITIONS
- The terms and conditions associated with the proposed acquisition include:
Measures to facilitate and encourage new entrants to take up certain former Transat routes to Europe
- These measures are meant to minimize the impact of Air Canada’s current dominance of landing rights at Montréal-Trudeau and Toronto-Pearson International airports on routes to European destinations.
- Air Canada would need to give up some of its own or Transat’s landing slots on relevant city-pairs, enter into Interline or Fare Combinability Agreements with new entrants if requested, and share access to other programs, such as the Aeroplan point programs and the Maple Leaf Lounge, to help other airlines to take up these routes and to increase competition.
- Air Canada will use commercially reasonable efforts to vacate Toronto-Pearson’s Terminal 3 within three years of closing, and facilitate access to other airport infrastructure (such as gates) for new entrants.
Preserving the Transat head office and brand in Québec
- For a period of five years after closing the transaction, Air Canada will be required to preserve the Transat brand and its head office in Québec. This will ensure that the Québec-based leisure travel business undertaken by Transat will continue as a meaningful component of Air Canada’s Québec-based leisure travel business.
Employment commitments of 1,500 employees around the new entity’s leisure travel business for a minimum of two years.
Commitments to facilitate aircraft maintenance in Canada
- Air Canada would enter into maintenance contracts for certain types of aircraft with Québec-based suppliers within one year of the acquisition. This could stimulate jobs in aerospace in Canada and provide other economic benefits, subject to the terms of the relevant agreements and the decisions by independent suppliers to construct the facilities, which will be made based on commercially reasonable volume projections provided by Air Canada. Those volumes will themselves be heavily dependent on when the Canadian airline industry is no longer substantially affected by the COVID-19 pandemic.
A price-monitoring mechanism
- This is a reporting obligation on Air Canada to disclose pricing trends on the overlapping routes to both Europe and sun destinations. Under this obligation, the federal government would monitor and publish reports on price fluctuations.
Launch and operation of new destinations within the first five years
- Five new international (including transborder) destinations that were not offered in 2019 would be introduced, within the first five years, to improve connectivity for travellers. The new routes introduced through this commitment would be operated for a minimum of two years.
AIR SECTOR SUPPORT
- Government is proactively engaged in discussions with carriers regarding support in the context of COVID-19.
- It is premature to speak to specific conditions, as the negotiation process is confidential.
- Government objectives regarding refunds for Canadians and the restoration of services are clear, and carriers need to show how these issues will be addressed.