Air Canada/Transat Deal Not Guaranteed To Go Ahead

The Canadian government okayed the Air Canada-Transat deal last week. But a communication from Transat on Tuesday has thrown the deal into some doubt.

Transat officials sent out a release to say that Air Canada will not agree to an extension of the current outside date for the agreement to be finalized, which was Feb. 15, and that either side could walk away from the deal if they so choose.

Transat noted that the European Commission has yet to approve the agreement. Officials also said they're still negotiating with Air Canada regarding potential amendments.

"There can be no assurance that an agreement on any such amendments will be reached, or that Air Canada or Transat will not terminate the Arrangement Agreement if the relevant circumstances so warrant," officials said.

Here's the text of the Transat press release:

Transat A.T. Inc. ("Transat" or the "Corporation") wishes to communicate a status update regarding its contemplated arrangement with Air Canada (the "Arrangement") under the revised arrangement agreement between Transat and Air Canada dated October 9, 2020 (the "Arrangement Agreement").

As announced on February 11, 2021, although the Canadian government has approved the Arrangement, the Arrangement must still receive the approval of the European Commission (the "Commission"). The Commission has requested additional information from the parties and its decision is now expected to be rendered only in the first half of 2021.

As indicated previously, the outside date for the consummation of the Arrangement under the Arrangement Agreement (the "Outside Date") was set at February 15, 2021 and has now passed. As a result of the occurrence of the Outside Date without the prior receipt of required approval from the Commission, each of Air Canada and Transat are currently entitled, at any time, to terminate the Arrangement Agreement upon notice to the other party. Until terminated or amended by the parties, the Arrangement Agreement remains in effect in accordance with all of its terms.

Transat and Air Canada are continuing their discussions regarding potential amendments to the Arrangement Agreement that may be required. In the context of such discussions, Transat has been informed by Air Canada that Air Canada will not agree to an extension of the current Outside Date. In such case, even if the Arrangement Agreement is amended, Air Canada and Transat would retain the ability to terminate the agreement at any time. There can be no assurance that an agreement on any such amendments will be reached, or that Air Canada or Transat will not terminate the Arrangement Agreement if the relevant circumstances so warrant.

Caution regarding Forward-Looking Statements

This press release contains certain forward-looking statements about Transat concerning a potential transaction involving the acquisition of all of the shares of Transat. These statements are based on certain assumptions deemed reasonable by Transat, but are subject to certain risks and uncertainties, several of which are outside the control of Transat, which may cause results to vary materially. Transat disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by securities laws.

In particular, the process to obtain the regulatory approval of the Commission is complicated by the COVID-19 pandemic and its impact on the international commercial aviation market. The market conditions of the global industry have been completely transformed. Among other things, the vast majority of North American, European and international air carriers have requested financial assistance measures, but have had to implement reductions in capacity (as the Corporation did). There can be no assurance that the Commission will approve the Arrangement, or that if it does, it will be with acceptable conditions, even if the Canadian authorities have approved the Arrangement.

Because the Outside Date has now been reached and the approval of the Commission is still outstanding, and because Air Canada has indicated that it will not agree to an extension of the Outside Date, either party has the ability of terminating the agreement upon simple notice.

There are no assurances that the Arrangement will be completed on the terms and conditions described in the current Arrangement Agreement or at all. If the transaction proposed under the Arrangement is not completed for any reason, there is a risk that Transat's lenders, lessors, credit card processors, clients and other trade partners become more preoccupied by Transat's financial position, prospects and ability to execute its strategic plan as a going concern, which could result in more onerous credit terms, repayment obligations, an inability to refinance maturing indebtedness or find new sources of financing, restricted access to goods and services, and/or reduced business, all of which could significantly and adversely affect Transat's cash flows and ability to continue as a going concern.

In addition, failure to complete the transaction proposed under the Arrangement for any reason could materially negatively impact the market price of the Corporation's securities. If the transaction proposed under the Arrangement is not completed for any reason, there can be no assurance that management will be successful in its efforts to identify and implement other strategic alternatives that would be in the best interests of the Corporation and its stakeholders within the context of existing economic, market, regulatory and competitive conditions in the industries in which the Corporation operates, on favourable terms and timing or at all, and, if implemented, that such actions would have the intended results. Transat also has incurred significant transaction and related costs in connection with the transaction proposed under the Arrangement, and additional significant or unanticipated costs may be incurred.

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