European regulators are launching an in-depth investigation into Air Canada’s deal to buy Transat AT amid European Commission concerns the deal may reduce competition and result in higher prices. A preliminary investigation said Air Canada and Transat have been competing head-to-head for passengers.
The commission is worried the proposed deal could significantly reduce competition on 33 origin and destination city pairs between Europe and Canada.
These include 29 where both companies offer direct services and four where one company flies direct and the other one indirect via one of its hubs.
The Commission said in a news release on Monday that it was giving itself until Sept. 30 to decide on this matter.
“This is a challenging time, especially in markets severely impacted by the coronavirus outbreak, but a return to normal and healthy market conditions must be based on markets that remain competitive,” said executive vice-president Margrethe Vestager, responsible for competition policy.
The commission said even if WestJet expanded its transatlantic operations to Europe, it is unlikely that it would be enough.
Transat A.T. Inc. said yesterday in a statement it has taken note of the European Commission’s decision to open an in-depth (“Phase 2”) investigation to assess the proposed transaction with Air Canada, and it is currently studying the EC’s decision in order to prepare the next steps in the process.
“This extension is part of the EC’s normal process of assessing the impact of transactions submitted for its approval, which is currently complicated by the COVID-19 pandemic and the impact it is having on the international commercial aviation market.
“To take into account the resulting longer delays, Transat has informed Air Canada of its decision to activate the first one-month extension of the outside date set for the transaction, provided for in the Arrangement Agreement. It is therefore postponed for the time being to July 27, 2020, from June 27. The Arrangement Agreement provides for the possibility of postponing the deadline for three one-month periods simply by notification from one of the parties, and then for three additional periods under certain conditions.”
“It should also be noted that the transaction is subject to a public-interest assessment conducted by Transport Canada, whose report was submitted on May 1 to the Honourable Marc Garneau, Minister of Transport.
“If the required approvals are obtained and the conditions satisfied, the arrangement is now expected to close early in the fourth quarter of the 2020 calendar year.”
Air Canada’s deal to buy Transat for $720 million has been agreed to by shareholders, but still requires regulatory approval in Canada and the European Union.
Air Canada spokesman, Peter Fitzpatrick, said that the commission’s announcement is part of the normal, ongoing regulatory review process, “and we have to await the outcome of this process before we will be in a position to comment.”
The Canadian Competition Bureau warned in March – based on information collected prior to the COVID-19 pandemic – that eliminating the rivalry between the two Montreal-based carriers would discourage competition by prompting higher prices and fewer services, ultimately resulting in less travel by Canadians on a range of competing routes.
The takeover would give Air Canada control of more than 60 percent of transatlantic air travel from Canada and 45 percent of passenger capacity to sun destinations, according to the federal agency’s report.
Desjardins Securities analyst Benoit Poirier said at the time that he believes the purchase will still be approved “considering the companies’ willingness to address the bureau’s competition concerns,” such as potential dominance of airport slots.
And executive compensation at AC …
Air Canada CEO Calin Rovinescu was on track to receive around $12.9 million in total compensation last year, but the value fell by more than half as the airline’s shares stalled due to the COVID-19 pandemic.
As of May 4, when the company’s share price closed at $17.63 on the Toronto Stock Exchange, the total compensation of its president and chief executive officer was estimated at $5.8 million. Air Canada’s shares closed at $16.76 on Monday.
Remuneration of top executives and board members were included in a proxy circular sent to Air Canada shareholders prior to its virtual meeting scheduled for June 25.
Rovinescu, 64, was entitled last year to a base salary of $1.4 million. The value of his share-based awards fell to $1.89 million from $3.55 million, and $3.5 million in options were worthless due to a big drop in the share price. His bonus was also cut by more than half, to $1.6 million from $3.5 million while his pension value was $875,000.
The CEO gave up his base salary until June 30. His total compensation was $11.6 million 2018.
In 2019, Air Canada earned $1.4 billion in profits on $19.1 billion in revenues. COVID-19 turned everything upside down with the airline losing $1.05 billion in the first quarter ended March 31, in addition to forecasts that it would take more than three years to recover from the current crisis.