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Canada’s flagship carrier, Air Canada, announced Thursday that it has agreed to purchase Air Transat, another Canadian airline. The exclusive agreement calls for Air Canada to purchase all issued and outstanding shares of Air Transat, valued at just under $387 million USD ($520 million CAD), or approximately $9.67 USD per share ($13 CAD) on a fully-diluted basis. The agreement is not a final deal, however.

The merger would keep allow the Canadian carriers to establish a stronger base of travel operations out of Montréal, a strategic hub for Air Canada and one of the largest airport hubs in North America. Air Canada flights out of Montréal-Trudeau Airport (YUL) connect to 24 US cities as well as destinations in the Caribbean, Europe, North Africa, Asia and South America.

According to stats cited by CBC News, Air Canada currently controls 43 percent of the trans-Atlantic market from Canada, while Transat controls 20 percent. A merger would give the combined entity a vast majority of that important market. Air Transat is a leisure-focused airline that operates high-density configurations onboard its planes. It does not offer a true premium class, just recliners with 36-inch legroom — less than domestic first class in the US, for example. Air Canada on the other hand is a full-service airline with a true lie-flat business class. However, several European destinations are served by its Air Canada Rouge subsidiary, which is what competes directly with Air Transat, using high-density Boeing 767s with very little coach-class legroom, at 30 inches.

The acquisition must first undergo due diligence, regulatory and shareholder approvals as well as final documentation before the purchase can be completed, according to Cowen, an aviation analyst firm. The 30-day exclusive negotiation period allows both airlines to terminate the agreement throughout the evaluation process, although Transat will be responsible for an approximately $11.2 million break fee ($15 million CAD) for backing out, including in the case of a higher bid of acquisition from a third party.

Air Transat currently operates a 33-plane fleet and leases additional aircraft as needed for seasonal service. While many of Transat’s planes are old, they are similar to Air Canada’s existing fleet, which Cowen analysts believe makes the smaller airline a sound acquisition for Air Canada.

Meanwhile, Air Canada’s fleet totals 395: 190 operated by Air Canada proper, and 205 additional planes under its subsidiaries including Air Canada Express, Sky Regional, Jazz, Air Georgian and Air Canada Rouge.

Featured photo courtesy of Air Canada.

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