Adam Smith

Probably low. There are likely very few investors looking to put a lot of money to work in the airline sector at the moment.

More likely that they would pursue a loan-to-own strategy, where they would put money in through a debt structure, on very tough terms. This type of approach would minimize their risk if the airline sector continues to struggle, but give them significant upside if it recovers.

That's if they want to get involved at all, which isn't certain.

YVR72

I don�t see anyone predicting this here, but don�t you think Transat is simply just gone? There is just no market for this airline anymore. No other private investors are interested in the industry, and I hope to hell the feds wouldn�t save them with tax payer money.

Adam Smith

Why? They have a decent amount of liquidity. They're burning through cash, like every other airline, but they have a few quarters left on the cash they have now, and probably can raise some additional capital once the constraints of the AC deal go away.

Says who? The market for all air travel sucks right now, but why shouldn't TS be able to carve out a slice of whatever market remains?

You've clearly missed the many billions of dollars of private capital raised by the sector in recent months.

YUL

Instead of contracting new debts, I'm wondering if raising new capital would void the AC purchase agreement?

By example as a stop gap measure, Transat issuing new shares (obviously at current depressed prices) to an outfit like Caisse de D�p�t - even to the point of majority ownership.

tcook052

I agree. TS isn't done burning through cash as their move to suspend departures from Western Canada this Winter season and refunding deposits already on reservations will see more money going out over the next few months but they should be able to use the cash on hand and borrow more once this AC deal falls apart, which I believe it will, to stay afloat.

TS missed an opportunity over a decade ago to diversify moving from being a charter airline & tour company to a Mexican & Caribbean hotel/resort management company as Sunwing has done with its Blue Diamond Resorts division. TS did buy a 35% stake in Spanish-based hotel & resort chain H10 in '07 for $55M and sold that stake a decade later for $190M and a handsome profit but it didn't really take advantage of the deal which it admitted in 2018 when it promised a $750M plan to launch a hotel division that never came to pass.

I expect TS to survive the short-term but it's medium to long term is more cloudy unless it can fashion some structural changes. Just MHO of course.

Adam Smith

FYI, "raising capital" encompasses not just selling new shares, but borrowing from banks, issuing bonds, sale-leasebacks, etc... But I know what you're asking.

No, that's not permitted, same as incurring new debt. If TS goes down that road, it would give AC the right to terminate the deal due to TS's breach of the agreement.

It's interesting that they're actually paying refunds for those cancelled flights. At least one airline in Canada seems to not be out to completely screw its customers.

YVR72

A few quarters? It�s going to take much more than that. Air Canada and Westjet have already shrunk their airlines by the size of 3 Transats. So, the Canadian industry has shrunk by at least 4 Transats.

Transat has an opportunity to shut down in a respectful and planful way and use that liquidity to take care of their stakeholders. Seems like a good legacy for their brand and contribution to Qu�bec and ROC.

Biscuittin

Why would they opt to shut down while they still hope to be acquired by Air Canada?

tcook052

They aren't refunding them right away but on a staggered basis depending upon departure date; for flights which were confirmed for Nov, for example, refunds are being processed starting 30Dec20 and could take 4 - 6 weeks while flights which had been in Dec. refunds are being processed 14Jan21, and so on. TS is also now in the process of refunding future travel credits for Western passengers that had been issued in the Spring when flights were suspended so there's millions still going out between now and Mar. or Apr.

https://globalnews.ca/news/7236494/a...a-coronavirus/

YUL

So are there any other clever financing tools that would not breach the terms of the agreement?

Adam Smith

I don't think you appreciate what's involved in shutting down a business. That means selling off all of its assets and satisfying its liabilities.

This is the worst market in the aviation sector in decades, if not ever. If they were to attempt to liquidate today, they would be selling assets in to that terrible market, which is likely the worst possible outcome for stakeholders.

What's likely best for pretty much all stakeholders is to do what they're doing and soldier on, eventually obtain some financing once the AC deal falls apart, and hope that things start to pick up in 2021. They probably have 3-5 quarters of running room without raising any additional capital, and if they were to issue some equity and/or find some assets they could sell at a reasonable price and/or borrow money against some of its assets, that would likely maximize value for everyone.

Oh, okay, so they're still screwing customers, just not quite as much as AC and WS.

Unlikely. The prohibitions in the agreement are broad and simple. Generally, the more complex the rules, the more scope for creativity (i.e. exploiting loopholes), and vice versa.

jazzsax

The minute the 14 day mandatory quarantine is over, you will see Transat and Sunwing back as normal. People will start travelling, even on half full planes to the carribean and europe.

Sunwing and Transat has a lower cost base to run their planes. AC has laid off so many based on seniority --- their cost base is still much higher based on their union agreements.

Adam Smith

I'm confused. Will things be normal, or will planes be half full?

There will certainly be some pent-up demand, but getting back to "normal" (pre-COVID levels) will probably take quite a while.

Fiordland

Half empty aircraft for AirTransat is not normal. That said, the destination in Europe I have watching is Faro. With the UK lifting its 14 day restriction on returning passengers airlines like Ryanair started to do double daily flight. I include Ryanair in the same camp as Swoop, as something to avoid like the plague. That said it is an indication that some percentage of the population is ready to vacation in the sun. Canada is probably no different especially when it starts to get cold.

A much small AirTransat should survive, taking people down to Cuba and other warm parts that are as COVID free as Canada.

jazzsax

This is my point. Same as Sunwing... less full planes and they can survive. Their cost base is no where near the same as AC