Could AC Buy Transat? 16May19 Update: AC enters into agreement to buy Transat
 

Some analysts think it should:
https://business.financialpost.com/t...group-analysts

"Air Canada" has some limitations on its cost structure, from its enabling legislation, and union arrangements.

Could AC pull a NSPI/Emera type inversion, encapsulating its legislated/regulated/union business inside a more free dealing ownership structure? One that operates non-union, non-regulated specialty services, maintenance, etc? I have no idea, from a legal or other perspective.

But some inverted organization could, with management skills, in theory do well running both an entirely different kind of airline, as well as running (with non-union crews, and selling to others) ancillary operations, competing against, with a major customer locked in, Swissport, Gate Gourmet, etc.

"Airline analyst Robert Kokonis, president at AirTrav Inc., who is not involved in the transaction, said it could be a “good fit” if Air Canada were to buy Transat due to the similar asset mix. Both airlines operate Airbus aircraft, whereas WestJet uses Boeing planes, he said."
Maybe said analyst should update his information....

Air Canada would need a new name for their new, low cost airline. How about Rouge? ;)

Seriously, if the buying entity was Rouge, not mainline, then that would fit your requirements, no?

I can't imagine the competition bureau would allow AC to eat Transat.

Oh great, Rouge squared.

No, Gimli and Azores Gliders! :)

I was thinking grander than that. ACml still has to dance with the unions, for example.

But just brainstorming, not suggesting.

I can't imagine that the economics of that approach would result in a bid value and a viable net cost for aircraft to AC that would win in a multi-bidder contest for Transat A.T. Plus the Competition Bureau questions if the idea is to simply take aircraft and shutdown Air Transat.

If Transat was on the verge of insolvency that would be a different story.

If AC takes over Transat, Canadian non-U.S. international market is basically the world of AC.

So actually, Westjet taking over Transat makes more sense.

If AC bids and pushes up the price, such has the effect of weakening a potential non-AC acquisitor. So basically its in AC's best interest to put a bid pretty no matter what happens.

A cursory look at the financials shows ~$600M of book value of the company, and a current market cap of ~$320M. So there's definitely value there . The aircraft, minus the end of life A310's, basically integrate cleanly into their fleet (the 737-800s could even survive pending AC's determination of the 737Max outcome).

Why? Book values often don't correlate to market values.

Transat's underlying business has been unprofitable for years. They've eked out some net income due to one-off asset sales a couple of times, but flipping assets like that is generally not a way to build a sustainably profitable business. Especially if you're earning your gains on sale by selling off the best bits of the company (I don't know their assets well enough to say whether that's the case, but it's a common occurrence for companies that aren't doing well to sell off some of their best assets that are away from the core business, in order to fund an attempt to reinvest in the core business).

If they can keep selling off tour operators, hotels, and other assets, maybe there's profit to be had in a break-up, but there's also a massive off-balance sheet liability in the operating leases, which have future obligations of $2.4 billion.

If I were AC, I would definitely kick the tires, but I would be wary not only of the Competition Bureau (almost certain problems there), but also the ragtag collection of tour operators, hotels, etc that Transat owns. Some very different businesses from running an airline.

If anything, I would expect AC would have interest in buying the airline business (roll it in to rouge) and perhaps leave Eustache & Co. to go run the remainder of the business on its own. Whether that stuff is viable without an airline sitting in the group, who knows.