Air Canada, Air France, PKP, Westjet and the Fly

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It is in few days that Transat shareholders will vote on Air Canada’s  purchase offer. If there is no change by then, Air Canada will take control of Transat A.T.

New partners

La Presse published last week that talks were underway between Air-France, Westjet and Pierre-Karl Péladeau. It’s a minute to midnight for Atos, Portos and Aramis if they want to buy Transat. Before embarking on a bidding war, they must first determine what value they give to Transat.

For an investor who is not in the airline industry, $ 18 Transat shares is a high price. Rising at $ 20 or more offers little prospect of near-term and medium-term profits. Pierre-Karl Péladeau’s approach is personal and does not engage Quebecor. It may therefore decide to invest for the long term part of its assets valued at $ 1.7 billion.

Westjet is in the same situation as Air Canada, it is Transat’s positioning that gives it all its value. Onex, the new owner of Westjet is certainly ready to offer a lot for Transat, but how much? For Onex, having a Québécois partner named Péladeau would save him from being blocked by Quebec.

The Montreal-Paris route is one of the most profitable for Air France and it seeks to strengthen it. Since the arrival of Benjamin Smith, an former Air Canada executive, at the head of the Air-France-KLM group, the company has been evaluating the possibility of expanding into the Quebec market. But it’s a safe bet that Air France is the most cautious of the three in its assessment of the value of Transat.

One option

If the acquisition of Transat becomes too expensive, it is still possible for the three musketeers to launch a new company. Obviously, this path is much longer and requires patience. Air-France and Westjet should then ask themselves if they still need a partner from Quebec.

If Air Canada moves forward with the acquisition of Transat, it will have to go in front the competition bureau. It is to be expected that the latter will force Air Canada to abandon certain landing slots. These slots should be mostly in Montreal and Toronto. This is an opportunity that Air France and Westjet will have to seize.

The MACH group

The latest revelations about Vincent Chiara’s approach to acquire Transat are astonishing. The president of the MACH group spontaneously decided to approach Transat’s management in order to acquire it. At that time, Transat was already in discussion with Air Canada and Mr. Chiara’s offer was denied. Despite the rebuff, he persevered without contacting any shareholder of Transat. Then He submitted a formal offer that implied assistance from Quebec without having contacted anyone in the government. When ONEX announced that it was acquiring Westjet, Mr. Chiara never approached its leaders to discuss a possible alliance.Vincent Chiara wanted to acquire Transat in the same way as a commercial building worth tens of millions. He made an offer without having first secured his financing and especially without consulting anyone. His role in this story is very similar to that of the fly in Lafontaine’s fable “The Stage-Coach and the Fly”.

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