AC and TRZ Agree to Terminate Arrangement

[Fanblade]

Boeing pulled the plug on the Embraer purchase. From Wikipedia

Boeing terminated the planned joint ventures on April 24, 2020, saying that Embraer did not satisfy the conditions established in their agreement.[33] Industry analysts said that the $4.2 billion deal became unbalanced as Embraer's market value fell to less than $1.1 billion as air travel demand dropped as a result of the impact of the 2019–20 coronavirus pandemic on aviation.[34][35] Industry analysts speculated that Boeing may have also cancelled the deal because it had recently been awarded a U.S. government pandemic relief loan, and wanted to avoid making the impression that funds intended to support U.S. jobs were instead used to secure a deal with a Brazilian firm.[36]

Embraer has rejected Boeing's reasons for the termination of the deal and said the company "has manufactured false claims as a pretext to seek to avoid its commitments" because of its financial condition after the 737 MAX groundings and "other business and reputational problems." [37] Embraer threatened to pursue "all remedies against Boeing for the damages incurred."[37] The agreement had a termination fee of $75 million according to a copy of the merger agreement filed to U.S. authorities.[38] Industry analysts also believe that Embraer may file suit to recover the $100-120 million it spent separating its commercial and military units, and claim lost business opportunities as orders for new jets were slow while customers were waiting for the deal to close.

Is this the kind of bickering we may see in the near future ? AC is seeking government aid, from both the Federal government and the Quebec government. Can government aid money be used to buy a competitor ? What will the public perception be ?

Gilles,

I think AC is just getting the lay of the land at the moment. Figure out if there is any government motivation to help make the deal work. Once they know what the government is, or is not willing to do, they will make a decision on direction.

My bet is if the deal isn’t renegotiated. Or Government doesn’t add sweetener. AC will pull a Boeing.

My money is still on a renegotiation with government support to make the deal happen. But make no mistake. AC will likely attempt to walk as the deal stands. It’s also possible that due to AC’s revised business plan, the transaction no matter the sweetener, is no longer workable.

When the Transat transaction comes up tomorrow listen closely. Evasive deflection and non answers mean something is up. Not re stating a commitment to the transaction, after all the investor angst of late will only fuel more speculation. CR knows this. We will see what he chooses to do. Will he stir the anxiety? Or put it to rest?

My guess is he stirs the pot.

[telex]

Here's a bold prediction.
A Montreal based leisure carrier who does nothing other than ground the entire fleet comes out of this just fine.
Ask Gilles how swift decisive action will save an airline.

[98 Corolla]

Boeing pulled the plug on the Embraer purchase. From Wikipedia

Boeing terminated the planned joint ventures on April 24, 2020, saying that Embraer did not satisfy the conditions established in their agreement.[33] Industry analysts said that the $4.2 billion deal became unbalanced as Embraer's market value fell to less than $1.1 billion as air travel demand dropped as a result of the impact of the 2019–20 coronavirus pandemic on aviation.[34][35] Industry analysts speculated that Boeing may have also cancelled the deal because it had recently been awarded a U.S. government pandemic relief loan, and wanted to avoid making the impression that funds intended to support U.S. jobs were instead used to secure a deal with a Brazilian firm.[36]

Embraer has rejected Boeing's reasons for the termination of the deal and said the company "has manufactured false claims as a pretext to seek to avoid its commitments" because of its financial condition after the 737 MAX groundings and "other business and reputational problems." [37] Embraer threatened to pursue "all remedies against Boeing for the damages incurred."[37] The agreement had a termination fee of $75 million according to a copy of the merger agreement filed to U.S. authorities.[38] Industry analysts also believe that Embraer may file suit to recover the $100-120 million it spent separating its commercial and military units, and claim lost business opportunities as orders for new jets were slow while customers were waiting for the deal to close.

Is this the kind of bickering we may see in the near future ? AC is seeking government aid, from both the Federal government and the Quebec government. Can government aid money be used to buy a competitor ? What will the public perception be ?

Gilles,

I think AC is just getting the lay of the land at the moment. Figure out if there is any government motivation to help make the deal work. Once they know what the government is, or is not willing to do, they will make a decision on direction.

My bet is if the deal isn’t renegotiated. Or Government doesn’t add sweetener. AC will pull a Boeing.

My money is still on a renegotiation with government support to make the deal happen. But make no mistake. AC will likely attempt to walk as the deal stands. It’s also possible that due to AC’s revised business plan, the transaction no matter the sweetener, is no longer workable.

When the Transat transaction comes up tomorrow listen closely. Evasive deflection and non answers mean something is up. Not re stating a commitment to the transaction, after all the investor angst of late will only fuel more speculation. CR knows this. We will see what he chooses to do. Will he stir the anxiety? Or put it to rest?

My guess is he stirs the pot.

My guess is he does nothing of the sort. He will say the deal is going ahead as negotiated right up until it's not. For legal reasons. But people will take this as the deal is actually happening as negotiated because they don't understand he can't say otherwise.

[Gilles Hudicourt]

My guess is he does nothing of the sort. He will say the deal is going ahead as negotiated right up until it's not. For legal reasons. But people will take this as the deal is actually happening as negotiated because they don't understand he can't say otherwise.

I agree. Transat is likely to do the same. It will be in the interest of both corporation not to be responsible for the deal falling thorough, like Boeing blamed Embraer for its decision to pull out. So both companies will state that they are staying on course.

[Gilles Hudicourt]

If there is someone out there that can explain to me how a company shrinking by 33% would justify simultaneously acquiring another company in the same business, I am all ears. Maybe it is politics rather than common sense.

To get rid of a competitor that hurts business ? Not that I say I agree.

The numbers crunchers are going to make that call based on what is in the best long term interests of Air Canada.
A lot of yet unknown variables come into play. Will Air Transat survive ? (Some experts say that half of the World's airlines will go bankrupt this year) If it does, how strong can it come back ? If Transat does come back, how much will it hurt AC business ? Is it cheaper to continue as competing Airlines or to proceed with the purchase ? If AC decides to proceed, how much can be invested in the purchase for it to be financially profitable ? Can the deal be re-negotiated without costly lawsuits ?

Based on all the unknowns, I think they will try to buy time until the dust settles.......if buying time is possible.

[skypirate88]

On the investor call CR said they are in receipt of the assessment but will reserve further comment.

[Kapitanov]

On another note, May 2nd passed, which means Transport Canada (should) has made its recommendation to Minister Garneau. I don't think the info was supposed to go public, and obviously it didn't. BUT, Air Canada CEO and CFO will host a conference call and a webcast tomorrow on May 4th, 2020 at 08:30 ET to announce Air Canada's first quarter 2020 financial results.

Talk about good timing! My guess, tomorrow might be a turning point about the outcome of this transaction. Investors want to know what's the plan and what's really gonna happen with the deal and now that AC is aware of the decision of TC I guess, that conference call could be the perfect occasion to announce big news to the market. There is also a webcast the next day for AC employees only.

Links to the webcast on the AC investor relations page: https://www.aircanada.com/ca/en/aco/hom ... tions.html

Anyhow, stay tuned tomorrow!

If AC doesn’t deal with the Transat transaction during their presentation, someone will ask. There is a good chance the answer will be evasive though. My expectation is continued silence on the subject as AC’s options are still being mulled.

The conference call the next day is to explain to employees the fall out of what will be announced tomorrow. Probably thousands of job losses. I doubt the Transat transaction will be on many AC employee minds. I’m thinking tomorrow there will be thousands of AC employees who will suddenly be wondering how they will feed their family. The last thing they will want to have rubbed in their wound is that they will have to compete with employees from a different company to be recalled.

So for a couple of reasons your thirst for vision on the transaction may not be quenched.

Yup, you were right. They just said during the webcast that they indeed received the answer from Transport Canada, and they are now waiting for the European committee to state on the transaction. Therefore, they "reserve further comment on the transaction".

And from the AC analysis of results: "Furthermore, the acquisition of Transat A.T. Inc. is subject to regulatory approvals and certain customary conditions, and there are no assurances that the acquisition will be completed as described in this MD&A or at all. The forward-looking statements contained or incorporated by reference in this MD&A represent Air Canada's expectations as of the date of this MD&A (or as of the date they are otherwise stated to be made) and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether because of new information, future events or otherwise, except as required under applicable securities regulations. "

Wait and see!

[Localizer]

AC Investor relations call was interesting .. It sounds like management has a solid plan to navigate through the dark times. The E190, 319, 767's are all gone, E190 will depart immediately, so roughly 76 a/c leaving the fleet. A new PR program is being launched to reassure the public that a/c are clean and safe. Rouge is going to take a big hit with fleet reduction and transform into a narrow body fleet, current wide body leisure flying will be done by mainline.

They discussed the steps of the Transat acquisition and where the process is currently at .. but reserved comment on the topic for now.

[jetpilot]

In my understanding this look like the plan from the begining That Rouge become a more local carrier with narrow body aircraft.

[Sharklasers]

In my understanding this look like the plan from the begining That Rouge become a more local carrier with narrow body aircraft.

[Co-Joe Exotic]

Let us know when you spot the table trays being removed from the Buses. That will have AC written all over it.

[Fanblade]

They discussed the steps of the Transat acquisition and where the process is currently at .. but reserved comment on the topic for now.

Figured. Nothing focuses the mind like a hanging in the morning.

Not making a statement to reaffirm their commitment to the Transat transaction just put the anxiety level about its completion up 5 notches.

Look up burning platform.

Doesn’t mean the transaction won’t happen. Just means the sharks are circling.

And by the way guys “no comment” is perfectly legal. It’s about the only legal thing they could say and still stoke anxiety about the deal.

[rudder]

They discussed the steps of the Transat acquisition and where the process is currently at .. but reserved comment on the topic for now.

Figured. Nothing focuses the mind like a hanging in the morning.

Not making a statement to reaffirm their commitment to the Transat transaction just put the anxiety level about its completion up 5 notches.

Look up burning platform.

Doesn’t mean the transaction won’t happen. Just means the sharks are circling.

And by the way guys “no comment” is perfectly legal. It’s about the only legal thing they could say and still stoke anxiety about the deal.

Take a closer look at the call transcript when it comes out.

Yes - commentary on the TRZ transaction was specifically “no comment”.

But read the CR response to a question about potential growth by acquisition (in the hypothetical). Interesting.

[aerodude]

Yes - commentary on the TRZ transaction was specifically “no comment”.

But read the CR response to a question about potential growth by acquisition (in the hypothetical). Interesting.

He did say it was foolish to think about other acquisitions in these times.

[Fanblade]

They discussed the steps of the Transat acquisition and where the process is currently at .. but reserved comment on the topic for now.

Figured. Nothing focuses the mind like a hanging in the morning.

Not making a statement to reaffirm their commitment to the Transat transaction just put the anxiety level about its completion up 5 notches.

Look up burning platform.

Doesn’t mean the transaction won’t happen. Just means the sharks are circling.

And by the way guys “no comment” is perfectly legal. It’s about the only legal thing they could say and still stoke anxiety about the deal.

Take a closer look at the call transcript when it comes out.

Yes - commentary on the TRZ transaction was specifically “no comment”.

But read the CR response to a question about potential growth by acquisition (in the hypothetical). Interesting.

Roughly where in the call?

[CZBBYYZPilot]

Let us know when you spot the table trays being removed from the Buses. That will have AC written all over it.

Not really. Rouge buses all have table trays.

[Localizer]

I don’t recall that question rudder. CR did mention that this is worse case scenario planning .. if demand returns quicker than they anticipate then they can and will ramp up to meet demand. I still think demand will return quickly, personal opinion.

I have to wonder if the shrinkage of Rouge is really market related or because they’re anticipating the deal to be completed and need to make room with regards to scope. I also think AC wants the Neo .. how many options does Transat have on the Neo? Anyone know?

[FL-280]

Localizer... they were quite clear in the call. mike rousseau said: fleet planning is independent from Transat

[Localizer]

True ..

[aerodude]

I don’t recall that question rudder. CR did mention that this is worse case scenario planning .. if demand returns quicker than they anticipate then they can and will ramp up to meet demand. I still think demand will return quickly, personal opinion.

I have to wonder if the shrinkage of Rouge is really market related or because they’re anticipating the deal to be completed and need to make room with regards to scope. I also think AC wants the Neo .. how many options does Transat have on the Neo? Anyone know?

Its about the TRZ brand and the market they want. If AC still wants TRZ, it wont be for the aircraft given the massive surplus capacity. Those A321 are nice but its extra capacity AC doesnt need unfortunately. Remember, AC is deciding to retire 79 aircraft that are mostly owned and not lease obligated like TRZ aircraft. AC is bleeding 20 million a day and dont want extra lease obligations.

The shrinkage at rouge and fleet planning also have nothing with transat in mind as they stated very clearly in the conference call. 767 are going and will be using mainline HD 777's for the rouge widebody routes which are underused now anyways.
CR has also stated AC is going to be smaller coming out of this.