AC and TRZ Agree to Terminate Arrangement

Gilles Hudicourt · Post by **Gilles Hudicourt** » Thu Jun 11, 2020 8:55 am

Just before the Air Canada purchase offer, TRZ shares were in the 4.60 to 5.50 range, about what they are today.
In the years prior, Air Canada had invested heavily in creating Rouge, an airline that we all knew had been created to kill Transat. Rouge began competing with Transat on markets Air Canada had never served in its history. Often, when setting off for Europe, we would see a Rouge 767 serving the same destination, the same day of the week and at nearly the same time. The intent was clear. Certain routes were saturated with seats but Transat didn't back off, like they had done in similar situations in the past. Instead, they maintained service.

This went on for several years. Finally out of the blue, came the purchase offer. We didn't see it coming. It was a big surprise. First at $13, then at $18. Those offers were not based on the pre-offer value of TRZ shares, but on what Air Canada was buying: Transat's market share. Transat route structures, slots, aircraft, pilots, mechanics, savoir-faire were only gravy to Air Canada. What they were paying for was Transat's market share. They were getting rid of a big competitor on Europe, a fairly big one on Sun destinations.

Does Air Canada still want to to purchase Transat ? Well the real test is if the reasons that led them to make the offer in 2019 still stand for 2020, 2021, 2022, if the competition that existed before 2020 will still exist in the future. Time will tell.

Sharklasers · Post by **Sharklasers** » Thu Jun 11, 2020 9:33 am

Gilles Hudicourt wrote: ↑Thu Jun 11, 2020 8:55 am Just before the Air Canada purchase offer, TRZ shares were in the 4.60 to 5.50 range, about what they are today.
In the years prior, Air Canada had invested heavily in creating Rouge, an airline that we all knew had been created to kill Transat. Rouge began competing with Transat on markets Air Canada had never served in its history. Often, when setting off for Europe, we would see a Rouge 767 service the same destination, the same day of the week and at nearly the same time. The intent was clear. Certain routes were saturated with seats but Transat didn't back off, like they had done in similar situations in the past. Instead, they maintained service.

This went on for several years. Finally out of the blue, came the purchase offer. We didn't see it coming. It was a big surprise. First at $13, then at $18. Those offers were not based on the pre-offer value of TRZ shares, but on what Air Canada was buying: Transat's market share. Transat route structures, slots, aircraft, pilots, mechanics, savoir-faire were only gravy to Air Canada. What they were paying for was Transat's market share. They were getting rid of a big competitor on Europe, fairly big one on Sun destinations.

Does Air Canada still want to to purchase Transat ? Well the real test is if the reasons that led them to make the offer in 2019 still stand for 2020, 2021, 2022, if the competition that existed before 2020 will still exist in the future. Time will tell.

Air Transat did a good job considering the circumstances. As Jm stared TRZ has 42 years of experience dealing with difficult situations and is now drawing on that to do the best they can.

The TRZ conference call highlights include the fact that ‘pretty well all’ of the July restart requires political changes from the respective destination countries (I found it amusing that they clarified that as of today Transat can fly to all those destinations, just without passengers) , deferred lease obligations become due in 90 days which represent a substantial charge, and JMs odd retort to CIBC over the question of cash burn and minimum cash requirements going forward.
Today was the first time we saw Transat executives acknowledge with any elaboration that the deal is far from assured at this point and that it is in talks with bankers for bridge financing that will breach the covenants of the purchase agreement that would give AC an opportunity to end or renegotiate the deal.
The announced reduction to the A330 fleet will mean less work to go around and less jobs after a recovery as well as a potential breach of section 4.1.2(I) of the arrangement agreement regarding the disposal of assets

TRZ is in a tough spot. A lot of the moves it would likely make like secure more liquidity and make structural changes to its organizations and fleet to adapt are prohibited by the purchase agreement. The longer the approval process the longer it is before Transat can access those tools that other airlines are using to help weather this storm.

Localizer · Post by **Localizer** » Thu Jun 11, 2020 12:18 pm

The announced reduction to the A330 fleet will mean less work to go around and less jobs after a recovery as well as a potential breach of section 4.1.2(I) of the arrangement agreement regarding the disposal of assets

A lease is typically not considered an asset as the lessor is the owner of the asset. Some contract language will use the term "contractual asset" but not usually considered a "company asset".

Sharklasers · Post by **Sharklasers** » Thu Jun 11, 2020 12:45 pm

Localizer wrote: ↑Thu Jun 11, 2020 12:18 pm
The announced reduction to the A330 fleet will mean less work to go around and less jobs after a recovery as well as a potential breach of section 4.1.2(I) of the arrangement agreement regarding the disposal of assets
A lease is typically not considered an asset as the lessor is the owner of the asset. Some contract language will use the term "contractual asset" but not usually considered a "company asset".

From the agreement
Corporation Aircraft" means all Aircraft owned, leased or subleased by the Corporation or one of its Subsidiaries (excluding any wet lease where the Corporation or one of its Subsidiaries is the wet lessee) or otherwise operated by or on behalf of the Corporation or one of its Subsidiaries, including all Seasonal Aircraft that are not subject to a wet lease where the Corporation or one of its Subsidiaries is the wet lessee.

"Corporation Assets" means all of the assets (tangible, corporeal, intangible and incorporeal), properties (real, immovable, personal or movable), rights, interests, Contracts or Authorizations (whether contractual or otherwise) owned, leased, licensed or otherwise used or held for use by the Corporation or any of its Subsidiaries, including the Corporation Owned Properties and the Corporation Leased Properties and any Corporation Aircraft, Corporation Engines, Corporation Parts, machinery, equipment, fixtures, furniture, furnishings, office equipment, Corporation Intellectual Property, Business Systems, Corporation Data, supplies, materials, vehicles, material handling equipment, implements, parts, tools, jigs, dies, moulds, patterns, tooling and spare parts and other assets.

(i) except as disclosed in Section 4.1(2)(i) of the Corporation Disclosure Letter, sell, sell and lease back, pledge, licence, lease, sublease, alienate, dispose, swap, transfer or voluntarily lose the right to use, in whole or in part, or otherwise dispose of, or subject to any Lien (other than Permitted Liens), any Corporation Asset

rudder · Post by **rudder** » Thu Jun 11, 2020 12:55 pm

A lease is not an asset. It is a liability and shows up as a debt obligation.

Sharklasers · Post by **Sharklasers** » Thu Jun 11, 2020 1:06 pm

Your confusing asset like on a balance sheet and asset like something the company uses to generate revenue.

Please see how both AC and TRZ define corporation asset and corporation aircraft in their purchase agreement.

They very clearly define leased aircraft as an ‘asset’ for the purposes of the agreement.

https://www.transat.com/getmedia/b39fdc ... 1.pdf.aspx

Localizer · Post by **Localizer** » Thu Jun 11, 2020 2:35 pm

I see your point, maybe the new aircraft coming in are replacing what’s leaving so the sum is still the same.

FL320 · Post by **FL320** » Fri Jun 12, 2020 3:47 pm

https://www.lapresse.ca/affaires/entrep ... estisseurs

Looks like investors were expecting 247 millions liquidity instead of the actual 409 millions. Monthly fees reduced at 15 millions instead of 60; I don’t see the company going bankrupt as fast as some mentioned here. Altipiano I let you translate.

Gilles Hudicourt · Post by **Gilles Hudicourt** » Fri Jun 12, 2020 4:30 pm

Sharklasers wrote: ↑Thu Jun 11, 2020 9:33 am The announced reduction to the A330 fleet .......

Excuse me but I read what I had, I googled, I made some phone calls.....

No one I know has heard of the "Announced reduction to the A330 fleet" you are talking about. Can you elaborate please ?

rudder · Post by **rudder** » Fri Jun 12, 2020 4:40 pm

Apologies for the format -

Q2 2020 Transat AT Inc Earnings Call Montreal Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Transat AT Inc earnings conference call or presentation Thursday, June 11, 2020 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Annick Guérard Transat A.T. Inc. - COO * Christophe Hennebelle Transat A.T. Inc. - VP of HR & Corporate Affairs * Denis Pétrin Transat A.T. Inc. - VP of Finance & Administration and CFO * Jean-Marc Eustache Transat A.T. Inc. - Chairman of the Board, President & CEO ================================================================================ Conference Call Participants ================================================================================ * Benoit Poirier Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst * Cameron Doerksen National Bank Financial, Inc., Research Division - Analyst * Kevin Chiang CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Analyst * Konark Gupta Scotiabank Global Banking and Markets, Research Division - Analyst * Mona Nazir Laurentian Bank Securities, Inc., Research Division - Director of Research and Transportation & Infrastructure Analyst * Tim James TD Securities Equity Research - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (foreign language) Good Morning, ladies and gentlemen, welcome to the Transat conference call. (foreign language) I would now like to turn the meeting over to Mr. Christophe Hennebelle, Vice President, Corporate Affairs. Mr. Hennebelle (foreign language). Please go ahead, Mr. Hennebelle. -------------------------------------------------------------------------------- Christophe Hennebelle, Transat A.T. Inc. - VP of HR & Corporate Affairs [2] -------------------------------------------------------------------------------- Thank you. Hi, everyone, and welcome to the Transat conference call for the presentation of the financial results of the second quarter ended April 30, 2020. I'm here with Jean-Marc Eustache, President and CEO; Annick Guerard, COO; and Denis Petrin, our CFO. Jean-Marc will provide his comments and observations on the current situation followed by Annick, who will focus on our operational and commercial plans for the future before Denis reviews the financial results in more details. We will then answer questions from financial analysts. Questions from journalists will be handled offline. The conference call will be held in English, but questions may be asked in French or English. As usual, our Investors presentation has been updated and is posted on our website in the Investors section. Denis may refer to it as he presents the results. Today's call contains forward-looking statements. There are risks that actual results will differ materially from those contemplated by these forward-looking statements. For additional information on such risks, we invite you to consult our filings with the Canadian securities commissions. The call also contains certain forward-looking statements concerning transaction involving the acquisition of all the shares of the corporation by Air Canada. These statements are based on certain assumptions deemed reasonable by the corporation, but are subject to certain risks and uncertainties, several of which are outside of the control of the corporation, which may cause actual results to vary materially. In particular, the completion of the transaction with Air Canada will be subject to customary closing conditions, including regulatory approvals, particularly authorities in Canada and the European Union. These approvals -- these approval processes are ongoing, and the details of the transaction with Air Canada will be discussed in a few minutes. Forward-looking statements represent Transat's expectations as at June 11, 2020, and accordingly, are subject to change after such date. However, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law. Finally, we may refer to IFRS and non-IFRS financial measures. In addition to IFRS financial measures, we are using non-IFRS measures to assess the corporation's operational performance. It is likely that the non-IFRS financial measures used by the corporation will not be comparable to similar measures reported by other issuers or those issued by financial analysts as their measures may have different definitions. The measures used by the corporation are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial performance measures. Additional information on non-IFRS financial measures, such as their definition and their reconciliation with the more comparable IFRS measures, are available in our annual report. With that, let me turn the call over to Jean-Marc for his opening remarks. -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [3] -------------------------------------------------------------------------------- Thank you, Christophe. Good day, everyone. There are world-changing events and the COVID-19 pandemic is certainly one of them. We are reading a lot these days about what the world will be like going forward. Some are concerned about the devastating recession for the world economy, others hope that we will seize the opportunity to correct all of our previous failing from the way we care for our seniors to our ecological footprint on the planet. I won't make general predictions, but one thing is certain, the travel industry is going to be profoundly transformed. What we have experienced over the last few months cannot be compared with any past events. The magnitude of the crisis put this situation in a category of its own, quite different from what we experienced with 9/11 in 2001, SARS in 2003 and the global economic crisis in 2009. According to the International Air Transport Association, global air transportation capacity decreased by 87% in April compared to 2019. And international traffic in terms of passenger kilometers fell by 98%. In plain language, the very few aircraft that flew during the month of April, where the only market where March 2020 was not the lowest point in the last 30 years with the Chinese domestic market, which has become to recover. At the end of May, the number of flights have increased by 30% from the low point reached in April, but while still 73% below the volume of January (inaudible). Also, according to IATA, worldwide airline revenues are expected to fall by 55% this year compared to 2019. This represents USD 314 billion in lost sales. If we look more broadly at the tourism industry, the United Nations World Tourism Organization estimates that 67 million international arrivals were less in March, resulting in a shortfall of USD 80 billion. Depending on the scenarios, the organization estimates that the decline over the entire 2020 year will be between 58% and 78%. (inaudible) destination Canada believes that the decrease in spending by travelers in Canada in 2020 will be somewhere between CAD 36 billion and CAD 62 billion, a drop between 35% and 59%. The impact on unemployment will be between 263,000 and 450,000 job losses. For the record, there was no decline in 2001, whereas there was a 3% and 5% decline in 2003 and 2009. All of these figures are rather difficult to envision, but they administrate the university -- the universe in which Transat is evolving today. And our results for the quarter and winter season should be read in that context. Denis will provide you with the detail in a few moments, but I would like to give you the outline. For the quarter, our revenues are down 36% compared to the same period last year. The operating loss was $30 million, $26 million worse than last year, which leads to the following results for the entire winter season compared to the corresponding 6 months period last year. Revenues, $1.3 billion, down 80 -- 18%, operating losses of $55 million compared with $52 million in 2019. Adjusted operating income of $49 million against $33 million in 2019. Adjusted net loss of $55 -- $59 million compared with $46 million. Net loss attributable to shareholders of $213 million compared with $54 million. I want to remind you that our second quarter covers the period from February to April. So the impact of the pandemic is felt only over 1.5 months. The impact is very strong on the net income as per financial statement, even if some of it is unrealized and a portion of that has already been reversed due to the upward evolution of the price of oil and the value of the Canadian dollar. But when you look at the operational results, it is much less so. The 2 -- there are 2 main reasons for this. The first is the very good performance at the beginning of the year. As I was saying, the pandemic only hit at the end of the past year, whereas we are -- very promising start to the year. At the end of February, our adjusted operating income for the first 4 months of the year was up $63 million over 2019. We were on track to return to profitability or at least to breakeven for the winter season after many years of losses during that period. These strong lead in the first 4 months was erased by the result of the last few weeks. The second reason is the speed with which we react. We announced, as early as March 18, that we will be temporarily suspending our operations. Until April 1, we operated very costly repatriation flights to bring our customers back to their own countries. And then we stop all our flights and reduced our expenses to the bare minimum. We negotiated with all of our suppliers, including aircraft lessors, to reduce or defer all possible costs. And we laid up -- laid off up to 85% of our staff. We were fortunate to have a very strong balance sheet before the arrival of the coronavirus. As at April 30, total cash was similar to last year, $1 billion, including $50 million drawn under our revolving term credit facility. And $337 million placed in trust account or otherwise reserved. As a precautionary measure, we were doing like the vast majority of our competitors and moving on with different options, while exploring all possibilities for increasing cash flow. including approaching our bankers and the various levels of government. In retrospect, I think the suspension of operations was the right decision. It has enabled us to limit the damage in the period that has just passed and now put us in a position to consider resuming operations as we are announcing today. Annick will speak to you at a greater length, but we intend to reopen 23 international routes during the summer season that expands until the end of October. The restart will be the basis for the gradual rebuilding of our capacity in the coming months. To evaluate for future demand, we need to answer 4 questions: will customers be allowed to travel? Will they feel like it? Will they be able to afford? And will they be afraid of catching the virus if they do? The first issue implies the removal or easing of the travel restriction that had been introduced in the recent months by various governments. Our recovery is conditional on that, but we see many encouraging signs in this regard. For the rest, Transat is particularly well positioned to take advantage of the demand that will begin to emerge again. First, we expect travel to resume with what we call VFR, or visiting friends and relatives and then for vacation travel well before business trial. All the indications today are that. After long weeks in lockdown, customers are eager to travel as soon as it is safe to do so. Several studies support this. VFR and holidays happen to be exactly the 2 segment in which we operate. And we offer our customers the best cost travel option. Second, our good image with consumer and our high satisfaction rates as well as the level of support that we are providing as a tour operator will enable us to offer our customers the promise of an experience that meets their expectations. More specifically, with respect to COVID-19 the Traveller Care program, which we are announcing today. We provide travelers with measures that will accompany them throughout their experience, at the travel agency, at the airport, onboard the aircraft and our -- their distinction. Annick will elaborate on this. We are currently stepping up the transformation of our fleet to focus it around the Airbuses as has been our plan. And more specifically, the Airbus A321neo long range, which are the ideal aircraft in the current circumstances. Fuel efficient with a long range and reasonable number of seats. This is the aircraft we need at the moment. We are -- we have permanently removed the Airbus 310 from the fleet. And we are continuing to negotiate with the leasing companies to return some of the other aircraft. It is also very likely that concern for environment will be even greater during the recovery than it was before. Here, again, Transat is well positioned. We are the first major tour operator to receive Travelife certification for all of our activities. And we have made greenhouse gas reduction a priority. As illustrated, in particular by our participation in the SAS Plus consortium. Finally, our start to the fiscal year is very encouraging and showed that we are able, before the start of the pandemic, to generate profit from our activities in all our markets, much more so than in previous years. We are beginning to reap the benefits of the reorganization of our revenue management structure, and this increased expertise will be invaluable when volume returns. We, therefore, believe that we are very well positioned to benefit from the recovery, which we will pursue cautiously, of course, in order to be ready to deal with a positive over research of the pandemic and the new restrictive measures that might accompany it. It is likely to be a long time, probably several years, before demand return to its 2019 level. Some people are talking about 2023, but it's very difficult to predict. In any case, we expect Transat to operate on a reduced basis for the foreseeable future. But this is also an opportunity to review the way we do things, to simplify our structures and to become even more agile and efficient. An issue that has been much debated recently is that of future travel credits for customers whose flights were canceled as a result of the pandemic. I would like to say a few words on this. To begin with, I think that the travel credit, which is valid for 24 months, is a satisfactory option under the circumstances for most of our customers, who will soon be able to use it to travel with us again. That said, we fully understand that some of them have no intention or ability to travel and would like a refund. We also like to be able to offer it to them, provided the burden is not excessive. Much has been said about the American and European airlines, which have been ordered by their respective government to give refunds and some (inaudible). However, what is overlooked is that the government demand has been accompanied by assistant plans that are out of all proportion to what we have seen in Canada. For most of the large companies, government assistant plans, whether in form of a loan or a grant, have amounted to billions of dollars or euro. Canada has yet to come up with any specific support plan for the airline industry. So I say clearly to the various level of governance, help us find a solution that is acceptable to all stakeholders, and we are all for it. The objection will be made that there are programs such as the LEEFF or (inaudible), it is true. But these programs are not designated -- designed for the airline industry and do not fully meet its particular needs. With respect to the views, specifically, Transat has made the choice to all of its laid off employees to benefit from it and then renewed what -- choice when it was extended until August 29, and we are very pleased that this program exists. We did so because we are convinced that our employees are central to Transat's success, and we want to help them as best as we can through this difficult period. This is the kind of commitment that help us to be ranked eighth best employer in Canada in Forbes Magazine latest list. But 85% of the subsidy we received this week goes to pay employees who are not working and would not have cost the company anything if the subsidy did not exist. We were happy to collect the remaining 15% under the salaries of our employees who are actually at work, but that's a pretty small amount compared to the needs of an airline. I will conclude by mentioning the Air Canada transaction, which is the subject of much speculation. Of course, we remain firmly committed to this transaction and to the commitments we made to Air Canada. However, it must be noted that several factors beyond our control could influence the outcome of the proposed arrangement. The market conditions of the world industry have been completely transformed by COVID-19. On the one hand, this is impacting our operations and cash flow and could force us to take a number of measures in response, including the use of certain additional sources of financing. While our ability to take these measures is limited and framed by the commitments made under the arrangement agreement with Air Canada. On the other hand, it could also impact the ability to reach an agreement with the regulatory authorities on an adequate set of quality measures to secure the necessary regulatory approvals. Nevertheless, at this stage, the process of seeking this approval is ongoing, and we are making sure that whatever happens, we will be prepared to deal with the situation in the best interest of all stakeholders. The employees, suppliers, partners and shareholders. I will now turn the discussion over to Annick to talk about our recovery plan, and then Dennis will comment on our results in more detail. -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [4] -------------------------------------------------------------------------------- Thank you, Jean-Marc. So as Jean-Marc mentioned, we are very pleased to be announcing today that we are resuming our operation starting July 23. And of course, we will do so in the best financial and sanitary conditions. Based on detailed analysis of current assumptions on demand recovery, we have developed a new flight program that will offer 22 destinations in Europe, the South and the Caribbean, Florida and Canada until the end of the summer season on October 31. So for a total of 28 routes. As well to address the concerns caused by COVID-19 and to prioritize the safety of our customers and employees, we will be implementing new health measures as part of our new Traveller Care program. In compliance with the recommendations and requirements of regulatory authorities, these measures will accompany our customers throughout their travel experience from the travel agency, to the airport, to the onboard and to the destination. So looking in more details at our summer flight program. Starting July 23, we will gradually operate direct flights from Montreal to Athens, Bordeaux, Lisbon, Lyon, Nantes, Marseille, Paris and Toulouse. As for Toronto, we will offer direct flight from Athens, Glasgow, London, Manchester, Porto and Rome. As for South destination and the U.S. market, we will offer direct flights to Cayo Coco in Cuba, Cancun, Fort Lauderdale, Punta Cana from both Montreal and Toronto, in addition to one direct flight a week to Port-au-Prince, Haiti, from Montreal. Finally, we will also offer domestic flights between main cities in Canada, Montreal, Toronto, Calgary and Vancouver. So overall, we will be offering these 28 routes. And depending on demand and the easing of regulatory restrictions, we may enhance our flight schedule for the month of September and October. A word on the fleet. Most of our summer program will be operated by A321neo long range. We will be receiving 3 additional of these aircraft in the weeks to come, a perfect aircraft for our mission and exactly the type of aircraft we need right now to restart our operation, giving us ability, agility and flexibility. It is worth mentioning that through this crisis, we are seizing the opportunity to accelerate the transformation of our fleet towards a full Airbus fleet like we had announced in the past, which will allow us to become more efficient and provide a better experience to our customers while taking an important step towards reducing our environmental footprint. Therefore, we have retired the remaining A310s, and we are actively negotiating anticipated return for our B737 fleet. We also -- we are also negotiating anticipated returns of some of our A330s to align our capacity with future reduced demand. Our objective is to have simplified our fleet from 4 aircraft types to 2 aircraft types by 2021, fleet composed mainly of Airbus 330 and A321. Regarding the program, of course, we will be offering flexibility to our customers. As we restart operation, we understand customers will expect flexibility from us. We are fully aware that travel plans can change. We are, therefore, implementing a travel policy offering more flexibility to travelers, whose flights are scheduled to operate this summer. They will be able to make changes to their plan if they are already booked on the fights that we will be operating. All details regarding our flexibility policies will be available on our websites as of today. As for our new health and safety program, we are proud to unveil the Traveller Care program. We understand that people can have a strong desire to travel, but they also need to be strongly reassured that we will be implementing best-in-class health and safety measures. Our goal is to ensure that health and safety of both our customers and employees will be taken care of. These measures are based on recommendation from civil aviation, regulatory authorities, including the International Civil Aviation Organization, guidelines from the Government of Canada, Transport Canada, Public Health Agency and, of course, jurisdiction of the countries to which we travel. Traveller Care program take into consideration expecting social distancing, limiting physical contact, reducing handling. Overall, travel experience has been completely revisited from the visit to the travel agency -- Transat travel agency at the airport, onboard our aircraft and, of course, at destination. Let me share just a few highlights. At our Transat travel agencies, clients will be encouraged to make appointments before presenting themself at a branch. There will be a limit of one client per consultation. At the airport, passengers will be strongly encouraged to check in online to limit contact. Passengers will be asked health-related questions, and counters and self-service kiosk will be regularly disinfected. Boarding will be changed, will be done by rule of seat from back to front. Passengers will -- special needs will always be able to put first regardless of the seat numbers, of course. Onboard, all necessary precautions will be taken to provide a safe in-flight experience. All of our passengers will receive complementary traveler kit, including a face covering, gloves, hand sanitizer and disinfecting wipes. All passengers and crew will be required to wear face covering throughout the flight. The in-flight service will be revised to reduce handling and contact. And as for aircraft cleanness, onboard all aircraft, passengers and crew can count on reliable, high efficiency particulate air filters, which eliminates almost 100% smart particles such as bacteria and viruses and refreshing cabin air every 3 minutes. The aircraft will be thoroughly clean with hospital-grade disinfectant before each and every flight. And every 24 hours the aircraft cabins will be thoroughly cleaned and disinfected following a strict 82-point program in addition to electrostatic disinfection of the cabins. Finally, a destination. We have been working with all our partners over the last months. They are implementing rigorous health and safety protocols, so that travelers can enjoy their vacation with complete peace of mind. Our partners take this matter, of course, very seriously and have been very proactive in reviewing their guest experience. These protocols will be made available to consumers through our website. We will also have reinforced preventive measures during road transfers, such as reduced number of passengers on each bus and the transfer bus will be thoroughly clean and disinfected after each transfer. Provide support at destination, Transat representatives will always be available for our customers. So I will stop here and close by saying that, again, we are very pleased to announce the restart of our operation, and we are fully committed to take this as a first step towards getting healthy operations back on track from both a business and financial perspective. -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [5] -------------------------------------------------------------------------------- Thank you, Annick. And good morning, everyone. A few additional comments on the results and liquidity. The winter started on a very positive note, Q1 and February being much more profitable than last year. Including February, the adjusted operating income improvement was $63 million year-over-year, plus $35 million in Q1 and an additional $28 million for February only. We were aiming for our best winter results since 2009. Nevertheless, second quarter results starting in March were significantly impacted by the COVID-19 pandemic. Starting in mid-March, restriction on international travel and government-imposed quarantine measures made travel sales very difficult. Flights operated during the last 2 weeks of March were mainly intended for the repatriation of our customer to Canada or their own country, resulting in considerable cost. Thereafter, we suspended all of our flights as of April 1. March and April annihilated all the improvement of the first 4 months of the winter. Q2 results were then as follows: revenue of $571 million, down 36%; and adjusted operating income of $21 million compared with $40 million last year; and adjusted EBIT of minus $39 million compared with minus $7 million last year; and as per financial statement, the net loss attributable to shareholders was $180 million and included an unrealized loss, unchanged in fair value of derivatives of $89 million caused by the collapse in the jet fuel prices. Since then -- since the end of April, the price of fuel (inaudible) up and reversed $40 million of that amount. Also included, an unrealized foreign exchange loss of $30 million, mainly related to the reevaluation of aircraft lease obligation, IFRS 16, following the degradation of the Canadian dollar versus the U.S. dollar as at April 30, 2020. Canadian dollar versus the U.S. dollar also (inaudible) up and reversed as of Monday, $24 million of that amount, the one that I was referring to, the $32 million. Finally, included a reduction in the carrying value of deferred tax assets of $22 million. Obviously, those tax attribute remain fully valued and will be applied against future profit. Now for our balance sheet. Corporation free cash totaled $734 million versus $796 million a year ago. The variance is mainly due to a net reduction from mid-March of deposits from clients for the summer season, roughly $125 million, the acquisition of 2 spare engines to equip our new A321neo aircraft, $33 million, partially offset by the drawdown of $50 million from our revolving credit facility. Cash interest or otherwise reserved totaled $337 million. The deposit for future travel stood at $605 million compared with $630 million at the same date last year. The variance versus the amount of $809 million at the end of January is due to seasonality of our operations. Of the deposit for future travel as of May 31, travel credit voucher granted to customer in compensation for flight cancel due to the COVID-19 pandemic, amounted to $416 million. Off-balance sheet agreements stood at $1.1 billion as of April 30, and it is mainly related to the 14 aircraft A321neos to be delivered until 2023. One Airbus A321neo was added to our fleet in February. The rest of the decrease, since October 2019, is due to the revision of the estimated rent to be paid over the term of those lease, following the drop in interest rate on which the future rents are based. Lastly, we have very quickly implemented a series of decisive financial measures, including cost reduction, aimed at preserving our cash. Before the crisis, our fixed cost represent roughly $60 million a month and consisted of salary for $35 million a month, aircraft rent for $15 million a month and other fixed costs for $10 million a month, totaled $60 million. We started by putting in place measures to reduce expenses related to those fixed costs. Example, on salary, temporary layoff amounted to 85% of our workforce. About half of the costs related to the 15% of the workforce remaining was reduced by the amount obtained from the Canada Emergency Wage Subsidy. Salary reduction were also implemented for higher management. Globally, the $60 million per month of fixed costs was brought to $25 million. We continue by implementing other measures to protect short-term cash flow associated with the $25 million of fixed cost remaining. Example, on aircraft rents, we negotiate deferrals of rents for a certain period of time. Those discussions are obviously continuing. Globally, the resulting $25 million of monthly expenses was brought to $15 million when based on cash flow. Finally, other measures were taken to preserve our liquidity. Deposits from clients referred earlier, for which we have issued travel credit vouchers, ongoing discussions with suppliers to revisit our major contracts. And as a precautionary measure, considering the unknown resulting from the COVID-19 pandemic, like many of our competitors, we are having discussion with our bankers and the various levels of governance. Finally, as you can read in our press release this morning, we will not, for kind of obvious reason, provide any outlook for the rest of the summer, nor for winter 2021 at this stage. We will now proceed with your questions.

rudder · Post by **rudder** » Fri Jun 12, 2020 4:41 pm

================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (foreign language) (Operator Instructions) First question is from Kevin Chiang with CIBC Capital Markets. -------------------------------------------------------------------------------- Kevin Chiang, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Analyst [2] -------------------------------------------------------------------------------- Maybe this one's for Denis. Good job on reducing the fixed costs from $60 million pre-COVID to $10 million to $15 million a month since the shutdown. I guess just wondering a couple of things. One, when you think of your daily cash burn, would it effectively be that $10 million to $15 million you're seeing on a monthly basis plus any CapEx? Or are there other cash outflows we should be considering? And then two, when you look at your, I guess, your unencumbered cash on your balance sheet, what do you think the minimum cash you'd like to keep on the balance sheet in terms of just running the operations? When I look at the $734 million you have -- you had at the end of fiscal Q2. -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [3] -------------------------------------------------------------------------------- As we said, suspension of activities of flights took place on April 1. And lots of measures were put to reduce fixed costs, not to incur more expenses. And like I explained, more disbursement related to those fixed costs to continue. I think we've done everything we could in order to stop that. Now we also have to -- when looking at our cash required for the company, we're -- also have to manage the account payables that were there at the time where we stop our flights and also the deposit from clients. Then very difficult to put in numbers per day that we'll make -- or per week or per month that where we will continue to pay that amount over a period of time because the total of our -- of what will affect our liquidity today is cash flow related to fixed costs, okay? Explain; second, reimbursement to client, if we have to; third, payment to supplier. And with supplier, we have not stopped payment, obviously. We want those suppliers to be in good shape when we will restart. And those one have collaborate with us for many, many years. Then it's also our role to make some payment for it, everyone around us to stay in operation and ready for the restart that Annick was just referring to for the end of July. Then we consider that our cash position is where it should be. Like Jean-Marc said, very happy to have had a solid balance sheet at the beginning. Let's all remember that we have sold assets and participation in different companies a few years ago, and all of that cash, we have -- not been reinvested in hotels and things like that up to now, then solid position to start. Now not a lot of visibility. And because of that -- that's why we are having discussion with bankers and having discussion with government to see if there is a program that could or something that we could put in place that will give us more assurance for the coming months. Then that's -- I will answer your question. -------------------------------------------------------------------------------- Kevin Chiang, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Analyst [4] -------------------------------------------------------------------------------- If I could just ask a clarification on that. I think in the past, and I know these are under more normal circumstances, I think you had indicated that you'd always looked at about $150 million as kind of the minimum cash you needed to run your operations. Just wondering if that's still a good way to think about the amount of cash you would like to hold as you work your way through the recovery here? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [5] -------------------------------------------------------------------------------- Obviously, we would like to have a lot more than $150 million at this point in time because $150 million is when you're having new bookings and when you're having activities and all your assets are fully used, like we were pre-COVID. Now during the COVID period, you need more than that, absolutely. Just looking at the amount of deposit, the amount accounts payable, fixed costs. We like where we are today, and we're very happy to restart the operation slowly in July, but to -- for the operation to be ramped up in the fall then -- and that's why we will not hesitate if through discussion with banks and government, we could add some to this or surely not hesitate. -------------------------------------------------------------------------------- Kevin Chiang, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Analyst [6] -------------------------------------------------------------------------------- My second question, and then I'll jump back into the queue here. The Canadian Government has opened up the large employer, I guess, financing option, so not airline specific. But for, I guess, larger employers, such as yourself, given your pending transaction with Air Canada, are you precluded from applying for the LEEFF program or is that something that you're still evaluating today? -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [7] -------------------------------------------------------------------------------- We are, like we said, we are in discussion with different partners, bankers, government. We are looking at all the programs, we have discussion with everybody. We will bring the cash to the company when it's necessary, we will do everything to continue, and we hope to really to do it with Air Canada. It will be a stronger airline Transat and Air Canada like we said at the beginning, but as we said -- as I said, today, nobody knows what's going to happen tomorrow. Can you tell me when the borders would be opened? Can you tell me the people will travel, will go on the plane? Tell me what's going to happen, and I'm going to tell you what's going to happen from Transat. But for sure, Transat, like they did for the past 42 years, when there was a crisis, as always, a little bit of cash and went through all the crisis because of that and took all the measures to go through crisis like that. And again, in this one, we had a little bit of cash in the bank account, we took all the measure to go through this terrible crisis, and we will take all the measures, we continue, like we did all the time. Nothing new for us. We're used to that, and we will go through. And our employees are supporting us in that crisis. And if you want to ask questions about Air Canada, you should ask Air Canada because me, I cannot answer it for Air Canada, to be clear. I can answer for Transat, so you know the name of the people of Air Canada, you talk to them very often, please ask them the question. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- (foreign language) Our next question from the line of Konark Gupta with Scotiabank. -------------------------------------------------------------------------------- Konark Gupta, Scotiabank Global Banking and Markets, Research Division - Analyst [9] -------------------------------------------------------------------------------- So my first question is on the refunds. So the customer deposit liability was down in Q2, obviously, which is kind of seasonal, but I think it was slightly more than what we have seen in the last 2 years. Can you talk about the cash refund trends you would have seen for March, April and May, perhaps? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [10] -------------------------------------------------------------------------------- Like you said, it's really a question of seasonality. When during the -- when the -- when we get to April, essentially, what we have in our deposit for transatlantic normally because that's what we are having as activities during the summer month. What really happen in the deposit from clients since mid-March is that we have not collected, as you could imagine, lots of deposit for future travel. And because we didn't have flight during the period, that means that the amount that we were having in end remains roughly where they are at the time. Then we have issued travel credit voucher for every flight cancel. And that's the position that we are having still today then for flight that have been canceled, automatic credit travel voucher have been issued to all our customer, something to be able to have them on board as soon as possible and restarting the activities on July 23. -------------------------------------------------------------------------------- Konark Gupta, Scotiabank Global Banking and Markets, Research Division - Analyst [11] -------------------------------------------------------------------------------- Okay. So just to be clear, Denis, was there any cash refund at all since mid-March? Or everything you refunded was 100% in the form of credits? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [12] -------------------------------------------------------------------------------- I would say essentially in the form of credit, no real reimbursement were made up to now. No significant amount. -------------------------------------------------------------------------------- Konark Gupta, Scotiabank Global Banking and Markets, Research Division - Analyst [13] -------------------------------------------------------------------------------- Okay, perfect. And on the fixed cost, I just want to follow-up on Kevin's question. So I think you mentioned the fixed cost is now down -- during the shutdown phase, it's down to like $10 million to $15 million. Can you break it down in terms of what's salaries, what's rent and what's the other portion of that? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [14] -------------------------------------------------------------------------------- No, I'm not in a position to really give you detail for each of those. But I would just say that we have been able to negotiate with less or to postpone payment, not a lot of what remains are 4 aircraft. And obviously, we are maintaining minimum numbers of our employees. We said 85% of our employees were temporary lay off. Then, obviously, remains some of it. And there's also a minimum, so not that we are investing in CapEx, obviously, but there's also some other costs that we are incurring. That's why at the end, cash flow-wise, $10 million to $15 million. That's what we are incurring right now. -------------------------------------------------------------------------------- Konark Gupta, Scotiabank Global Banking and Markets, Research Division - Analyst [15] -------------------------------------------------------------------------------- Okay. And is that net of the CEWS subsidy payments as well? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [16] -------------------------------------------------------------------------------- Absolutely. -------------------------------------------------------------------------------- Konark Gupta, Scotiabank Global Banking and Markets, Research Division - Analyst [17] -------------------------------------------------------------------------------- Yes, okay. That makes sense. Okay and then last one for me before I get back in queue. So considering that there are no flights until July 22, and you are planning to resume operations with less than 20% of the capacity you had last year in the summer, is it fair to expect that the operating cash flows could be negative in the third quarter? And if that is the case, when do you expect the cash flows to turn positive again? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [18] -------------------------------------------------------------------------------- The (inaudible) of what you said it's to have -- would be a cash flow negative for Q3 because of this operation. The operation is not the level of last year. To get to 20%, the impact will not be so big, but there are some investment to make in order to restart the engine. When cash flow will turn positive, will really depend on when the activities will come at a level where it will be, say, higher than this because it's not with 20% that we could envisage the future. We're all hoping that next winter, more of our plane will be at work, more of our employees will come back, and it's only at that time that we could expect cash flow to be -- to return back to positive. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- (foreign language) Our next question, by Benoit Poirier with Desjardins Securities. -------------------------------------------------------------------------------- Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [20] -------------------------------------------------------------------------------- If we look at the flight that will start back on July 23, could you talk a little bit about the number of seats available, and how it would compare to the numbers that you've seen from the industry so far? -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [21] -------------------------------------------------------------------------------- In the way we are looking at this right now, we are around minus 80% of the original program. We are making still some adjustments, and we will adapt as well as we see demand evolve over the next weeks since we've launched -- since we've announced the program today and as well when the borders will reopen. So we expect to be around minus 20%, it could be less than this moving forward. And we are -- as for next winter, we are working on different scenarios as well to ramp up the business and be able to use more of our aircraft and be less negative versus 2019. -------------------------------------------------------------------------------- Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [22] -------------------------------------------------------------------------------- Okay. And in terms of fixed costs, as you restart operation close to July 23, how should we be looking at the fixed costs and also additional costs to deal with the pandemic in terms of extra measures that you're taking into action? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [23] -------------------------------------------------------------------------------- I think a good way to look at fixed cost, it's really to start with what we were having pre-COVID, $60 million that we -- where we have give you the detail for salary, rent and other costs. Obviously, the -- for the employees, it's kind of personal to the activities that we will have. More flights will be added, more people would come back. For the rent, a bit different. We have mostly negotiated deferral up to now. At one point in time, we'll have to pay back those -- the owner of the plane, who is lessor. We're still looking at terminating some of the lease sooner than what we have in the contract, but will depend on the demand and the evolution of COVID over the next few months. For the rest, it's also kind of proportional to the activities, things like marketing, IT. It end up by being -- even if there are fixed costs to being somehow they are related to the level of activities that we will achieve at that (inaudible). -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [24] -------------------------------------------------------------------------------- I would add to that, however, that we are looking at increasing efficiencies internally. And in the way we synchronize the ramp-up of activities, we will make sure that we decrease our fixed cost compared to last year for similar level of activities. So we are looking at that from a people perspective, from product and services perspective as well from different processes, from fleet utilization as well to maximize as much our assets without increasing -- by decreasing our unique (inaudible) versus last year. -------------------------------------------------------------------------------- Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [25] -------------------------------------------------------------------------------- Okay, excellent. And with respect to the Canadian Minister of Transport, could you make an update on when you expect the decision? And also, what gives you confidence about the regulatory approvals? -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [26] -------------------------------------------------------------------------------- Really, to be clear, we don't know. We are, right now, Air Canada and us, discussing with the regulatory authorities, having good discussion. But at the end of the day it's the Minister who are going to take the decision or will bring his decision to the cabinet and the cabinet will take the decision. So in normal circumstances, we were expecting -- answered, I would say, before the politician goes on holidays. So I mean, before the end of the month of June, today, with what's happening, it's same thing, I suppose, for the government, they are very busy. So when the Minister will give his decision, we have really not an ideal. We hope it will come soon, but we don't control at all this part of the decision. It's really the decision of the government. -------------------------------------------------------------------------------- Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [27] -------------------------------------------------------------------------------- Okay, perfect. And last question on the booking activity. Could you provide some color about the booking activity so far? It might be early, but when should we expect to get more color about the booking activity for August, September and October, I think? -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [28] -------------------------------------------------------------------------------- Well, it's -- and this is what pushed us as well in terms of assessing demand. We estimated demand through our current working trends. What we're seeing -- what we've been seeing over the last week is that we receive more bookings than cancellations. So that's already positive. And we expect that this trend should be increasing goes in the right direction starting today with confirming firm programs as well as when the announcement of the borders will be made, which we expect in the upcoming weeks. So we are confident that a decent number of consumers will be interested to fly on our aircraft in the upcoming months. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- (foreign language) Our next question comes from the line of Tim James with TD Securities. -------------------------------------------------------------------------------- Tim James, TD Securities Equity Research - Research Analyst [30] -------------------------------------------------------------------------------- Denis, I'm just wondering if you could confirm the accounting treatment for the $12.8 million in lease expenses, like the earnings impact and the cash flow impact there? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [31] -------------------------------------------------------------------------------- Could you clarify this, please? -------------------------------------------------------------------------------- Tim James, TD Securities Equity Research - Research Analyst [32] -------------------------------------------------------------------------------- Well, there was -- it was reported $12.8 million, I believe, it was in lease incentives in the second quarter. Those were -- I assume that was sort of cash deferrals of payments. I'm just wondering about sort of the complete accounting treatment for that. Was any of that still expensed in the quarter? And just payables generated? Or how did it impact? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [33] -------------------------------------------------------------------------------- Tim, I don't know if we were clear enough in the way we put that in our MD&A, but it's related to the amount that we are receiving from the government for our employees. And that's the CEWS program. It's not related to -- it's not supposed to be related to our fleet at all. -------------------------------------------------------------------------------- Tim James, TD Securities Equity Research - Research Analyst [34] -------------------------------------------------------------------------------- Oh, I see. So the... -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [35] -------------------------------------------------------------------------------- If it's not clear, maybe I could get back offline, but it's related to deepen the program with the Canadian government. -------------------------------------------------------------------------------- Tim James, TD Securities Equity Research - Research Analyst [36] -------------------------------------------------------------------------------- And that's -- so the Canadian government was providing lease incentives of $12.8 million? -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [37] -------------------------------------------------------------------------------- No, it's not lease -- it's really to cover a portion of our salary. And I'll give you more insight in that. Then we have the 85% of our employees that were temporary lay off, and we have 15% of our employees that are still active in the company. We have booked, in the quarter, only the portion that is related in that number. It's only the portion that is related for employees that were working. We have not booked yet the amount. That has been paid to employees that were not at work, nor the amount that we will receive from the government because it's a (inaudible). It's kind of the same amount. Then the amount that we're showing here on Page 45 of the MD&A is for the portion -- paid -- the amount to be received by the government for employees at work. -------------------------------------------------------------------------------- Tim James, TD Securities Equity Research - Research Analyst [38] -------------------------------------------------------------------------------- Okay. Denis, I apologize. I was looking at actually the second quarter of '19, my mistake. I was looking back at last year's. My next question, the destinations that are all included in your flight plans for -- beginning July 23, do all of those destinations have open borders at this point and no restrictions that could impact your plans? Or do some of those destinations require sort of political change or regulatory change between now and the start of those flights? -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [39] -------------------------------------------------------------------------------- Yes. So actually, most of them require political change before we are able to operate our flights. So -- and -- but what we've seen so far over the last weeks is that everything is moving quite rapidly from all of the different destination where we plan to operate. First on the French side, on the U.K., on Portugal. Portugal is open. Portugal is without restriction. Mexico is without restriction as well. So we are looking at the evolution of each of the different measures that are being imposed right now and following this very thoroughly. That being said, we have the right to flight today. Nothing prevents us from flying. But from a customer perspective, we want, of course, passengers to be accepted at borders. And we want passengers as well, not to have to follow restriction as quarantine and which would give them some barriers for traveling. So the first one that we are expecting, of course, and that we are waiting for, impatiently, is Canada. So we expect that, and we hope that Canada will position itself over the next few weeks. And as we see border being released, we will adapt our program. We may do changes. If borders do not reopen, we will have to cancel most of our plan, but we don't believe this will happen. And we have done all cases, worst-case scenarios, so we are ready to make last minute changes if it's required. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- (foreign language) Our next comes from the line of Cameron Doerksen with National Bank Financial. -------------------------------------------------------------------------------- Cameron Doerksen, National Bank Financial, Inc., Research Division - Analyst [41] -------------------------------------------------------------------------------- I just wanted to follow-up on the -- Tim's question there about the travel restrictions. I mean, you mentioned that you're expecting some decision from Canada at some point, I guess this is probably key, but is it your expectation that Canada will eliminate the 14-day quarantine for returning passengers? Because it would seem to me that would be pretty much a nonstarter for most of these flights that people had to quarantine for 14 days once they came back from their trip. -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [42] -------------------------------------------------------------------------------- So at this point, we do not know. We don't know when and how will travel restriction be removed. However, we expect that these decisions will be made in the short future. -------------------------------------------------------------------------------- Cameron Doerksen, National Bank Financial, Inc., Research Division - Analyst [43] -------------------------------------------------------------------------------- Okay. That's helpful. And maybe just a couple of questions for Denis. Just looking at your presentation, just when you're talking about some relaunch costs and you refer to a number there of 2.75% to 3%. And I'm just wondering what that is referring to as far as relaunch costs? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [44] -------------------------------------------------------------------------------- What we put there was just in case we have rebooked cost, cost of credit card and the cost to process transaction. And the objective was to give some detail on what kinds of restart costs the company should have to cope with. -------------------------------------------------------------------------------- Cameron Doerksen, National Bank Financial, Inc., Research Division - Analyst [45] -------------------------------------------------------------------------------- So it's -- what's the 2.75% to 3%? Of what? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [46] -------------------------------------------------------------------------------- Of the revenue. Let's say we have a 2% charge from -- for the credit card. 0.75% related to the cost of booking a transaction, then that was to give you some more infos on. So cost including the restart cost. Obviously, we have to call some of our employees before the first flight, and we have to prepare the pilots. We have to then, it was to give you some more detail on that. -------------------------------------------------------------------------------- Cameron Doerksen, National Bank Financial, Inc., Research Division - Analyst [47] -------------------------------------------------------------------------------- Okay. No, that's helpful. And then just maybe a final thing, just on the lease deferrals, obviously, most airlines are doing this. I'm just wondering what -- and maybe you don't have to give specifics, but what is sort of typical repayment term, so you -- let's say you defer your lease payments for 3 months. I mean, over what period of time do you have to start repaying those deferred -- the lease cash costs? -------------------------------------------------------------------------------- Denis Pétrin, Transat A.T. Inc. - VP of Finance & Administration and CFO [48] -------------------------------------------------------------------------------- I would say it's an ongoing process because we started by approach like everyone. We started by approaching the lessor and say, there is a situation. Obviously, everyone -- every airlines were lining up to have those conversations with the lessor. Then at the beginning, not having a lot of clarity, airlines like us, have asked a little. But the crisis become -- it was become more obvious for everyone that the crisis was to be bigger than it was anticipated at the beginning, then we asked for more. And everyone are following the evolution of this, and we should land at the end with something that is proportionate with the impact of the crisis, then everything restart tomorrow. And I would say, many airlines would have had a deferral of a couple of months, like 3 months, paid over 6 months or a year or something like that. And -- but it's not what we are seeing right now, obviously. Then all airlines are asking for more than this because the crisis is really a huge one. And if airlines and IATA expect that it will take more than a year for the comeback, we could also expect that demand to lessor will be in line with the impact of the crisis because that's the biggest assets that -- fixed assets that airlines are having their fleet. It's really ongoing. Really ongoing. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- (foreign language) The question comes from the line of Mona Nazir from Laurentian Bank Securities. -------------------------------------------------------------------------------- Mona Nazir, Laurentian Bank Securities, Inc., Research Division - Director of Research and Transportation & Infrastructure Analyst [50] -------------------------------------------------------------------------------- I appreciate your comments and steps taken in these uncharted times. My first question is just going to your resumption of services in July. Typically, your summer is weighted more towards the transatlantic, and I see that you're planning on flights within Canada, the U.S., South and Europe. So if I'm just looking at the absolute number of flights, is transatlantic still the majority? Or is there greater domestic or even U.S. frequency, particularly given your comments surrounding the phased return to travel? -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [51] -------------------------------------------------------------------------------- Yes. The majority of our capacity is on the European routes. We are talking about 14 routes at this point and a little more than 20 frequencies a week. We're going to go up to 30 and maybe more frequencies, whereas the South and the U.S. program is much smaller. We're talking about 9 routes with lower frequencies. And the domestic program is light as well. So the main program is definitely the European program. We're basically going into almost the same proportion of how we operate a summer usually. And this is all based on current and latest booking trends that we've seen over the last weeks. Of course, we will adjust if things changes. But this is how we're starting the return. -------------------------------------------------------------------------------- Mona Nazir, Laurentian Bank Securities, Inc., Research Division - Director of Research and Transportation & Infrastructure Analyst [52] -------------------------------------------------------------------------------- Okay. That's very helpful. And then just secondly, in your day-to-day operations and decisions, even involving the drawdown of $50 million and then the resumption of activities, with the Air Canada offer, it's safe to assume that they're involved or at least there are some discussions involving your decision-making to some degree? -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [53] -------------------------------------------------------------------------------- I would say the answer is yes. As per the agreement signed with them. When it's related to things like -- that where we need -- there we need to tell them. But (inaudible) obviously, everything that is commercial, schedule, pricing, all of this, we're all on our own. Transat is doing its things and Air Canada is doing its things. And we're not consulting, obviously, for these kind of subject. And it's according to the agreement in place, and that was signed last year. -------------------------------------------------------------------------------- Mona Nazir, Laurentian Bank Securities, Inc., Research Division - Director of Research and Transportation & Infrastructure Analyst [54] -------------------------------------------------------------------------------- And then just lastly for me. I'm just wondering if you could discuss the terms of your early return of some of the aircraft. Is there any penalty? Or if you could just speak about that a little bit more. -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [55] -------------------------------------------------------------------------------- Difficult to say words on this at this point. Obviously, we wanted to have our fleet to be composed, like it was said earlier of Airbus A330 and Airbus A321. Then, we're having discussion with -- ongoing discussion with all our lessor as we speak. -------------------------------------------------------------------------------- Mona Nazir, Laurentian Bank Securities, Inc., Research Division - Director of Research and Transportation & Infrastructure Analyst [56] -------------------------------------------------------------------------------- Okay. And the retirement of the A310, was that early? -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [57] -------------------------------------------------------------------------------- Yes, it was. Not that much, but yes, it was because they were supposed to serve as backups, the last 2 ones were supposed to serve as backup and operate a couple of legs during summertime. So we decided to retire them earlier when the COVID situation started. So we have no more. -------------------------------------------------------------------------------- Mona Nazir, Laurentian Bank Securities, Inc., Research Division - Director of Research and Transportation & Infrastructure Analyst [58] -------------------------------------------------------------------------------- And there was no penalties attached to their early returns? -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [59] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [60] -------------------------------------------------------------------------------- No. We own it. We're selling parts now. -------------------------------------------------------------------------------- Mona Nazir, Laurentian Bank Securities, Inc., Research Division - Director of Research and Transportation & Infrastructure Analyst [61] -------------------------------------------------------------------------------- Oh, yes, you're retiring it, you're right. -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [62] -------------------------------------------------------------------------------- Yes, yes, yes. -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [63] -------------------------------------------------------------------------------- And so those planes are grounded, and we're selling parts of those planes. And we have customers for the parts. So we will get some cash for that. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- (foreign language) We have no more of questions further on the line. Please continue with any closing remarks. -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [65] -------------------------------------------------------------------------------- So thank you, everyone. -------------------------------------------------------------------------------- Annick Guérard, Transat A.T. Inc. - COO [66] -------------------------------------------------------------------------------- Yes? -------------------------------------------------------------------------------- Jean-Marc Eustache, Transat A.T. Inc. - Chairman of the Board, President & CEO [67] -------------------------------------------------------------------------------- Sorry, I'm with you. Thanks, everyone. Just to remind you that our third quarter results will be released on September 10, 2020. Thanks very much, and have a good day. -------------------------------------------------------------------------------- Operator [68] -------------------------------------------------------------------------------- (foreign language) Thank you. That does conclude the conference call for today. We thank you for your participation. You can disconnect your lines. And have a good day, everyone.

Gilles Hudicourt · Post by **Gilles Hudicourt** » Fri Jun 12, 2020 4:49 pm

We also -- we are also negotiating anticipated returns of some of our A330s to align our capacity with future reduced demand.

That reduction ? Ok. We ordered some A321LRs and it was always the plan, when they arrived to go down from the current 20 A330s to about 15 If my memory is correct........

tsgas · Post by **tsgas** » Fri Jun 12, 2020 5:17 pm

Sadly another $89.1 million was squandered on risky fuel hedges .

FL320 · Post by **FL320** » Mon Jun 15, 2020 7:27 am

So TS will be the only option to go to all these cities in Europe for now; or can we expect to see AC or Rouge landing in Toulouse and al too? Where is the competition; people and the competition bureau might not like it?

Localizer · Post by **Localizer** » Tue Jun 16, 2020 5:17 am

So the gist of it is TRZ is on fairly solid footing, they’ve taken the required steps to conserve cash. It doesn’t appear to me that they’ll disappear if the transaction never materializes. 20-22 million a day vs. 15 million a month .. TRZ can probably hold out longer than AC at this point. To top it off a number of economist are expecting the leisure market to recover the quickest .. I think last weeks stories about AC trying to get out of the deal are bullsh*t.

FL-280 · Post by **FL-280** » Tue Jun 16, 2020 7:28 am

I partially agree with that statement. I am impressed of Transat’s flexibility and ability to cut costs, cash burn is much much lower than AC’s even in business proportion. BUT, certain lease payments were deferred to Q3 and operations start again on july 23rd (maybe), so we can expect a harder quarter. 65-80 million $ loss is my guess....
I also agree that with currents cash burns (Q2) AT maybe has a longer time horizon than AC before serious trouble. BUT, multiple factors can change that. Example: AC’s ability to get financing and raise capital is much larger than AT’s at this point and if AT seeks it, it would be a clear breach of the arrangement.

I think AT will be around if there is a transaction or no Transaction. I don’t wish AT folds, but you can’t blame AC pilots for not wanting this merger.

As for the transaction, I don’t think the rumours are bullshit. At a minimum, the price must come down and AT’s book value is in freefall quarter after quarter. 179 million down in Q2. As is stands, 300-500 million is a range that makes sense.... will there be a full bloc? Partial bloc? Will AT’s share holders accept a new negociated price? Will AC just simply walk from the deal and leave it up to AT to fight it out in court....?

I have had a lot of time to reflect, calm down on this emotional topic. Reality is: who knows? Even the exact road this will take, I bet you CR doesnt even know.... he is probably waiting for variables to narrow down or get confirmed to play his hand...

termerair · Post by **termerair** » Tue Jun 16, 2020 5:00 pm

For those of you who understand french, here is an interview of Jean Marc Eustache at "RDI Economie". Fairly positive but could it be really different? All is "good" even in the eye of the storm...

Enjoy!

T.

Dry Guy · Post by **Dry Guy** » Wed Jun 17, 2020 4:08 am

That plane doesn't have an engine.

rudder · Post by **rudder** » Wed Jun 17, 2020 5:27 am

JME said everything that you would expect him to say.

He asserted that TRZ will survive the COVID crisis and will survive with or without the AC transaction.

Gilles Hudicourt · Post by **Gilles Hudicourt** » Wed Jun 17, 2020 11:17 am

Dry Guy wrote: ↑Wed Jun 17, 2020 4:08 am That plane doesn't have an engine.

It's a retired A310. will never fly again.

AC and TRZ Agree to Terminate Arrangement

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share

Re: Air Canada and Transat announce Increased Purchase Price to $18 per Share