Air Transat (TSX:TRZ) is a Canadian tour operator and airline company. Air Transat is currently the third-largest airline operator in Canada and is headquartered in Montreal, Quebec. The company serves around 60 destinations across the world. It has a mid-sized fleet of approximately 40 aircrafts.
Air Transat was, until recently, in talks with Air Canada regarding a proposed merger. The deal went through a number of highs and lows until finally it was canceled due to failure to obtain regulatory approval from the European Commission.
Air Transat, just like any other airline company, saw a massive drop in its stock price due to the spread of the coronavirus. The company had to halt most of its operations which also meant that revenues were scarce.
With economic and travel reopenings across the world, the company is striving to get back to pre-pandemic levels of operations and profitability.
Air Transat Helped by Canadian Government Bailout
Air Transat has managed to secure a bailout from the Canadian Government. The bailout is meant to help the company secure enough liquidity to see it through this phase of sales and fewer flights.
The bailout, worth $700 million, is being given in accordance with the Canadian Government’s Large Employer Emergency Financing Facility or the LEEFF.
According to the CEO of Air Transat, this bailout is enough for them to “move forward with confidence”. To be clear, this bailout is a loan and not a grant. The company will have to pay back any amount that it uses.
The bailout consists of two parts. First is the $390 million to meet any liquidity challenges that the company might face until the company reaches a certain level of revenue. Further, it will receive another $310 million to reimburse travellers who were supposed to travel after February 2020.
There are certain additional strings attached to the bailout as well, such as maintaining employment levels. Overall, this bailout may turn out to be the lifeline that Air Transat needs in order to revert to profitability.
Air Transat, just like other airlines, saw a significant drop in its valuation due to the pandemic. The company’s stock has dropped around 70% over the past two years and has remained around the $5 mark for quite some time.
It is uncertain what recovery for the company will look like. Currently, there may be a pent up travel demand which could boost ticket sales for the company. Many people have postponed their holiday plans over the past two years, and they may take this opportunity to travel. The next holiday season could be a litmus test for the company to see how strongly it can recover.
As it stands, Air Transat hopes to return to pre-pandemic levels of profitability by the year 2026. Another chance for the stock to spike again is if sees another acquisition offer.
Air Transat has managed to survive an existential crisis. The company is trading at historically low valuations currently, and this may be a good opportunity for investors who believe in the resilience of the Canadian airline industry.