Transat AT reaches $700-million aid deal with federal government

[Hangry]

Rouge planes were full. They will definitely be back when demand is there.

[Latitude]

Question? Where does AC Rouge fit into all of this now that AC and AT decided not to get married. From what I have been hearing AT always offered a superior product especially on the transatlantic sector.

Indeed, but Rouge will be back as they are still trying to kill Transat… as they’ve been trying for the last 15-20years.

[DanWEC]

This loan as a veiled takeover. Interest alone in year 2 is over 24 million, plus repayments. The Fed has been angling for some airline nationalization as a revenue stream for a while. What's going to happen when TRZ defaults? They won't go under or be purchased by a third party, they'll be absorbed into the crown for pennies on the dollar.

Let's just tie a little bow on this for later my man. All good, talk in a few years.

[Hangry]

This loan as a veiled takeover. Interest alone in year 2 is over 24 million, plus repayments. The Fed has been angling for some airline nationalization as a revenue stream for a while. What's going to happen when TRZ defaults? They won't go under or be purchased by a third party, they'll be absorbed into the crown for pennies on the dollar.

Let's just tie a little bow on this for later my man. All good, talk in a few years.

If they were looking to acquire an airline for a revenue stream they sure wouldn’t pick TRZ. You need to show you can make revenue first I would think.

[DanWEC]

Ah c'mon, nothing like a good conspiracy theory!

[Sharklasers]

Ah c'mon, nothing like a good conspiracy theory!

But it’s not a good conspiracy and reeks of desperation. I don’t doubt Trz survives in some capacity but it won’t be as the federal governments national carrier. The management of Transat couldn’t even successfully run a charter vacation company during the biggest boom in aviation history.

[DanWEC]

Huh? In 2017 TRZ posted a net profit 134 million, on a margin of 4% on gross revenue, which is actually stellar for the hospitality industry. Their mid and long-term challenges were (past tense, as obviously the game has drastically changed) increasing volume and market share outside of the loyal base as expenses are relentlessly increasing and chewing into margin. Their current trajectory wasn't forecasted to be sustainable in the fairly near future. They had 500 million in the bank to use for repositioning, or a buyer to bankroll the changes.... but that's all moot now.
However, don't forget the airline is just a vertical integration vehicle. If there aren't restrictions this winter, the Southern vacation market is setting up to be the highest grossing ever across all tourism businesses.

Regardless, I'm just speculating on what will happen to ownership and operation of a company if they default on a gov't loan.

[simply_no_one]

134 million net profit and how many hundreds in debt?

Even worse now? With those kind of "stellar" margins (for the hospitality industry as you say) it will take them decades to pay off this debt.

If AT wants to have even a tiny part of a coming potential winter market, they'll need to be recalling fairly soon and start pumping pilots (and FAs) back through recurrent training. Will they do that when they are this much in the hole? Will they burn that ever precious high interest loan money on a "maybe"?

Time will tell. Personally I think AC will devour any possible winter vacation market this year given how many pilots they have trained and on staff ready to fly now. Not in a month, not in 3 months.

[Latitude]

Huh? In 2017 TRZ posted a net profit 134 million, on a margin of 4% on gross revenue, which is actually stellar for the hospitality industry. Their mid and long-term challenges were (past tense, as obviously the game has drastically changed) increasing volume and market share outside of the loyal base as expenses are relentlessly increasing and chewing into margin. Their current trajectory wasn't forecasted to be sustainable in the fairly near future. They had 500 million in the bank to use for repositioning, or a buyer to bankroll the changes.... but that's all moot now.
However, don't forget the airline is just a vertical integration vehicle. If there aren't restrictions this winter, the Southern vacation market is setting up to be the highest grossing ever across all tourism businesses.

Yes, agree. But ask an AC employee and all they have so say is how bad Transat was run, how they were to fail eventually, that they suck, etc.

Reality is they had 500m$+ cash, they’ve never been bankrupt or went CCAA for the past 35 years, unlike AC, and they were growing and flying at full capacity more than never, all of this without asking 4000$ for a shitty Rouge premium class ticket to the Caribbean.

[DanWEC]

it will take them decades to pay off this debt.

Yup. That's the problem, at an interest increase of 2% per year. They were never making billions, they just don't have the volume or economy of scale in an industry with such small margins. They made a decent profit, paid shareholders and kept employees fed. But to be suddenly saddled with this much liability with such relatively small revenue is untenable.

[simply_no_one]

Huh? In 2017 TRZ posted a net profit 134 million, on a margin of 4% on gross revenue, which is actually stellar for the hospitality industry. Their mid and long-term challenges were (past tense, as obviously the game has drastically changed) increasing volume and market share outside of the loyal base as expenses are relentlessly increasing and chewing into margin. Their current trajectory wasn't forecasted to be sustainable in the fairly near future. They had 500 million in the bank to use for repositioning, or a buyer to bankroll the changes.... but that's all moot now.
However, don't forget the airline is just a vertical integration vehicle. If there aren't restrictions this winter, the Southern vacation market is setting up to be the highest grossing ever across all tourism businesses.

Yes, agree. But ask an AC employee and all they have so say is how bad Transat was run, how they were to fail eventually, that they suck, etc.

Reality is they had 500m$+ cash, they’ve never been bankrupt or went CCAA for the past 35 years, unlike AC, and they were growing and flying at full capacity more than never, all of this without asking 4000$ for a shitty Rouge premium class ticket to the Caribbean.

Oh blah blah blah. Give it a rest with the CCAA narrative. The fact of the matter is, AC was billions in the green over the last number of years. Hardly a poorly run airline. AT had 500 million in cash, but no one ever mentions that money was largely in the form of future pax ticket revenue.

[DanWEC]

Oh FFS can't we just have a normal conversation without this pissing match? None of us run the companies. Why be so sensitive that AC was in CCAA? TS pilots could very well all be unemployed in a few years, so I'd say there are bigger fish to fry here.

Anyways, From where I sit in my professional analyst armchair with a beer; after years of cost cutting and positioning, AC is profitable now because of their volume. I guarantee they aren't making even close to 4% margin, but with 112 Billion ASM annually they can make a fraction of that. But it also only takes a fraction more to start sinking.

[haironfire]

This is a post not from AC or TRZ (if that's the way your callsign goes).

Let's look at the reality of the situation? The feds through out a lifeline,and that's it. Life as you knew it in the GOOD OLD DAYS ARE DONE!

Senior TRZ pilots on the list are going to feel this big time. Juniors even worse. It is what is required for our industry to get healthy again.

Sorry, but reality bites right now.

[pelmet]

Any chance of Transat hiring an outside company to do all their flying. I bet WJ could do it cheaper with narrow and widebodies quickly available.

[co-joe]

What bothers me about this is the government is loaning TS money, to pay back tickets that the government cancelled, and TS will have to pay interest on that loan? It's basically extortion. It's like beating you up for your lunch money, and then loaning you money to buy lunch and charging you interest on it.

[TFTMB heavy]

Any chance of Transat hiring an outside company to do all their flying. I bet WJ could do it cheaper with narrow and widebodies quickly available.

Not a chance they can do it cheaper. Canjet was cheaper than Westjet and when TS brought the flying back in-house the 737 fleet saved them millions per year. TS has chartered a lot in the past and they realized that even the headache of running an airline was more profitable than chartering.

When they took the flying back from Westjet they abandoned most of that capacity and launched Westjet into sun destination flying and created the worse sur-capacity the market had seen in years. Add Sunwing into the mix and you have years of your winter revenues disappearing.

[rudder]

The problem for TRZ is that it is meeting its cash flow obligations using debt rather than capital or at least a debt/capital combination. A supplemental stock issuance is not an option in the current market.

Status quo even with a travel recovery will not allow TRZ to meet its debt servicing obligations. TRZ needs to recapitalize its balance sheet. Most likely source is new ownership.

This story isn’t over yet.

[TFTMB heavy]

The problem for TRZ is that it is meeting its cash flow obligations using debt rather than capital or at least a debt/capital combination. A supplemental stock issuance is not an option in the current market.

Status quo even with a travel recovery will not allow TRZ to meet its debt servicing obligations. TRZ needs to recapitalize its balance sheet. Most likely source is new ownership.

This story isn’t over yet.

I'm thinking it's way too quiet on the new ownership front for it to be over. Thanks for the reasonable input, a breath of fresh air for this place.

[rudder]

I'm thinking it's way too quiet on the new ownership front for it to be over.

FWIW - I think that the TRZ trading price is hovering around $4.50-4.90 only because the market believes there is a $5 outstanding offer on the table.

I am not convinced that there is $5 per share in underlying value there.

[fish4life]

The big issue I see for Transat is servicing the debt in 1 year. I don’t think it’s unreasonable to say that all Canadian airlines will be about 1 year until they are cash flow positive. At that time the interest rate for AT is going to be 8% and it’s going to be very difficult to deploy cash to the business when all your free cash flow is going to just be servicing your debt costs.
If this was a low interest loan I think AT would have a good chance at decent recovery but the interest rates the federal government gave them is going to make it a much more difficult recovery

[rudder]

The big issue I see for Transat is servicing the debt in 1 year. I don’t think it’s unreasonable to say that all Canadian airlines will be about 1 year until they are cash flow positive. At that time the interest rate for AT is going to be 8% and it’s going to be very difficult to deploy cash to the business when all your free cash flow is going to just be servicing your debt costs.
If this was a low interest loan I think AT would have a good chance at decent recovery but the interest rates the federal government gave them is going to make it a much more difficult recovery

The new ‘owners’ will have to either discharge or replace the high cost debt.

If not, there will be no possibility of positive cash flow, nor profit.

[simply_no_one]

What bothers me about this is the government is loaning TS money, to pay back tickets that the government cancelled, and TS will have to pay interest on that loan? It's basically extortion. It's like beating you up for your lunch money, and then loaning you money to buy lunch and charging you interest on it.

Yeah same for AC. Same for SW, same for Porter.

If there's at least anything that's "fair" among all airlines it's that they ALL need to pay back tickets with loaned money.

[Longtimer]

Air Transat extends suspension of operations
12 May 2021Canadian Aviation News

May 12, 2021 – Air Transat Website

Due to continued travel restrictions, both in Canada and in the destinations we serve, our operations are temporarily suspended until July 29, 2021, inclusively.

Clients affected by flight cancellations will receive a notice shortly informing them of their options.

If you have any questions, please refer to our FAQ.

[ikarus]

Well, that pretty much does it for their summer season.
Hopefully they'll be around for the winter flying.... These travel restrictions have to be lifted immediately.