09/04/2021

Air Canada takeover deal scrapped by European regulators, Korean Air to complete Asiana Airlines acquisition by 2022

Air Canada takeover deal scrapped by European regulators, Korean Air to complete Asiana Airlines acquisition by 2022

In this week’s On Watch report, Ishka provides updates on airlines from Ishka’s On Watch list.

 

Air Canada takeover of Air Transat deal scrapped by European regulators

 

Transat A.T., the parent company of Canadian carrier Air Transat, announced on 2nd April 2021 that its planned merger with Air Canada has been terminated by mutual consent after the European Commission failed to authorize the acquisition due to competition law concerns. Negotiations between the two parties commenced more than two years ago.

Air Canada has agreed to pay C$12.5 million ($9.9 million) termination payment to the tour operator. Transat A.T. is now free to hold discussions with potential strategic and financial buyers, including Canadian businessman Pierre Karl Péladeau, whose investment company, Gestion MTRP Inc., previously proposed to purchase all of the issued and outstanding shares of the tour operator for C$5 ($3.96) a share.

However, according to the Globe and Mail, on 6th April 2021, the tour operator's largest shareholder Peter Letko said he would not sell his shares at the price offered by Péladeau. Reportedly, Letko said he supports Transat A.T.'s plan to seek C$500 million ($396.5 million) in loans and to operate independently rather than sell at a reduced price.

 

Asiana Airlines and Korean Air’s two-steps merger

 

Asiana Airlines and Korean Air will complete their merger by 2024, ending a 36-year duopoly in the South Korean market, BusinessKorea reported on 29th March 2021.

Korean Air will complete the acquisition of the smaller carrier by the end of 2022 and make it its subsidiary for two years, before fully uniting. When Korean Air acquires Asiana Airlines, it will create a governance structure where Hanjin KAL (holding company) owns Korean Air (subsidiary), which in turn controls Asiana Airlines (sub-subsidiary).

In Korea, a sub-subsidiary of a holding entity must own a 100% stake in its subsidiaries or sell its holdings within two years of acquisition. Asiana Airlines under Korean Air, controls 44.2% in Air Busan, 76.2% in Asiana IDT, and 80% in Asiana Sabre. Korean Air has reportedly decided to sell other Asiana subsidiaries such as Kumho T&I and Kumho Resort.

Additionally, Korean Air’s 63.9% acquisition stake needs antitrust review and approval from nine countries including Korea, the US, EU, China, and Japan. It previously received approval from Turkey in February 2021.

Separately, during the shareholder's meeting on 31st March 2021, Asiana Airlines decided to expand the limit of issuance of convertible bonds to the extent it does not exceed KRW1.6 trillion ($2.2 billion). The number of new shares to be issued has been increased as well. Additionally, during the same meeting, the carrier's CEO Han Chang-Soo stepped down and was replaced by Chung Sung-Kwon, former Asiana's Vice President.

 

Other updates

 

- SpiceJet signed a Memorandum of Understanding (MoU) with New York-based investment manager Avenue Capital Group to fund the acquisition of 50 new aircraft, including via sale/leaseback (SLB), Business Today reported on 31st March 2021. Separately, Dubai Aerospace Enterprise (DAE) sent grounding notices for three B737-800s, serials 36694, 36695 and 36698, leased to SpiceJet over dues pending for over five months, BusinessLine reported on 7th April 2021. DAE did not respond when contacted by Ishka.

- Spanish political party Vox accused the Government on 5th April 2021 of "harming" Iberia and Air Europa for the benefit of Plus Ultra Líneas Aeréas, Notimerica reported on the same day. Vox demanded the appearances in Congress of the Spanish Ministers of Finance and Foreign Affairs, to clarify the rescue of Plus Ultra airline and the carrier's monopolisation of all air traffic between Spain and Venezuela.

- According to Expansión on 29th March 2021, Interjet accumulated about $14.9 million in debt owed to different airport service providers in the US. A large part of the amounts claimed by suppliers is related to the carrier's operating costs, but another part is due to airport fees, reportedly withheld illegally by Interjet.

- El Al Israel Airlines plans to raise at least $105 million through the issuance of new shares, options, or both to meet a key condition to receive a government bailout package, the carrier said in a regulatory filing on 7th April 2021.

- Garuda Indonesia is reportedly planning to re-issue mandatory convertible bonds (OWK) of IDR1.5 trillion ($104 million), Neraca reported on 7th April 2021.

 

Click here to download the complete tables with the latest updates.

Source: CAPA Fleets

 

 

The Ishka View

 

After two years of negotiations, the takeover of Transat A.T. by Air Canada has been terminated by European regulators. Due to the pandemic, Air Canada would have acquired a discounted Air Transat for C$190 million ($150.8 million), well below the initial purchase proposal of C$520 million ($412.8 million).

In the first half of March, CEO of Air Transat, Jean-Marc Eustache said that if there was no deal with Air Canada then the carrier would “listen to everybody” with an interest in buying Transat, “again”. The purchase proposal by businessman Péladeau in December 2020 was previously dismissed as being too low.

Meanwhile, unlike Air Canada’s takeover, the merger between Asiana Airlines and Korean Air has gained momentum. The deal is proceeding as planned, and the two carriers are set to be wholly combined by 2024. However, there are still hurdles ahead for the two Korean carriers. Like Air Canada’s deal, competition concerns could still halt any progress. The deal is still waiting an antitrust review and approvals from nine countries including Korea, the US, EU, China, and Japan.

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