Transat AT and Air Canada Negotiation for Sale of Corporation

PART B:
Answers 10.
Reference site –( https://www.transat.com/en-CA/corporate/media/news-releases/124223
https://www.cbc.ca/news/business/air-canada-boeing-737-max-1.5112015).
Transat AT agreed to get in to a negotiation with Air Canada for sale of its corporation at $13 per
share. This news has been announced on May 16, 2019. The transaction shall be completed after
a 30 days negotiation on the definitive agreement regarding transaction and material terms.
Transat AT finally accepted the quotation of Air Canada because it was in the interest of the
stakeholder, the economic and regulatory environment in which both the airlines operates. The
premium value of 148.5% that is $13 per share for a 20 days weighted average trading price is
being offered by Air Canada (Transat.com, 2019).
According to CIBC analyst Kevin Chiang (May 1, 2019) Air Canada is having problem with its
24 fleet Boeing 737 Max jets. Which have been grounded due to two crashed as a result of
default software. Acquiring Transat would relive Air Canada from loss of capacity due to Max
being grounded for so long. By taking over Transat's fleet of Airbus 330s and 321s it could get
Air Canada out of its current losses and problems, While safeguarding It’s future. As Transat
will help gain stronger market in Canada and countries it has strong foothold. In this way it will
cushion against a long-term grounding of Air Canada’s Boeing 737 MAX planes (Transat,
2019).
Answer 11.
As Sunwing is a competitor of Transat it is more obvious that they both are competing for the
same market. Sunwing is a vacation travel company and a Toronto-based carrier. It does not fly
any transatlantic routes at present. But it has remarkable business performance in destinations
between Canada and U.S. and Caribbean. Thus it is not as expanded and huge as Transat. So
comparing it will be an unequal comparison. The annual report of Sunwing for 2018 is not
detectable online (CBC, 2019).
The Solvency ratio of Transat, 2018:

Debt-
Equity
ratio
Total Debt 960486
Shareholders’ Equity 599,374
Debt-Equity ratio 1.60
Liquidity Ratio Transat, 2019:
current ratio
current asset 1,151,719
current liability 835,848
Current Ratio 1.38
The ratios are in positive and are higher than 1. This proves that it is having enough liquidity for
any financial crisis. The Loans are higher than the equity. This is not a worrying situation too, as
its operation may generate enough revenue to cover the interest.
Answer 12.
In their 5 year strategic plans the key points is –
 To build a sustainable business profitability system. By investing in hotel development
and creating a new business unit to operate exclusively on hotels in Caribbean and
Mexico.
 To satisfy customers with user-friendly service at a low price. By creating synergies
between the various divisions of Canada.
 To improve the digital footprint and develop new systems for revenue management or air
network planning.
 To increase the network density of flights by increasing flight frequencies on all routes
and to consider potential feeder/defeeder alliances for increasing the customer base.
To achieve these goals of strategic plans the company will be increasing its debt. The expenses
will be doubling according to the estimates. This will ultimately decrease the solvency and
profitability ratio. The liquidity ratio will fall as the liability will be increasing. The total cash
reserve is $593.7 million as at October 31, 2018 which is not enough for the estimated plans.