Air Canada (TSX:AC) will face an additional level of government scrutiny as it seeks to acquire Transat (TSX:TRZ), delaying the deal by as much as nine months.
The Ministry of Transport said on Aug. 26 that the C$720 million (a Canadian dollar equals US$0.76) acquisition "raises public interest issues related to national transportation" will be subject to additional review to assess the effects on competition.
The review begins on Nov. 4 and could last up to 250 days — to May 2020. The timing means that any decision about Canada's largest airline acquiring the parent company of the country's No. 3 carrier will come long after October's federal elections.
The federal government's announcement came days after Transat's shareholders approved a newly sweetened offer by Air Canada to fight off a rival bid.
Transat also offers cargo services, which accounted for a portion of the C$135 million it recorded as "other" revenue in 2018. While small, Transat's cargo business could be a welcome addition to Air Canada, which has seen its air freight revenues sag amid trade disputes.
Regulators are likely to focus on the implications for the passenger market. Canada has among the highest air travel costs in the world, and the Transat purchase would consolidate the market for flights between Canada and popular vacation spots, particularly in the Caribbean.
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