Flag carrier Air Canada has terminated arrangement agreement for the proposed acquisition of Transat AT (Transat), a Canada-based tour operator.

Air Canada had originally agreed in June 2019 to acquire Transat.

The agreement terms were amended in August 2019 and later revised in October 2020 following the impact of the Covid-19 pandemic.

The acquisition was conditional on the approval of regulatory authorities, including the European Commission (EC).

Air Canada stated that it provided a significant package of remedies under the arrangement agreement that went beyond its ‘commercially reasonable efforts’.

Following careful consideration, Air Canada concluded that providing additional remedies may still not secure an EC approval and would significantly compromise its ability to compete internationally, thereby negatively impacting customers, other stakeholders, and ‘future prospects as it recovers and rebuilds from the impact of the Covid-19 pandemic’.

In a press statement, Air Canada stated: “Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.”

As part of the termination agreement, Transat, will receive $9.9m (C$12.5m) as termination payment from Air Canada.

Furthermore, Transat will not be required to pay Air Canada any fee if it is involved in separate acquisition or similar transaction in the future.

Transat can now take the necessary steps for its future including securing long-term financing to provide flexibility to deliver on its strategic plan.

Transat president and chief executive officer Jean-Marc Eustache said: “Although we are disappointed with this outcome, we are confident in the future of Transat and look forward to building back stronger as we exit the throes of the pandemic.”