Money-losing airline Transat A.T. Inc. has secured another government loan to stay afloat.
Montreal-based Transat TRZ-T will borrow $100-million from the federal government’s Canada Enterprise Emergency Funding Corp. (CEEFC) on top of the $743-million it borrowed since 2021.
Transat said the agreement announced on Friday includes an additional line of credit worth $50-million, contingent on the airline raising another $50-million from a third party. Transat also said its lenders have agreed to defer credit deadlines by one year to April, 2024, and to push back certain financial conditions until October, 2023.
Annick Guérard, Transat’s chief executive officer, said in a press release that the arrangements will bolster the airline’s financial position. “This important financing milestone, combined with sales that have been doing well in recent months, will give us the financial flexibility to deploy our strategic plan with optimism and confidence,” Ms. Guérard said.
CEEFC provides the emergency loans, known as the Large Employer Emergency Financing Facility (LEEFF), to prop up companies that saw sales plunge because of the pandemic. Recipients must commit to minimizing job losses, eliminating dividends and share buybacks, and cap executive compensation.
Eighty per cent of the five-year loan comes with an interest rate of 5 per cent for the first year, 8 per cent for the second year and a 2-per-cent increase every year that follows. Transat and other recipients also had to issue warrants that give the government the right to purchase as much as 15 per cent of the company’s shares.
Transat is the only company to have applied for LEEFF aid in the past year, and the loan program is closed as of July 29, said Canada Enterprise Emergency Funding. “As a result of the first LEEFF loan to Transat in April, 2021, thousands of Canadian jobs have been protected and the company has been able to maintain its operations,” the lender said.
Seven companies received LEEFF loans, including Air Canada, Sunwing Vacations Ltd., Porter Airlines and Goodlife Fitness Centres Inc. Air Canada was the biggest borrower, approved for $1.4-billion to provide refunds to customers whose flights were cancelled in the pandemic. Air Canada, in late 2021, terminated a credit facility worth $3.975-billion. The government also invested $500-million in Air Canada at $23.18 a share. Air Canada’s shares traded at about $17.20 on Friday.
In the most recent quarter, ending on April 30, Transat lost $98-million, or $2.60 a share, compared with a loss of $69-million, or $1.84 a share, a year earlier.
Revenue rose to $358.2 million compared with $7.6-million in the year-ago period as travellers shrugged off pandemic worries and returned to the skies. However, Transat continued to burn through cash at a rate of $3-milion a month.
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