Loss-making airline Transat AT Inc. has secured another government loan to stay afloat.
Montreal-based Transat TRZ-T will receive $100 million from Canada Enterprise Emergency Funding Corp in addition to the $743 million it has borrowed since 2021. (CEEFC) from the federal government.
Transat said the agreement announced on Friday includes an additional line of credit worth $50 million, conditional on the airline raising an additional $50 million from a third party. Transat also said its lenders have agreed to postpone loan terms by a year to April 2024 and to postpone certain financial terms to October 2023.
Annick Guérard, Transat Chief Executive Officer, said in a press release that the agreements will strengthen the airline’s financial position. “This important funding milestone, combined with the sales that have performed well in recent months, will give us the financial flexibility to execute our strategic plan with optimism and confidence,” said Ms. Guérard.
CEEFC is providing the emergency loans, known as the Large Employer Emergency Financing Facility (LEEFF), to prop up companies whose sales have plummeted due to the pandemic. Recipients must commit to minimizing job losses, eliminating dividends and stock buybacks, and capping executive compensation.
Eighty percent of the five-year loan is granted with an interest rate of 5 percent for the first year, 8 percent for the second year, and increasing by 2 percent each year thereafter. Transat and other recipients were also required to issue warrants giving the government the right to purchase up to 15 percent of the company’s stock.
Transat is the only company to have applied for LEEFF assistance in the past year, and the loan program closed on July 29, Canada Enterprise Emergency Funding said. “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 continue operating,” the lender said.
Seven companies received LEEFF loans, including Air Canada, Sunwing Vacations Ltd., Porter Airlines and Goodlife Fitness Centers Inc. Air Canada was the largest borrower, approved for $1.4 billion to reimburse customers whose flights were taken during of the pandemic have been cancelled. Air Canada canceled a $3.975 billion credit facility in late 2021. The government also invested $500 million in Air Canada at $23.18 per share. Air Canada shares traded at around $17.20 on Friday.
For the quarter ended April 30, Transat lost $98 million, or $2.60 per share, compared to a loss of $69 million, or $1.84 per share, a year earlier.
Revenue rose to $358.2 million, compared to $7.6 million in the same period last year, as travelers shook off their worries about a pandemic and headed back to the skies. However, Transat continued to spend $3 million a month in cash.
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