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Federal cabinet will rule on Air Canada and Air Transat merger in January

Minister of Transport Marc Garneau responds to a question during Question Period in the House of Commons in Ottawa, Nov.

3, 2020.

Adrian Wyld/The Canadian Press

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The federal cabinet is expected to decide in early January whether to approve Air Canada's (AC-T) £180-million purchase of smaller rival Air Transat amid concerns the proposed merger would stifle competition and result in higher prices for travellers.

Transport Minister Marc Garneau has been coy about the public interest review that his department has been undertaking after the Competition Bureau warned the deal would be bad for consumers.

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After Transat AT Inc. (TRZ-T) shareholders approved a revised purchase offer from Air Canada in mid-December, however, Mr. Garneau said he was "approaching the decision-making point."

"I can't give you a date but we are getting close to it," he told reporters on Dec.

18.

A source told The Globe and Mail that Mr. Garneau is expected to soon forward a recommendation to cabinet and a decision should be announced early in the new year.

The Globe is not identifying the source because they were not authorized to talk about the federal review.

Amy Butcher, the minister's communications director, would only say that the internal review is still under way and that the department cannot discuss the merger because of "legal and financial considerations."

Air Canada had originally offered £720-million in August to take over Transat in a merger that would give the country's largest airline 60 per cent of transatlantic travel from Canada and 45 per cent of passenger capacity to sun destinations.

In October, Air Canada slashed its offer by almost 75 per cent to £180-million after airline revenues cratered as a result of the collapse in air travel due to COVID-19.

The federal Competition Bureau warned Mr. Garneau in March - based on prepandemic data - that the merger "is likely to result in substantial anti-competitive effects through the elimination of rivalry between Air Canada and Transat in the areas of overlap between their networks."

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The watchdog found 83 routes between Canada and Europe, Florida, Mexico, the Caribbean and Central and South America where competition would be reduced or eliminated. This would lead to higher prices and fewer services and would particularly impact Montreal, Quebec City and Toronto, where the two airlines hold dominant market share.

In a confidential letter to Mr.

Garneau on May 14, WestJet president and chief executive officer Ed Sims urged the federal government to impose conditions if the merger is approved.

Mr. Sims said Air Canada should give up some of its "peak period" slots at Pearson International and London's Heathrow airports. Under the proposed deal, he said the merged airlines would acquire even more "peak period" slots between Toronto and London, foreclosing "meaningful competition" in two of the most important hubs for Canadian travellers.

He proposed other conditions as well to ensure competition.

"WestJet believes that Air Canada should be required to maintain all three brands - Air Canada, Rouge and Transat.

Air Canada should also be expressly precluded from using its Aeroplan loyalty program with its Transat-branded flights," Mr. Sims wrote in a letter obtained by The Globe.

"Air Canada should also not be permitted to use its dominant position to tie up hotels in the sun region through the use of exclusive contracts or incentives that effectively create exclusivity," he added.

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The European Union's antitrust regulators are also reviewing the deal and have expressed concerns that it may significantly reduce competition and result in higher prices on 33 routes between Europe and Canada.

In June, 2019, Mr. Garneau ignored the advice of the Competition Bureau and allowed the merger of Canadian North and First Air.

The bureau had said the deal would lead to "a substantial lessening of competition in the provision of passenger travel and cargo service on a number of routes in Nunavut and the Northwest Territories, including reductions in passenger and cargo capacity, increases in price, and reductions in flight schedules."

However, the minister included conditions on the merger such as no price hikes to passengers and cargo delivery and no reductions to the weekly schedule on all routes of the airlines' combined network.

Mr.

Garneau also required the merged airline to provide his department with quarterly financial updates and yearly financial statements.

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