Air Canada has called off a proposed deal to acquire Air Transat after it became clear the move would not be approved by the European Union.

The flag-carrier and Transat had originally agreed in June 2019 on the acquisition.

The terms of the purchase were subsequently amended in August 2019 and then again in October last year as a result of the severe economic impact of the Covid-19 pandemic.

As previously disclosed, the acquisition was conditional on the approval of various regulatory authorities, including the European Commission.

In order to meet that key condition, Air Canada offered and enhanced a significant package of remedies, which went beyond the commercially reasonable efforts required of Air Canada under the arrangement agreement and what has been traditionally accepted by the EC in previous airline merger cases.

However, Air Canada said, following recent discussions with the commission, it has become evident the body will not approve the acquisition based on the currently offered remedy package.

A statement explained: “After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the Covid-19 pandemic.

“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.”

Both Air Canada and Transat have agreed to terminate the arrangement agreement with Air Canada paying Transat a termination fee of $12.5 million.

Transat is no longer under any obligation to pay Air Canada any fee should Transat be involved in another acquisition or similar transaction in the future.