Having looked as though it was pretty much a done deal between the two Quebec based companies, the merger between Air Transat and Air Canada has taken an unexpected twist. At the eleventh hour, Mach Inc have made a larger offer in what could now spark a bidding war.

Air Transat would complement Air Canada

Following the multi-billion dollar sale of Calgary based WestJet Airlines to Onex, a Toronto-based private equity firm, the Canadian aviation industry was expecting a smooth merger to be completed between leisure airline, Air Transat and the national flag carrier Air Canada.

With the industry ripe for consolidation, a merger between Air Transat and Air Canada would be mutually beneficial to both companies.

Air Transit has an ageing fleet of aircraft that they are in the process of updating, which compliments the current aircraft in service with Air Canada. For Air Canada, the acquisition of Air Transat would give them a low-cost leisure business that they can expand within Canada, as well as complimenting subsidiary airline, Rouge, internationally.

Add to this that they are both already working in the same regulatory environment and that two Quebec companies would come together rather than somebody coming in from the outside, on paper it looks like a great deal.

In steps Mach Inc with a better offer

Montreal based real estate developer, Groupe Mach Inc, has signalled their intent to purchase Air Transat, submitting a bid that's a dollar per share more than Air Canada was offering.

Groupe Mach Inc is also looking to partner with the Quebec government and have them finance almost a quarter of the purchase price. This is set at $527.6 million Canadian Dollars ($393.9 USD), according to BNN Bloomburg.

Mach claims that they approached Air Transat in January with a deal that would see Air Transat’s head office remain in Montreal. They considered this to be essential if they were to receive funding from the Quebec government.

Mach Inc owner, Vincent Chiara, told The Canadian Press he wants to continue operating the airline under Air Transat’s current business plan and that the business would not be broken up.

“The airline, for now, is definitely an integral part of that business,” he said Tuesday. “It’ll be important to keep that...The business plan is to get the passengers to their destinations, selling packages which include the hotel portion.”

According to Mach Inc, the key to seeing the deal come to fruition would be the inclusion of Spanish real estate developer TM Grupo Inmobiliario. They are looking for the developer to sell three of their Mexican hotels to Air Transat.

If Air Transat were to accept the bid from Mach Inc, it would see them incur a $15 million (11.9 USD) penalty for breaching the 30-day period of exclusive negotiations between themselves and Air Canada.

Who is Mach Inc and why do they want to buy Air Transat?

Having absolutely zero experience in the aviation industry why would a property developer want to buy an airline?

The answer is simple, Hotels! While the added destinations and more aircraft appeal to Air Canada, Mach is in it purely for the hotels. Kind of like TUI and Thomas Cook, in a way. Air Transat's attention will be focussed on the hotel side of the business, with plans to add 5,000 rooms in the Caribbean and Mexico.

Nothing is ever as cut and dry as it seems, and certainly in the case of Air Canada or Mach Inc buying Air Transat, that is clearly evident. Right now the key to the eventual owner of Air Transat will be whether or not Transat terminates its letter of intent with Air Canada, now that it has received a larger offer from Mach Inc.