TORONTO — Transat AT shares plunged as much as 22.6 per cent in the first day of trading after Air Canada pulled the plug on its takeover of the Montreal-based tour operator over Europe's unwillingness to approve the deal.

Transat shares decreased to a low of $4.25 and were down 80 cents or 14.6 per cent at $4.69 at the end of trading Monday.

Air Canada shares gained 65 cents or 2.5 per cent to close at $27.10 on the Toronto Stock Exchange.

Canada's largest airline announced on Good Friday that its $190-million purchase of Transat was dead.

While Air Canada was expected to make changes to win the required approvals from the European Commission, said Walter Spracklin of RBC Dominion Securities, he didn't believe it was in the airline's best interest to put forward an "an uneconomic remedy package that could jeopardize its future ability to compete internationally."

He added that the $12.5-million termination fee was immaterial, representing less than one per cent of his estimated $3.8-billion cash burn for Air Canada in 2021.

"Net-net, we view the acquisition termination as having little fundamental impact on Air Canada as the lost future competitive benefits in international and leisure travel are offset by the immediate cash savings (which we estimate at about $187 million after the $12.5 million break fee), which should help Air Canada’s liquidity in the near term," he wrote in a report.

In addition, Air Canada waived its rights to a $10-million fee should Transat complete any other transaction in the next 12 months.

Benoit Poirier of Desjardins Capital Markets said Transat will now consider alternatives, including Pierre Karl Peladeau's previous $5 per share offer and Transat's standalone business plan.

"WestJet (owned by Onex) could be another suitable contender given the operations of both companies are complementary; such a deal would take time to finalize, although there would be fewer antitrust issues (versus Air Canada), in our view," he wrote.

WestJet Airlines said it's not interested in purchasing its rival.

"For more than 25 years, WestJet has stood for fair and healthy competition and we applaud the work of the European regulators regarding the proposed transaction," a spokeswoman for the Calgary-based airline wrote in an email.

We previously outlined the negative impacts this transaction would have on competition, consumer choice and airfares and remain focused on contributing to Canada’s recovery from COVID-19."

Poirier expects Transat will act rapidly to position itself for the eventual recovery of the airline industry. It first needs to secure long-term financing.

Most industry analysts didn't include any impact from the transaction in their estimates given the uncertainty of the deal closing and conditions that could be imposed.

"While we saw the transaction as offering some incremental opportunity for the combined companies, given the issues around the process, we believe it positive that Air Canada can now move forward with less uncertainty in positioning for a post-COVID recovery in traffic in the second half of 2021," said Chris Murray of ATB Capital Markets.

Other private equity firms might be interested in acquiring Transat, but Murray said any transaction could face a lengthy regulatory review and political pressures given its base in Quebec.

This report by The Canadian Press was first published April 5, 2021.

Companies in this story: (TSX:AC, TSX:TRZ, TSX:ONEX)

Ross Marowits, The Canadian Press