MONTREAL — Travel company Transat AT Inc. says it has reached a deal with Ottawa to borrow up to $700 million, nearly half of which will go toward refunding travellers for flights cancelled during the COVID-19 pandemic. 

The reimbursement for customers who were scheduled to leave on or after Feb. 1, 2020, will begin immediately, the airline said Thursday as it works to resume flights after grounding its fleet earlier this year.

The money, which arrives after months of negotiations, will come through the federal government's Large Employer Emergency Financing Facility, the same program used to help Air Canada with up to $5.9 billion in funding.

Transat chief executive Jean-Marc Eustache said Thursday was likely the company's "best day" since the pandemic began.

"We are very convinced that the post-COVID environment will be favourable to us because we are operating in the right market, the leisure market," he said at the company's annual shareholder meeting, held virtually.

"Our customers have put money aside during the lockdown and they want to spend it first on leisure, on pleasure travel."

Resumption of flights is expected to begin no sooner than late June.

Transat shares gained altitude after the aid packaged was announced Thursday morning, rising 27 cents, or nearly six per cent to close at $4.80 on the Toronto Stock Exchange.

The relief comes with conditions, including a $1-million ceiling on executive compensation as long as refunds remain unpaid and a floor of 772 active employees — well below the pre-pandemic workforce of 5,200.

The Montreal-based company said up to $390 million will be used to help support its business, while up to $310 million will be used to provide reimbursements to travellers.

Interest rates for the former start at 4.5 per cent — borrowing rates for Air Canada kicked off at 1.5 per cent — and for the latter 1.2 per cent, similar to Transat's larger rival.

In reporting its most recent financial results in March, Transat estimated it would need at least $500 million to get through the year if a proposed takeover by Air Canada fell through.

Air Canada withdrew its $190 million bid for the company earlier this month after learning European Union regulators would not allow the deal to go ahead.

Initiated two years ago, the takeover was priced at $720 million before shrinking by nearly three-quarters as COVID-19 pounded the transport sector, ultimately dying out on April 2.

Asked Thursday whether any rival bidders had emerged, Eustache wouldn't comment. 

"Is it still possible that Transat will be purchased? This is an option that we will consider," he said.

"In the short-term, an opportunity to move in this direction could be presented by the expression of interest by Pierre Karl Péladeau, and we will have to determine in the near future whether this possibility is in the best interest of all stakeholders."

Gestion MTRHP Inc., the investment company of Péladeau, a financier and CEO of telecommunications giant Quebecor Inc., previously made a proposal to acquire all of the issued and outstanding shares of Transat for $5 a share.

In connection with the financing from Ottawa, Transat issued the government 13 million warrants for the right to purchase Transat shares at $4.50 apiece, up to a maximum of 20 per cent of outstanding stock.

Transat has also agreed to hold off on paying dividends and share buybacks. As with the cap on executive compensation, the restrictions are in line with the aid offered to Air Canada.

Transat has endured a tough year, suspending all flights following the federal government's request in January to stop travel to Mexico and the Caribbean due to the pandemic.

The tour operator's refund eligibility criteria is available online at airtransat.com/refunds.

WestJet, the country's second-largest airline, said it continues to negotiate with Finance Department officials over a relief package. The Calgary-based company began to dole out refunds last year and has restored some regional routes since.

— With files from Christopher Reynolds in Ottawa and Tara Deschamps in Toronto.

This report by The Canadian Press was first published April 29, 2021.

Companies in this story: (TSX:TRZ, TSX:AC, QBR.B)

The Canadian Press