WestJet will have to repay the bulk of Sunwing Airlines' CAD316.9 million Canadian dollar (USD235.8 million) federal loan upon closure of its acquisition of the budget leisure carrier.

This is according to an order passed by the Governor General of Canada and gazetted on April 8, approving the acquisition of Sunwing by WestJet, a year after the airlines first gave notice of their planned merger.

"The Governor in Council is satisfied that, taking into account the measures that the parties are prepared to undertake, it is in the public interest to approve the proposed transaction, as it would, among other things, benefit the overall stability of the Canadian air sector as it recovers from the significant impacts to that sector as a result of the coronavirus disease 2019 (COVID-19).

"Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, under subsection 53.2(7) of the Canada Transportation Act, approves the proposed transaction in which WestJet would acquire all of the issued and outstanding shares of Sunwing, subject to the terms and conditions set out in the schedule," the order reads.

Amongst these conditions is that WestJet will have to fully repay Sunwing's Large Employer Emergency Financing Facility (LEEFF) loan, including all interest and fees. Sunwing's outstanding federal loans include CAD216.5 million (USD161.1 million) in COVID-19 support and "Travel Credit Facility" drawings of CAD100.4 million (USD74.7 million), both under the LEEFF programme. The order points out that Sunwing faced further financial hardships due to operational challenges during the 2022 winter holiday travel season, leading to high costs to repatriate stranded passengers. It was also required to compensate travellers for disruptions in accordance with the Air Passenger Protection Regulations (APPR).

"Given Sunwing's precarious situation following the cancellation of much travel and the need to repatriate passengers during the winter 2022 holidays, there is now a significant risk that the company would not be able to repay the loans.

"WestJet will be obligated to repay the bulk of Sunwing's outstanding federal loans promptly upon closing [of the transaction], with the remaining 'Travel Credit Facility' loan repaid at its maturity in 2028." This undertaking formalises and binds previous commitments by the parties. "The parties have a contractual obligation to repay these loans, which are now ensured to be returned to the government," the Governor General stated. However, the order does not prescribe the period by which the acquisition of Sunwing must be implemented, pointing out that WestJet requires flexibility amidst current pilot shortages potentially impacting operations.

Meanwhile, to address competition and connectivity concerns, the order states the following:

  • WestJet must maintain a minimum level of air service capacity on 15 city pairs, which were identified as merger-enabled monopolies;
  • Within two years, WestJet will make Sunwing Vacation packages available from five Canadian points of origin not served by Sunwing in winter 2022-2023, on at least 52 days of the year, for at least two years, through direct or one-stop air services;
  • WestJet will gradually end Sunwing's practice of seasonally leasing aircraft from and to non-Canadian air carriers;
  • Sunwing has a valid contract that gives TUI Travel Aviation Finance first opportunity to provide leased aircraft from May 2023 to April 2030. Should TUI not lease its aircraft, Sunwing must canvass aircraft from Canadian carriers;
  • The airlines have committed to employing 20% more staff at the combined Toronto office within three years;
  • Within three years, WestJet will invest at least CAD1 million (USD744,000) to improve Sunwing's passenger communications and coordination capacity;
  • WestJet will maintain the Sunwing Vacations brand for at least five years. In addition to WestJet keeping its head office in Calgary, the merged company will maintain a vacations business head office in Toronto and a regional office of the vacation business in Montreal.