Porter, Transat secure bailout loans to cope with soaring jet-fuel costs

Porter Airlines and Transat AT TRZ-T have received government bailout loans to help the airlines weather soaring prices for jet fuel, which hit a three-month high on Tuesday.

Transat, operator of Montreal-based leisure airline Air Transat, has borrowed $150-million – the maximum available – while Toronto’s Porter received $125-million, according to Canada Enterprise Emergency Funding Corporation (CEEFC), the federal agency that administers the emergency funding.

The agency established the loan program in June to help airlines struggling with jet-fuel prices, which soared as the U.S. war on Iran hampered oil shipments through the Strait of Hormuz and reduced refining capacity in the region. Both sides have declared control of the chokepoint, which carried 20 per cent of the world’s oil and 75 per cent of Europe’s imported aviation fuel.

Canada is largely self-sufficient in jet fuel, but the commodity is priced on world markets. Prices have doubled since the U.S. and Israel started bombing Iran in late February.

Spot prices for U.S. Gulf Coast kerosene-type jet fuel traded at US$4.19 a gallon on Tuesday, the highest since late May, according to the U.S. Energy Information Administration.

The four-year bailout loans bear an interest rate equal to the yield on 10-year government of Canada bonds at the time the program was announced, or about 3.5 per cent, plus 50 basis points. The loans are “a financing program designed to help eligible Canadian passenger airlines address temporary liquidity pressures caused by elevated operating costs, particularly aviation fuel price volatility,” says CEEFC, the same agency that administered corporate bailouts during the COVID-19 pandemic. Porter, Transat, Air Canada and Sunwing were beneficiaries of that loan program.

Porter and Transat did not immediately respond to e-mailed questions.

Airlines around the world responded to soaring jet-fuel costs by raising fares and surcharges while dropping unprofitable routes. The companies were squeezed by having to pay elevated fuel costs while carrying passengers who paid for their flights months in advance.

Jet-fuel prices rose by 9 per cent last week, from the previous week, according to S&P Global. Prices are highest in Europe, at a weekly average of almost US$4.29 a gallon.

The U.S. said it struck three Iranian tankers on Saturday after Iranian forces fired missiles at two of its navy ships. Iran-backed Houthis attacked Saudi Arabia on Tuesday, setting oil infrastructure ablaze and sending crude prices higher. Oil prices are up by about 8 per cent in September as hostilities in the region have resumed.