Transat AT, Inc. Annual Report 2022

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FY2022 Annual Report · Transat AT, Inc.

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annual report
2022

Travel moves us

Senior
Management

* At October 31 2022

Annick
Guérard
President and Chief
Executive Officer

Bernard
Bussières
Chief Legal and
Government
Relations Officer and
Corporate Secretary

Bruno
Leclaire
Chief Information
and Digital Officer

Joseph
Adamo
President, Transat
Distribution Canada

Chief Sales & Marketing
Officer

Marc-Philippe
Lumpé
Chief Airline
Operations Officer

Debbie
Cabana
Director, Office
of the President
and Chief Executive
Officer

Patrick
Bui
Chief Financial
Officer

Michèle
Barre
Vice President,
Network, Revenue
Management and
Pricing

Christophe
Hennebelle
Chief Human
Resources, Corporate
Responsibility and
Communications

Board
of Directors

Ian
Rae
Founder, President
and Chief Executive
Officer, CloudOps
3 4

Stéphane
Lefebvre
President and Chief
Executive Officer,
Cirque du Soleil
2

Annick
Guérard
President and Chief
Executive Officer,
Transat
1

Valérie
Chort
Vice-President,
Corporate Citizenship
and Sustainability, RBC

Executive Director, RBC
Foundation
4 5

Daniel
Desjardins
Corporate Director
1 2 4

Julie
Tremblay
Corporate Director
3 5

Raymond
Bachand
Lead Director

Strategic Advisor,
Norton Rose
Fulbright Canada
1 2 5

Lucie
Chabot
Corporate Director
1 2 5

Susan
Kudzman
Corporate Director
1 3 4

Philippe
Sureau
Founding Member

Corporate Director

Committees

Executive
Committee

Audit
Committee

Human Resources
and Compensation Committee

Risk Management and Corporate
Governance Committee

Governance and
Nominating Committee

2022
Financial Highlights

in thousands of dollars, except per share amounts and ratios

Revenues

2022
2021
2020
2019
2018

Cash flows related to operating activities

1,642,038
124,818
1,302,069
2,937,130
2,848,955

2022
2021
2020
2019
2018

(177,854)
(518,444)
(46,136)
216,021
68,804

Adjusted operating income (loss) 1

Net income (loss) attributable to shareholders

2022
2021
2020
2019
2018

(156,752)
(213,885)
(122,175)
192,441
17,195

2022
2021
2020
2019
2018

(445,324)
(389,559)
(496,545)
(32,347)
6,451

Revenues

Operating loss

Adjusted operating loss 1

Net loss

2022

2021

Variance ($)

Variance (%)

1,642,038

124,818

1,517,220

1,215.5

(303,420)

(401,222)

(156,752)

(213,885)

97,802

57,133

(445,324)

(389,438)

(55,886)

Net loss attributable to shareholders

(445,324)

(389,559)

(55,765)

Diluted loss per share

(11.77)

(10.32)

(1.45)

Cash flows related to operating activities

(177,854)

(518,444)

340,591

Cash and cash equivalents

Total assets

322,535

433,195

(110,660)

2,271,131

1,897,658

373,473

Long-tem debt (including current portion)

664,160

463,180

200,980

Debt ratio 2

Stock price as at October 31 (TRZ)

1.33

2.60

1.17

4.39

Oustanding shares, end of year (in thousands)

38,012

37,747

0.16

(1.79)

265

1 See Non-IFRS financial measures section

2 Debt ratio: total liabilities divided by total assets.

24.4

26.7

(14.4)

(14.3)

(14.1)

65.7

(25.5)

19.7

43.4

13.7

(40.8)

0.7

The Sky Is Clearing

Transat is skillfully orienting
itself and will benefit from the
gradual improvement in economic
conditions. In the meantime,
the renegotiation of federal
government financing is allowing
the Corporation to recover from
an unprecedented crisis, which
caused the industry’s revenues
o collapse almost completely
for more than a year.

Lastly, at the end of the year,
the Board of Directors expressed
its gratitude and best wishes
to Philippe Sureau, a pillar of
Transat and a founding member
of the Corporation, who retired.
It’s also time for me to say
goodbye; this is my last annual
report as Chair of the Board of
Directors. The trip has been very
pleasant, despite the turbulence.
I have a special affection for
Transat, which I have revisited
throughout my career as a client,
partner or director. I would like
to thank the members of the
Board for their wise counsel,
acknowledge the management
team’s competence and
congratulate the employees
for their know-how and quality
customer relationships. I would
also like to thank the Québec
and Canadian customers for their
continued loyalty to Transat,
our flagship. The future is bright
for Transat, its great team, and
its shareholders.

Cautious optimism is returning
to air travel after more than
two very difficult years. Leisure
travellers looking forward to family
reunions or vacations in the sun
took advantage of the easing
of health measures in mid-2022,
and Transat benefitted. Still,
the situation remains fragile.
International tensions and supply
chain weaknesses have triggered
an energy crisis and a surge in
inflation. Repeated interest rate
hikes to rein in inflation caused
a noticeable economic slowdown
at year-end. However, traveller
demand is holding up, which is
encouraging.

These challenging circumstances
confirmed the value of the

orientations we adopted last
year. Transat is now asserting
its positioning as an air carrier
by optimizing network routes,
entering partnerships with
other airlines and expanding
the number of destinations
through these agreements.
The Board of Directors

supported this repositioning,
which is at the heart of the
strategic plan, and reiterates
its confidence in President and
Chief Executive Officer Annick
Guérard, who completed her first
full year at the helm of
the Corporation. Transat can
also count on a renewed
and strengthened team; in 2022,
the Corporation welcomed
a new Chief Operating Officer,
a new Chief Financial Officer,
and created a new Vice Presidency,
Corporate Responsibility.
During the year, the Board
of Directors was also renewed
with the addition of four new
members.

Raymond
Bachand
Lead Director

Strategic Advisor, Norton Rose
Fulbright Canada
S.E.N.C.R.L., s.r.l./LLP

Recovery
in the Travel Sector
Strengthens

The fiscal year ended on October
31, was marked by a rapid and
generalized change in the operating
ecosystem. Amid this volatile
environment, Transat took decisive
action: we improved our network,
optimized our routes, continued
to modernize our fleet, took
delivery of new aircraft, and rehired
our people, all while preserving
our cash resources and keeping
tight control over costs. The coming
months augur well, and we are
equipped to deal with any persisting
uncertainties.

Summer of recovery
The economy’s strengthening
throughout 2021 gave hope
to a recovery in travel for the year-
end holidays. While another wave
of COVID-19 dampened these
hopes, summer 2022 saw a
sustained recovery comparable
to pre-pandemic volume. This
recovery was significant – it
demonstrated that consumers
always wanted to travel; it
showed travellers’ attachment to

the Transat brand;

it allowed us to reconnect with
our clientele who we greatly missed.

As a result, fiscal 2022 ended with
a favourable outlook. In the fourth
quarter, load factors continued
to improve, approaching 90% at
the summer peak, and strong
demand was reflected in sustained
price increases.

Positive trend for 2023
The upward trend is expected
to continue in 2023, and a return
to a satisfactory level of operations
and profitability is on the horizon.
For winter 2023, demand remains
strong and bookings are reaching
pre-pandemic levels. Although
factors beyond our control could
disrupt the recovery curve, such

as the prospect of an economic
slowdown, high fuel prices or
interest rates, we remain confident
and are firmly staying the course
with our strategic plan, which
provides the organization with t
he necessary means to continue
its development.

On the financial front, our priority
is to preserve cash resources.
We are maintaining cost cutting
and investment reduction
measures, and have renegotiated
our financing agreements, which
have given us access to additional
liquidity and allowed us to postpone
maturities, providing for more
flexibility in operations.

Refocused network and new
high-potential connections
We are following through
on our strategic plan to make
the Corporation an efficient
and competitive airline, generating
stable and ongoing value for
its shareholders.

We are refocusing our airline
operations with a greater presence
in Eastern Canada by operating
routes with high potential.
In 2022, Transat enhanced its virtual
interlining service with new partners
in Portugal, Greece, Scotland,
and Colombia, in addition to
partnerships already
in place, bringing the total number
of destinations available via
the connectair by Air Transat
platform to over 300.

During the year, Transat also opened
bookings under
the codeshare agreements with
WestJet and Porter. The network
redeployment and partnership
agreements aim to reduce the
seasonality of our operations,
bolster our revenues, and optimize
fleet utilization.

Annick
Guérard
President and Chief Executive
Officer

travel industry, and Mr. Raymond
Bachand, Chairman of the Board
and a key player in the Quebec
economy, will be leaving us after
having left an indelible mark on
the history of our company and on
the people who form it. I would
like to thank them warmly for their
support over the years, and through
a historic crisis from which we are
finally recovering. I would also like
to acknowledge their support and
trust since I took on the role as
President and CEO.

To all of you, thank you for your
efforts and support.

Renewed and more
efficient fleet
During the year, we took delivery
of two Airbus A321LRs and returned
one Airbus A330 to the lessor early.
We also announced a long-term
lease for four new Airbus A321XLRs,
to be delivered from 2025 to 2027.
This renewed fleet, streamlined
to just two types of aircraft,
the A330 and A321, will provide
substantial fuel savings, increased
operational flexibility, and easier
and cheaper maintenance.

Recall of employees
The resumption of operations
led to a recall of temporarily laid
off employees; 1,800 people were
recruited or rehired during the
year. Since its inception 35 years
ago, Transat has distinguished itself
with its quality hospitality and
excellent service. These core values
of the Corporation are embodied
by its dedicated and passionate
employees. At the end of fiscal
2022, Transat had 3,900 employees,
equivalent to 75% of the workforce
at the beginning of the pandemic.
Hiring will continue in 2023.

The quality of work relationships
goes hand in hand with employees’
sense of belonging. During the
year, we renewed employment
contracts with our pilots and began
discussions with the association
representing maintenance and
central baggage agents, which also
resulted in an agreement a few
days after fiscal 2022 year-end.

Resuming operations and
decarbonization
Resuming our operations is
inseparable from our commitment
to sustainability, emission
reduction, and social responsibility.
The creation of a Vice-Presidency,
Corporate Responsibility in 2022
will reinforce these priorities.

A new action plan expected
in 2023 will also include diversity
and inclusion targets.

Transat is doing its best to reduce
its ecological footprint. With our
fuel management program and fleet
renewal, we will have the most
fuel-efficient aircraft in the market.
We are also continuing to work on
developing sustainable aviation
fuel; Transat is an original partner
of the SAF+ Consortium and was
the first airline in Canada to reserve
quantities of this low-carbon
fuel that will be produced on an
industrial scale at a plant in Montreal.
This involvement in developing
decarbonization solutions extends
our long-standing commitment
to environmental protection.
Transat, which has renewed
its Travelife Sustainable Tourism
Certification, strives to protect
resources, natural environments
and communities in all aspects
of our operations, from our head
office to our destinations.

Success factors are in place
Fiscal 2022 was challenging in many
ways, yet positive. All elements
are in place for us to return to
strong and sustained profitability
when conditions are conducive.
Our teams have made monumental
efforts over the past two years to
reorganize, rethink and refinance
this organization. Transat is looking
to the future, driven by a renewed
management team and energized
by the return of its employees.
Transat will continue to evolve,
encouraged by the confidence of
its shareholders and strengthened
by the support of the Board of
Directors, which will welcome
two new directors in 2023, after
having honoured the departure
of two prominent and important
figures on our Board. Mr. Philippe
Sureau, a founding member of
Transat and a key contributor to the

Transat A.T. inc.
Management's Discussion and analysis

TABLE OF CONTENTS

10.

11.

12.

Caution Regarding Forward-Looking Statements .................................................................... 6

Non-IFRS Financial Measures ........................................................................................................ 8

Financial Highlights ......................................................................................................................... 11

Highlights of 2022 ........................................................................................................................... 12

Overview ............................................................................................................................................ 14

Consolidated Operations ............................................................................................................... 18

Financial Position, Liquidity and Capital Resources ................................................................ 26

Other .................................................................................................................................................. 34

Accounting ........................................................................................................................................ 35

Risks and Uncertainties .................................................................................................................. 42

Controls and Procedures ............................................................................................................... 50

Outlook .............................................................................................................................................. 50

Management's Report ................................................................................................................................... 51

Independent Auditor's Report ..................................................................................................................... 52

Transat A.T. inc.
Management's Discussion and analysis

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis [“MD&A”] provides a review of Transat A.T. Inc.’s operations, performance and
financial position for the year ended October 31, 2022, compared with the year ended October 31, 2021, and should be
read in conjunction with the audited consolidated financial statements and accompanying notes. Unless otherwise
indicated, the information contained herein is dated as of December 14, 2022. You will find more information about us on
Transat’s website at www.transat.com and on SEDAR at www.sedar.com, including the Attest Reports for the year ended
October 31, 2022 and the Annual Information Form.

The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards [“IFRS”]. We occasionally refer to non-IFRS financial measures in the MD&A. See the Non-IFRS financial measures
section for more information. All dollar figures in this MD&A are in Canadian dollars unless otherwise indicated. The terms
“Transat,” “we,” “us,” “our” and the “Corporation” mean Transat A.T. Inc. and its subsidiaries, unless otherwise indicated.

1. CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains certain forward-looking statements with respect to the Corporation, including those regarding its
results, its financial position, the impacts of the coronavirus [“COVID-19”] pandemic, its outlook for the future and planned
measures, including in particular the gradual resumption of certain flights and actions to improve its cash flows. These
forward-looking statements are identified by the use of terms and phrases such as “anticipate” “believe” “could”
“estimate” “expect” “intend” “may” “plan” “potential” “predict” “project” “will” “would”, the negative of these terms and
similar terminology, including references to assumptions. All such statements are made pursuant to applicable Canadian
securities legislation. Such statements may involve but are not limited to comments with respect to strategies,
expectations, planned operations or future actions. Forward-looking statements, by their nature, involve risks and
uncertainties that could cause actual results to differ materially from those contemplated by these forward-looking
statements.

We draw your attention to the MD&A’s Section 7, Financial Position, Liquidity and Capital Resources and Note 2 to the
Consolidated Financial Statements which describe an environment, events and conditions, specifically in the context of a
pandemic, which indicate the existence of material uncertainty that may cast significant doubt on the Corporation’s ability
to continue as a going concern.

As a result of the COVID-19 pandemic, the global air transportation and tourism industry has faced a collapse in traffic and
demand. Despite the easing of health measures and travel restrictions initially put in place, travel restrictions and
vaccination requirements introduced by numerous countries as well as concerns related to the pandemic and its economic
impacts, combined with the uncertainty of a possible economic downturn, ongoing inflation in many countries, including
Canada, and the military conflict between Russia and Ukraine are creating significant demand uncertainty, and the effects
will still be partially present in fiscal 2023. For the 2022 winter season, the Corporation rolled out a reduced winter
program that had to be adjusted following the emergence of the Omicron variant and new restrictive measures
implemented by Canada and other countries. For the 2022 summer season, the Corporation also deployed a further
reduced program although much more similar to pre-pandemic levels. While the situation considerably improved since the
second quarter of 2022, the Corporation cannot yet predict with certainty all the impacts of COVID-19 on its operations
and results, the pace at which the situation will improve or precisely when conditions will become normal again. Since the
beginning of the pandemic, the Corporation implemented a series of operational, commercial and financial measures,
including new financing and cost reduction measures, aimed at preserving its cash. The Corporation is monitoring the
situation daily to adjust these measures as it evolves. However, until the Corporation is able to resume operations at a
sufficient level, the COVID-19 pandemic will have significant negative impacts on its revenues, cash flows from operations
and operating results. Although the lifting of most restrictions has allowed a significant resumption of operations during
2022, the Corporation does not expect to reach the pre-pandemic level before 2024.

Annual Report 2022 Transat A.T. inc. | 6

Transat A.T. inc.
Management's Discussion and analysis

The forward-looking statements may differ materially from actual results for a number of reasons, including without
limitation, economic conditions, changes in demand due to the seasonal nature of the business, extreme weather
conditions, climatic or geological disasters, war, political instability, real or perceived terrorism, outbreaks of epidemics or
disease, consumer preferences and consumer habits, consumers’ perceptions of the safety of destination services and
aviation safety, demographic trends, disruptions to the air traffic control system, the cost of protective, safety and
environmental measures, competition, the Corporation’s ability to maintain and grow its reputation and brand, the
availability of funding in the future, fluctuations in fuel prices and exchange rates and interest rates, the Corporation’s
dependence on key suppliers, the availability and fluctuation of costs related to our aircraft, information technology and
telecommunications, changes in legislation, unfavourable regulatory developments or procedures, pending litigation and
third party lawsuits, the ability to reduce operating costs, the Corporation’s ability to attract and retain skilled resources,
labour relations, collective bargaining and labour disputes, pension issues, maintaining insurance coverage at favourable
levels and conditions and at an acceptable cost, and other risks detailed in the Risks and Uncertainties section of
the MD&A.

The reader is cautioned that the foregoing list of factors is not exhaustive of the factors that may affect any of the
Corporation’s forward-looking statements. The reader is also cautioned to consider these and other factors carefully and
not to place undue reliance on forward-looking statements.

The forward-looking statements in this MD&A are based on a number of assumptions relating to economic and market
conditions as well as the Corporation’s operations, financial position and transactions. Examples of such forward-looking
statements include, but are not limited to, statements concerning:

•

The outlook whereby until the Corporation is able to resume operations at a sufficient level, the COVID-19
pandemic will have significant negative impacts on its revenues, cash flows from operations and
operating results.

The outlook whereby, subject to going concern uncertainty as discussed in Section Basis of Preparation and
Going Concern of the MD&A and Note 2 to the Consolidated Financial Statements, the Corporation will be able
to meet its obligations with cash on hand, cash flows from operations and drawdowns under existing
credit facilities.

The outlook whereby, for 2023 as a whole, the Corporation expects to deploy capacity equivalent to 90% of
the 2019 level.

The outlook whereby, the combination of demand and higher prices will allow the Corporation to deal with
higher costs.

The outlook whereby, for 2023 as a whole, the Corporation expects an adjusted operating income margin of
approximately 4% to 6%.

In making these statements, the Corporation assumes, among other things, that no travel or border restrictions will be
imposed by government authorities, that the standards and measures for the health and safety of personnel and travellers
imposed by government and airport authorities will be consistent with those currently in effect, that travellers will continue
to travel despite the health measures and other constraints imposed as a result of the pandemic, that workers will continue
to be available to the Corporation, its suppliers and the companies providing passenger services at the airports, that credit
facilities and other terms of credit extended by its business partners will continue to be made available as in the past, that
management will continue to manage changes in cash flows to fund working capital requirements for the full fiscal year.
If these assumptions prove incorrect, actual results and developments may differ materially from those contemplated by
the forward-looking statements contained in this MD&A.

The Corporation considers that the assumptions on which these forward-looking statements are based are reasonable.

These statements reflect current expectations regarding future events and operating performance, speak only as of the
date this MD&A is issued, and represent the Corporation’s expectations as of that date. The Corporation disclaims any
intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise, other than as required by applicable securities legislation.

Annual Report 2022 Transat A.T. inc. | 7

Transat A.T. inc.
Management's Discussion and analysis

2. NON-IFRS FINANCIAL MEASURES

This MD&A was prepared using results and financial information determined under IFRS. In addition to IFRS financial
measures, management uses non-IFRS measures to assess the Corporation’s operational performance. It is likely that the
non-IFRS financial measures used by the Corporation will not be comparable to similar measures reported by other issuers
or those used by financial analysts as their measures may have different definitions. The measures used by the Corporation
are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS
financial performance measures.

Generally, a non-IFRS financial measure is a numerical measure of an entity’s historical or future financial performance,
financial position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-
IFRS financial measures are important as they provide users of our interim condensed consolidated financial statements
with a better understanding of the results of our recurring operations and their related trends, while increasing
transparency and clarity into our operating results. Management also believes these measures to be useful in assessing the
Corporation’s capacity to fulfil its financial obligations.

By excluding from our results items that arise mainly from long-term strategic decisions and/or do not, in our opinion,
reflect our operating performance for the period, such as the change in fair value of derivatives, gain (loss) on asset
disposals, restructuring charges, asset impairment, depreciation and amortization, foreign exchange gains (losses), gain
(loss) on long-term debt modification and other significant unusual items, and by including premiums related to derivatives
that matured during the period, we believe this MD&A helps users to better analyze our results, as well as our ability to
generate cash flows from operations. Furthermore, the use of non-IFRS measures helps users by enabling better
comparability of results from one period to another and better comparability with other businesses in our industry.

Annual Report 2022 Transat A.T. inc. | 8

Transat A.T. inc.
Management's Discussion and analysis

The non-IFRS measures used by the Corporation are as follows:

Adjusted operating
income (loss)

Operating income (loss) before depreciation, amortization and asset impairment expense,
restructuring charge and other significant unusual items, and including premiums related to
derivatives that matured during the period. The Corporation uses this measure to assess the
operational performance of its activities before the aforementioned items to ensure better
comparability of financial results.

Adjusted pre-tax
income (loss)

Income (loss) before income tax expense before change in fair value of derivatives, revaluation of
liability related to warrants, gain (loss) on business disposals, gain (loss) on asset disposals,
restructuring charge, asset impairment, foreign exchange gain (loss) and other significant unusual
items, and including premiums related to derivatives that matured during the period. The
Corporation uses this measure to assess the financial performance of its activities before the
aforementioned items to ensure better comparability of financial results.

Adjusted net income
(loss)

Net income (loss) attributable to shareholders before net income (loss) from discontinued
operations, change in fair value of derivatives, revaluation of liability related to warrants, gain
(loss) on long-term debt modification, gain (loss) on business disposals, gain (loss) on asset
disposals, restructuring charge, asset impairment, foreign exchange gain (loss), reduction in the
carrying amount of deferred tax assets and other significant unusual items, and including
premiums related to derivatives that matured during the period, net of related taxes. The
Corporation uses this measure to assess the financial performance of its activities before the
items to ensure better comparability of financial results. Adjusted net
aforementioned
income (loss) is also used in calculating the variable compensation of employees and senior
executives.

Adjusted net income
(loss) per share

Adjusted net income (loss) divided by the adjusted weighted average number of outstanding shares
used in computing diluted earnings (loss) per share.

Total debt

Long-term debt plus lease liabilities, deferred government grant and liability related to warrants,
net of deferred financing cost related to the unsecured debt - LEEFF. Management uses total debt
to assess the Corporation’s debt level, future cash needs and financial leverage ratio. Management
believes this measure is useful in assessing the Corporation’s capacity to meet its current and
future financial obligations.

Total net debt

Total debt (described above) less cash and cash equivalents. Total net debt is used to assess the
cash position relative to the Corporation’s debt level. Management believes this measure is useful
in assessing the Corporation’s capacity to meet its current and future financial obligations.

Annual Report 2022 Transat A.T. inc. | 9

Transat A.T. inc.
Management's Discussion and analysis

The following tables reconcile the non-IFRS financial measures to the most comparable IFRS financial measures:

(in thousands of Canadian dollars, except per share amounts)
Operating loss
Special items
Depreciation and amortization
Premiums related to derivatives that matured during the period
Adjusted operating loss

Loss before income tax expense
Special items
Change in fair value of derivatives
Revaluation of liability related to warrants
Gain on long-term debt modification
Loss (gain) on asset disposals
Foreign exchange loss (gain)
Premiums related to derivatives that matured during the period
Adjusted pre-tax loss

Net loss attributable to shareholders
Special items
Change in fair value of derivatives
Revaluation of liability related to warrants
Gain on long-term debt modification
Loss (gain) on asset disposals
Foreign exchange loss (gain)
Premiums related to derivatives that matured during the period
Tax recovery on ABCP losses
Tax impact
Adjusted net loss

Adjusted net loss
Adjusted weighted average number of outstanding shares used in
computing diluted earnings per share
Adjusted net loss per share

(in thousands of dollars)
Long-term debt
Deferred government grant
Liability related to warrants
Deferred financing costs
Lease liabilities
Total debt

Total debt
Cash and cash equivalents
Total net debt

2022
$

(303,420)
1,630
153,429
(8,391)
(156,752)

(449,473)
1,630
9,685
(21,989)
(22,191)
(3,934)
92,150
(8,391)
(402,513)

(445,324)
1,630
9,685
(21,989)
(22,191)
(3,934)
92,150
(8,391)
(5,347)
—
(403,711)

2021
$

(401,222)
27,572
159,765
—
(213,885)

(389,415)
27,572
(8,849)
(4,934)
—
(17,347)
(53,260)
—
(446,233)

(389,559)
27,572
(8,849)
(4,934)
—
(17,347)
(53,260)
—
—
—
(446,377)

2020
$
(425,962)
99,675
204,112
—
(122,175)

(488,973)
99,675
13,715
—
—
11,271
3,601
—
(360,711)

(496,545)
99,675
13,715
—
—
11,271
3,601
—
—
12,948
(355,335)

(403,711)

(446,377)

(355,335)

37,838
(10.67)

37,747
(11.83)

37,747
(9.41)

October 31,
2022
$

October 31,
2021
$

664,160
169,025
24,360
(12,552)
1,087,908
1,932,901

463,180
167,394
36,557
(19,368)
956,358
1,604,121

October 31,
2020
$
49,980
—
—
—
853,906
903,886

1,932,901
(322,535)
1,610,366

1,604,121
(433,195)
1,170,926

903,886
(426,433)
477,453

Annual Report 2022 Transat A.T. inc. | 10

Transat A.T. inc.
Management's Discussion and analysis

3. FINANCIAL HIGHLIGHTS

(in thousands of Canadian dollars, except per share amounts)
Consolidated Statements of Loss
Revenues
Operating loss
Net loss attributable to shareholders
Basic loss per share
Diluted loss per share
Adjusted operating loss¹
Adjusted net loss¹
Adjusted net loss per share¹

Consolidated Statements of Cash Flows
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents

Consolidated Statements of Financial Position
Cash and cash equivalents

Cash and cash equivalents in trust or otherwise reserved
(current and non-current)

Total assets
Debt (current and non-current)
Total debt ¹
Total net debt ¹

1 See Non-IFRS financial measures section

2022
$

2021
$

2020
$

Difference
2022
%

2021
%

1,642,038
(303,420)
(445,324)
(11.77)
(11.77)
(156,752)
(403,711)
(10.67)

124,818 1,302,069
(425,962)
(496,545)
(13.15)
(13.15)
(122,175)
(355,335)
(9.41)

(401,222)
(389,559)
(10.32)
(10.32)
(213,885)
(446,377)
(11.83)

1,215.5
24.4
(14.3)
(14.1)
(14.1)
26.7
9.6
9.8

(90.4)
5.8
21.5
21.5
21.5
(75.1)
(25.6)
(25.7)

(177,854)
(33,783)
99,689
1,288
(110,660)

(518,444)
4,542
522,071
(1,407)
6,762

(46,136)
(60,414)
(33,374)
1,513
(138,411)

65.7
(843.8)
(80.9)
191.5
(1,736.5)

(1,023.7)
107.5
1,664.3
(193.0)
104.9

October 31,
2022
$

October 31,
2021
$

October 31,
2020
$

Difference
2022
%

2021
%

322,535

433,195 426,433

(25.5)

1.6

375,557

308,647
170,311
735,080
698,092 603,506
2,271,131 1,897,658 2,016,071
463,180
664,160
49,980
1,604,121 903,886
1,932,901
477,453
1,610,366 1,170,926

120.5
15.7
19.7
43.4
20.5
37.5

(44.8)
(17.9)
(5.9)
826.7
77.5
145.2

Annual Report 2022 Transat A.T. inc. | 11

Transat A.T. inc.
Management's Discussion and analysis

4. HIGHLIGHTS OF THE FISCAL YEAR

IMPACT OF THE COVID-19 PANDEMIC

Preserving cash is a priority for the Corporation. During the year ended October 31, 2022, the Corporation took the
following actions with respect to the COVID-19 pandemic and other opportunities are being evaluated to achieve
this objective:

•

On March 9, 2022, the Corporation renegotiated certain financing agreements with the Government of
Canada. The financing agreement for the unsecured debt - LEEFF was amended to, among other things, defer
the increase in interest rates as well as the date at which 50% of vested warrants would be forfeited if the
financing were to be repaid before December 31, 2023. The unsecured credit facility related to travel credits
was also amended to increase the amount that can be drawn by $43.3 million.

On July 29, 2022, the Corporation secured an additional $100.0 million through the LEEFF on the same terms
and conditions as amended on March 9, 2022. This agreement provides the Corporation with access to an
additional $100.0 million in liquidity. Of this additional liquidity, $80.0 million is in addition to the unsecured
LEEFF financing and $20.0 million is in addition to the secured LEEFF financing. In connection with the
arrangement of this additional financing, the Corporation has agreed with all lenders to extend the maturities
originally scheduled for April 29, 2023 to April 29, 2024. The Corporation has also agreed to extend to
October 29, 2023 (previously October 30, 2022) the date by which the Corporation must comply with certain
financial covenants. In addition, as provided for under the terms of the LEEFF financing, a total of
4,687,500 warrants to purchase an equivalent number of shares of Transat at an exercise price of $3.20 per
share were also issued under the renegotiated terms on March 9, 2022.

The modifications to the LEEFF financing negotiated on July 29, 2022 also provide the Corporation with an
additional credit facility of up to $50.0 million subject to certain preconditions to be satisfied on or before
July 29, 2023, including obtaining additional third-party financing.

During the year ended October 31, 2022, the Corporation drew down $213.2 million under credit facilities
related to the LEEFF. As described in the Financing section, the available financing represents a maximum of
$963.3 million, of which $863.2 million was drawn as at October 31, 2022.

During the fiscal year, one Airbus A330 was returned to lessors early.

The Corporation continuously adjusts its flight program as the situation evolves. The lingering effects of the
Omicron variant and the restrictive measures put in place by the federal government on December 15, 2021
have impacted bookings and cancellation requests. As a result, during the first quarter, the Corporation
cancelled nearly 30% of flights scheduled from January to the end of February. In addition, at the beginning of
February, the Corporation cancelled more winter season flights, thereby reducing total winter season capacity
by approximately 22% of the initially deployed capacity. The easing of global travel restrictions followed by the
lifting of most of them led to an increase in demand. Since then, the Corporation resumed its flight schedule
for the summer season representing a significant portion of its pre-pandemic volume.

Annual Report 2022 Transat A.T. inc. | 12

Transat A.T. inc.
Management's Discussion and analysis

•

The Corporation is negotiating with its suppliers to benefit from cost reductions and changes in payment
terms, and is continuing to implement measures to reduce expenses and investments.

The Corporation continued to benefit from government grants for businesses affected by COVID-19. The
Canada Emergency Wage Subsidy (“CEWS”) and the Canada Emergency Rent Subsidy ("CERS") have been
replaced by the Government of Canada with two new programs, the Tourism and Hospitality Recovery
Program (“THRP”) and the Hardest-Hit Business Recovery Program ("HHBRP"). These two programs, which
ended on May 7, 2022, provided support for salaries.

As at October 31, 2022, cash and cash equivalents totalled $322.5 million.

CODESHARE AND VIRTUAL INTERLINING AGREEMENTS

In 2022, the Corporation enhanced its virtual interlining agreements with the addition of partners Azores Airlines,
Longanair, SKY Express, Air North, AEGEAN Airlines and Viva Air to its connectair by Air Transat platform. These are in
addition to those already in place with EasyJet, Vueling, Avianca and Pascan, bringing the total number of destinations
available through this platform to over 300.

In May 2022, the Corporation opened bookings under the codeshare agreement with WestJet in the transatlantic market.

In October 2022, the Corporation opened bookings under the codeshare agreement with Porter Airlines.

NEW AIRCRAFT LEASES

In September 2022, the Corporation announced a long-term lease agreement for three new Airbus A321XLRs, for delivery
from 2025 to 2026. The agreement also includes an option for an additional A321XLR to be delivered in 2027.

In November 2022, the Corporation entered into an agreement for the delivery of two additional Airbus A321LRs, delivery
being expected in 2024, bringing the total projected number of A321LRs to 19.

COLLECTIVE AGREEMENTS

In May 2022, the Corporation entered into an agreement with the Air Line Pilots Association, International (ALPA), which
represents all of its pilots, extending the term of its current collective agreement by three years, until April 30, 2025.

In October 2022, the Corporation entered into a new five-year collective agreement with the International Association of
Machinists and Aerospace Workers (AIMTA), representing maintenance workers and central baggage agents. This new
agreement, expiring on April 30, 2027, was ratified on November 7, 2022.

Annual Report 2022 Transat A.T. inc. | 13

Transat A.T. inc.
Management's Discussion and analysis

5. OVERVIEW

THE HOLIDAY TRAVEL INDUSTRY

The holiday travel industry consists primarily of air carriers serving holiday travellers, mainly for tourism, vacation or to visit
family and friends, as well as tour operators, travel agencies (both in-person and online), destination service companies,
hoteliers and airlines. Each of these subsectors includes companies with different operating models.

CORE BUSINESS, VISION AND STRATEGY

Core Business

Founded in Montréal 35 years ago, Transat is a holiday travel leader, particularly as an air carrier under the Air Transat
brand. Voted World’s Best Leisure Airline in North America by passengers at the 2022 Skytrax World Airline Awards, it flies
to international, U.S. and Canadian destinations. By renewing its fleet with the most energy-efficient aircraft in their
category, it is committed to a healthier environment, knowing that this is essential to its operations and the destinations it
serves. Transat has been Travelife-certified since 2018.

Strategy

In its 2022-2026 strategic plan, Transat set itself the objective of making the Corporation profitable again and complete its
transformation to achieve a level of profitability that exceeds pre-pandemic levels, as well as grow in new markets. This
phase must enable the Corporation to leverage those achievements after 2026 to propel Transat toward a new
growth phase.

STRATEGIC PLAN

To that end, Transat is implementing or continuing certain changes:

•

Refocus airline operations and redefine the network by ensuring a greater presence in Montréal and
Eastern Canada and forging partnerships to strengthen the network;

Reduce costs and increase agility, particularly by renegotiating some commitments (fleet, real estate,
etc.), by refocusing on airline businesses and a significant streamlining of the organization;

Optimize financing structure over the long term;

Increase efficiency by streamlining the fleet and bringing its average age down, around two types of
Airbus aircraft (A330 and A321), optimizing aircraft usage, reducing seasonal fluctuations and
enhancing revenue management practices.

The Corporation is continuing to rely on and leverage its strengths:

•

A leisure travel brand popular with travellers, at a time when vacations and visiting family and friends
are the driving factors for the rebound in air travel;

A strong commitment to the environment for many years;

Engaged teams with a history of sense of belonging to the Corporation;

Long-term roots in Québec.

For fiscal 2023, in line with its 2022-2026 strategic plan, Transat has set the following objectives and
performance drivers:

1. Continue to strengthen the network, particularly by entering into partnerships to improve aircraft

usage and expand into new markets, and by implementing a dynamic pricing solution.

2. Preserve liquidity and optimize cash to support the resumption and development of operations.

Annual Report 2022 Transat A.T. inc. | 14

Transat A.T. inc.
Management's Discussion and analysis

3. Continue to streamline the fleet, in particular with the addition of new A321LR aircraft and

implementation of the Mixed Fleet Flying accreditation program.

4. Optimize capital structure.

5. Accelerate growth in ancillary revenues.

Improve call centre performance.

REVIEW OF OBJECTIVES AND ACHIEVEMENTS FOR 2022

The main objectives and achievements for fiscal 2022 were as follows:

Continue to resume operations by increasing volumes and employment levels during the winter and summer
seasons to prepare for a return to pre-pandemic levels by 2023 at the latest

The Corporation continuously adjusted its flight program as the situation evolves. The lingering effects of the Omicron
variant and the restrictive measures put in place by the federal government on December 15, 2021 have impacted bookings
and cancellation requests. As a result, during the first quarter, the Corporation cancelled nearly 30% of flights scheduled
from January to the end of February. In addition, at the beginning of February, the Corporation cancelled more winter
season flights, thereby reducing total winter season capacity by approximately 22% of the initially deployed capacity. The
easing of global travel restrictions followed by the lifting of most of them has led to an increase in demand. Since then, the
Corporation has resumed its flight schedule for the summer season representing a significant portion of pre-pandemic
volume.

As at October 31, 2022, the workforce totalled about 3,900, up by approximately 1,800 employees compared to last year,
which represents 75% of the pre-pandemic headcount.

Preserve liquidity and optimize cash to support the resumption and development of operations

By renegotiating certain terms of the agreement entered into with the Government of Canada, as discussed below, and by
implementing the measures described in the following paragraphs, the Corporation has given itself the means to resume its
operations gradually. Accordingly, in 2022, the Corporation has resumed its flight schedule for the summer season
representing a significant portion of pre-pandemic volume.

Throughout the fiscal year, the Corporation had negotiations with its suppliers, to benefit from cost reductions and
changes in payment terms, and is continuing to implement measures to reduce expenses and investments.

The Corporation continues to benefit from government grants for businesses affected by COVID-19. The Canada Emergency
Wage Subsidy (“CEWS”) and the Canada Emergency Rent Subsidy ("CERS") have been replaced by the Government of
Canada with two new programs, the Tourism and Hospitality Recovery Program (“THRP”) and the Hardest-Hit Business
Recovery Program ("HHBRP"). These two programs, which ended on May 7, 2022, provided support for salaries.

During the fiscal year, one Airbus A330 was returned to lessors early.

Continue to streamline the fleet, in particular with the addition of new A321LR aircraft and implementation of
the Mixed Fleet Flying accreditation program, and prepare the necessary changes for the next five years

During the fiscal year, the Corporation took delivery of two Airbus A321LRs while one Airbus A330 was returned to lessors
early. In addition, in September 2022, the Corporation announced a long-term lease for three new Airbus A321XLRs, for
delivery from 2025 to 2026. The agreement also includes an option for an additional A321XLR aircraft to be delivered in
2027. The A321XLRs will provide substantial operational flexibility and meet Air Transat's needs, both for the winter and
summer seasons. All these changes, plus the aircraft to be delivered in fiscal 2023 and 2024, will allow the Corporation to
deploy a fleet adapted to the post-pandemic recovery and growth in operations.

In August 2022, the Corporation received Transport Canada accreditation for its Mixed Fleet Flying program for Airbus
A321s and A330s. This program allows accredited pilots to fly both Airbus A321 and A330 aircraft, as well as for the pooling
of the training and verification activities required for these aircraft.

Annual Report 2022 Transat A.T. inc. | 15

Transat A.T. inc.
Management's Discussion and analysis

Deploy the partnership strategy by setting up several interlining or codeshare agreements

In 2022, the Corporation implemented two codeshare agreements. The first, with Westjet launched in May 2022, allows
travellers on Air Transat's transatlantic flights to connect, via Montréal and Toronto, to or from Westjet's and Westjet
Encore's domestic and US flights.

The second partnership, in effect since October 2022 with Porter Airlines allows travellers on Air Transat flights to connect,
via Montréal, to or from Porter flights from Toronto Billy Bishop and Halifax, starting November 2, 2022.

These agreements are part of Air Transat's network development strategy through partnerships, in order to offer
customers more options, diversify our transborder route network and expand into new markets more quickly by combining
complementary strengths with these partners.

Reconsider existing financing and optimize capital structure

As described in the Financing section, the Corporation renegotiated certain terms of its agreement with the Government of
Canada. On March 9, 2022, the financing agreement for the unsecured debt - LEEFF was amended to, among other things,
defer the increase in interest rates as well as the date at which 50% of vested warrants would be forfeited if the financing
were to be repaid before December 31, 2023. The unsecured credit facility related to travel credits was also amended to
increase the amount that can be drawn by $43.3 million. On July 29, 2022, the Corporation secured an additional
$100.0 million through the LEEFF on the same terms and conditions as amended on March 9, 2022. This agreement
provides the Corporation with access to an additional $100.0 million in liquidity. Of this additional liquidity, $80.0 million is
in addition to the unsecured LEEFF financing and $20.0 million is in addition to the secured LEEFF financing. In connection
with the arrangement of this additional financing, the Corporation has agreed with all lenders to extend the maturities
originally scheduled for April 29, 2023 to April 29, 2024. The Corporation has also agreed to extend the date by which the
Corporation must comply with certain financial covenants to October 29, 2023 (previously October 30, 2022). In addition,
as provided for under the terms of the LEEFF financing, a total of 4,687,500 warrants to purchase an equivalent number of
shares of Transat at an exercise price of $3.20 per share were also issued under the renegotiated terms on March 9, 2022.

The modifications to the LEEFF financing negotiated on July 29, 2022 also provide the Corporation with an additional credit
facility of up to $50.0 million subject to certain preconditions to be satisfied on or before July 29, 2023, including
obtaining additional third-party financing.

Deploy a global corporate responsibility strategy and set concrete decarbonization targets

In 2022, the Corporation created a new Vice Presidency, Corporate Responsibility, to strengthen its commitment to
environmental, societal and governance issues. The mandate of this new team is to better support the priority objectives of
its strategic plan in this area, which includes promoting diversity and inclusion in the workplace and decarbonizing
its operations.

Transat is aligned with the airline industry's goal of achieving net zero emissions by 2050. In 2022, a cross-functional
decarbonization committee was established to develop the climate action plan, including the identification of medium-
term targets for carbon emission reductions and sustainable aviation fuel supply (SAF).

Annual Report 2022 Transat A.T. inc. | 16

Transat A.T. inc.
Management's Discussion and analysis

ABILITY TO DELIVER ON OUR OBJECTIVES

Our ability to deliver on our objectives is dependent on our financial and non-financial resources, both of which have
contributed in the past to the success of our strategies and achievement of our objectives.

Our financial resources are as follows:

Cash

Credit facilities

Our balances of cash and cash equivalents (not held in trust or otherwise reserved)
totalled $322.5 million as at October 31, 2022.

For operational purposes, we can also rely on, among other resources, a $50.0 million
revolving term credit facility and a $70.0 million subordinated short-term credit
facility maturing on April 29, 2024. In addition, as described in the Financing section,
on July 29, 2022, the Corporation renegotiated it agreement with the Government of
Canada that allows it to borrow up to $843.3 million in additional liquidity through the
LEEFF, of which $743.2 million was drawn. Section 7. Financial Position, Liquidity and
Capital Resources of this MD&A and Note 2 to the consolidated financial statements
contain more detail on this issue.

Our non-financial resources include:

Brand

Structure

Employees

The Corporation continues to strengthen its distinctive brand image and raise its
profile, including its sustainable tourism approach.

The integrated structure enables us to ensure better quality control over our products
and services and facilitates implementing programs to achieve gains in efficiency.

The employees work together as a team and are committed to ensuring overall
customer satisfaction and contributing to improving the Corporation’s effectiveness.
In addition, we believe that the Corporation has strong management.

Supplier relationships

The Corporation has maintained over 35 years of privileged relationships with many
local and destination suppliers, including hotel operators.

Subject to the going concern uncertainty described in Section 7. Financial Position, Liquidity and Capital Resources of this
MD&A and Note 2 to the consolidated financial statements, Transat has the resources it needs to meet its 2023 objectives
and continue building on its long-term strategies.

Annual Report 2022 Transat A.T. inc. | 17

Transat A.T. inc.
Management's Discussion and analysis

6. CONSOLIDATED OPERATIONS

(in thousands of dollars)
Revenues
Operating expenses
Aircraft fuel
Costs of providing tourism services
Salaries and employee benefits
Depreciation and amortization
Airport and navigation fees
Sales and distribution costs
Aircraft maintenance
Aircraft rent
Other airline costs
Other
Share of net loss of a joint venture
Special items

Operating loss
Financing costs
Financing income
Change in fair value of derivatives
Revaluation of liability related to warrants
Gain on long-term debt modification
Loss (gain) on asset disposals
Foreign exchange (gain) loss
Pre-tax loss
Income taxes (recovery)

Current
Deferred

Net loss for the year

Net income (loss) attributable to:
Shareholders
Non-controlling interests

Loss per share:

Basic
Diluted

2022
$

2021
$

2020
$

Difference

1,642,038

124,818 1,302,069

1,215.5

%
(90.4)

22,373
31,958
122,770
159,765
13,032
13,020
48,832
—
24,643
57,371
4,704
27,572

526,152
355,250
288,889
153,429
128,318
116,105
114,159
6,018
162,082
90,949
2,477
1,630

258,947
431,562
239,250
204,112
77,622
97,086
110,413
23,358
109,424
75,410
1,172
99,675
1,945,458 526,040 1,728,031
(425,962)
48,049
(13,625)
13,715
—
—
11,271
3,601
(488,973)

(303,420)
105,314
(12,982)
9,685
(21,989)
(22,191)
(3,934)
92,150
(449,473)

(401,222)
77,024
(4,441)
(8,849)
(4,934)
—
(17,347)
(53,260)
(389,415)

2,251.7
1,011.6
135.3
(4.0)
884.6
791.7
133.8
100.0
557.7
58.5
(47.3)
(94.1)
269.8
24.4
36.7
192.3
(209.4)
345.7
100.0
(77.3)
(273.0)
(15.4)

(3,174)
(975)
(4,149)
(445,324)

(52)
75
23
(389,438)

(4,376)
12,168
7,792
(496,765)

(6,003.8)
(1,400.0)
(18,139.1)
(14.4)

(445,324)
—
(445,324)

(389,559)
121
(389,438)

(496,545)
(220)
(496,765)

(14.3)
(100.0)
(14.4)

(11.77)
(11.77)

(10.32)
(10.32)

(13.15)
(13.15)

(14.1)
(14.1)

(91.4)
(92.6)
(48.7)
(21.7)
(83.2)
(86.6)
(55.8)
(100.0)
(77.5)
(23.9)
301.4
(72.3)
(69.6)
5.8
60.3
(67.4)
164.5
100.0
—
253.9
1,579.0
20.4

98.8
(99.4)
(99.7)
21.6

21.5
155.0
21.6

21.5
21.5

Annual Report 2022 Transat A.T. inc. | 18

Transat A.T. inc.
Management's Discussion and analysis

REVENUES

We generate our revenues from outgoing tour operators, air transportation, travel agencies, distribution, incoming tour
operators and services at travel destinations.

For the year ended October 31, 2022, our revenues were up significantly by $1,517.2 million, owing primarily to the fact the
Corporation had to suspend its airline operations from January 29, 2021 to July 30, 2021 and to adjust its offering to
reduced demand throughout fiscal 2021. Compared with fiscal 2019, revenues were down 44.1%.

Revenue growth in winter 2022 was dampened by the sharp decline in demand and massive booking cancellations following
the emergence of the Omicron variant during the first quarter and the new restrictive measures put in place by the federal
government on December 15, 2021. As a result, the Corporation initially cancelled nearly 30% of flights scheduled from
January to the end of February. In addition, at the beginning of February, the Corporation cancelled additional winter
season flights, thereby reducing total winter season capacity by approximately 22% of the initially deployed capacity.

For the 2022 summer season, the Corporation also deployed a reduced program although much more similar to pre-
pandemic levels. Compared with the corresponding period of fiscal 2019, revenues were down 22.3%. For the 2022
summer season, the capacity offered represented 87% of that deployed in 2019 across all programs and 74% of the 2019
level for the transatlantic program, the main program during this period. Overall, the number of travellers were down 21%
compared with 2019. The gradual recovery of demand combined with higher fuel prices contributed to the increase in
average selling prices compared with 2019. For our transatlantic program, selling prices increased by an average of 7%.

OPERATING EXPENSES

Total operating expenses were up $1,419.4 million (269.8%) for the fiscal year, compared with 2021, attributable to the
greater capacity deployed compared with the corresponding periods of 2021 following higher demand compared with
last year.

Aircraft fuel

Aircraft fuel expense was up $503.8 million for the fiscal year. The increase was mainly attributable to a higher capacity
compared with 2021, combined with a significant 88% rise in fuel prices ($241.8 million) compared with fiscal 2021.

Costs of providing tourism services

Costs of providing tourism services are incurred by our tour operators. They include primarily hotel room costs and the
cost of booking blocks of seats or full flights with carriers other than Air Transat as well as transfer and excursion costs. The
$323.3 million increase resulted primarily from the rise in the number of packages sold compared with 2021.

Salaries and employee benefits

Salaries and employee benefits were up $166.1 million (135.3%) to $288.9 million for the year ended October 31, 2022,
mainly following the gradual resumption of the Corporation's airline operations and the recall of some of its employees
since July 2021.

Up through April 30, 2022, the Corporation benefited from wage subsidies for businesses affected by COVID-19 for its
personnel in Canada. During the year ended October 31, 2022, the Corporation made use of the THRP and HHBRP, resulting
in the recognition of an amount of $24.4 million under these programs. The THRP and HHBRP ended on May 7, 2022. For
the year ended October 31, 2021, the Corporation made use of the CEWS; amounts of $25.8 million and $80.9 million,
respectively, were recognized related to active employees and non-active employees, representing salaries paid.

Annual Report 2022 Transat A.T. inc. | 19

Transat A.T. inc.
Management's Discussion and analysis

Depreciation and amortization

Depreciation and amortization expense includes depreciation and amortization as well as impairment losses relating to
property, plant and equipment and intangible assets. Depreciation and amortization expense was down $6.3 million (4.0%)
for fiscal 2022. The decrease stemmed mainly from the accelerated amortization that was recorded during fiscal 2021 of
certain right-of-use assets related to the fleet, partially offset by the commissioning of four Airbus A321LRs in 2021 and two
more in 2022.

Airport and navigation fees

Airport and navigation fees consist mainly of fees charged by airports and air traffic control entities. These fees were up
$115.3 million for the fiscal year, compared with 2021. The increase mainly resulted from the greater capacity deployed
compared with 2021 and higher prices.

Sales and distribution costs

Sales and distribution costs include commissions, which are expenses paid by tour operators to travel agencies for their
services as intermediaries between the tour operator and the consumer, credit card fees, distribution expenses and
marketing expenses. Sales and distribution costs amounted to $116.1 million, up $103.1 million from fiscal 2021. The increase
was mainly driven by higher revenues. Other factors were the higher advertising expenses due to the gradual resumption of
operations, the increase in package sales which have higher commissions and costs related to booking cancellations.

Aircraft maintenance

Aircraft maintenance costs consist mainly of non-capitalizable engine and airframe maintenance expenses incurred by
Air Transat for aircraft as well as in connection with the provision for return conditions. These costs were up $65.3 million
(133.8%) for the year, compared with 2021. The increase was attributable to the greater capacity deployed compared
with 2021.

Aircraft rent

Aircraft rent refers to variable aircraft rent. Aircraft rent amounted to $6.0 million for fiscal 2022 (nil in 2021). The increase
was attributable to higher capacity compared with 2021.

Other airline costs

Other airline costs consist mainly of handling, crew, catering costs and other costs related to the airline. Other airline costs
were up $137.4 million for the fiscal year, compared with 2021. This increase was attributable to higher capacity compared
with 2021.

Other

Other costs were up $33.6 million (58.5%) for the fiscal year, compared with 2021. The increase resulted from higher
business volume compared with 2021.

Share of net income (loss) of a joint venture

Share of net income (loss) of a joint venture represents our share of the net income (loss) of Desarrollo Transimar, our
hotel joint venture. Our share of net loss for fiscal 2022 amounted to $2.5 million, compared with $4.7 million for 2021.
Operations at our hotel joint venture gradually resumed compared with 2021. Moreover, certain assets were impaired
during the year ended October 31, 2021.

Annual Report 2022 Transat A.T. inc. | 20

Transat A.T. inc.
Management's Discussion and analysis

Special items

Special items
Severance
Impairment of assets
Impairment of contract balances and other assets
Impairment of the fleet (including right-of-use assets)

Special items related to the transaction with Air Canada

Termination payment
Professional fees
Reversal of compensation expense

2022
$

2021
$

847
783
—
—
1,630

—
—
—
—
1,630

6,739
—
24,333
9,117
40,189

(12,500)
6,106
(6,223)
(12,617)
27,572

Special items generally include restructuring charges and other significant unusual items, including impairment losses.

Special items

As a result of the global COVID-19 pandemic since the beginning of 2020, the Corporation's operations have been
significantly disrupted. As a result, the Corporation has had to make significant capacity reductions, primarily in 2021, and
recognize impairment charges in this respect and other charges. These charges and impairment losses are included in
Special items.

As at October 31, 2022, special items included severance costs of $0.8 million in respect of estimated termination benefits
and an asset impairment charge of $0.8 million for the impairment of rotable Boeing 737 spare parts.

During the year ended October 31, 2021, special items included the impairment of contract balances of $21.9 million
related to commissions, global distribution system fees and credit card fees that will not be refunded to the Corporation as
part of the traveller refunds. In addition, the Corporation recorded an impairment charge of $2.4 million related to
deposits associated with an impaired aircraft.

During the year ended October 31, 2021, it was determined that a leased Airbus A330 will not be used until it is returned to
the lessor. An impairment charge totalling $9.1 million has been recorded to this effect.

As a result of the COVID-19 pandemic, the Corporation has undertaken to reduce its workforce through permanent layoffs.
Severance costs of $6.7 million were accrued in 2021, of which $5.2 million was included in Trade and other payables at
October 31, 2021. The provision includes the estimated costs of notices and severance benefits provided for in the
Corporation's collective agreements and applicable laws, the amount of which could be adjusted based on various factors
such as the relevant notice period and the number of employees being laid off and the period for which they remain
laid off.

Special items related to the transaction with Air Canada

During the year ended October 31, 2021, the agreed upon amount of $12.5 million in termination fees for the arrangement
agreement settled by Air Canada, professional fees of $6.1 million and a reversal of compensation expense of $6.2 million
were recorded in connection with the terminated Air Canada transaction. Compensation expense was mainly related to
stock-based compensation plans that include a change of control clause and to adjustments related to stock-based
compensation plan provisions. Compensation expense recorded as a special item resulted from Air Canada’s offer, which
made it likely that the change of control criteria included in some of the Corporation’s stock-based compensation plans
would be met, and also change the vesting period. Following the termination of the arrangement agreement with
Air Canada, the Corporation recorded compensation expense reversals to reduce and even cancel certain provisions
related to the stock-based compensation plans, for which the performance criteria threshold was not met.

Annual Report 2022 Transat A.T. inc. | 21

Transat A.T. inc.
Management's Discussion and analysis

OPERATING RESULTS

Given the above, we recorded an operating loss of $303.4 million for the year, compared with $401.2 million in 2021.
Operating results by season are summarized as follows:

(in thousands of dollars)
Winter season
Revenues
Operating expenses
Operating loss
Operating loss (%)
Summer season
Revenues
Operating expenses
Operating loss
Operating loss (%)

2022
$

2021
$

2020
$

Difference
2022
%

2021
%

560,595
721,949
(161,354)
(28.8)

49,489 1,264,097
1,318,714
234,017
(54,617)
(184,528)
(4.3)
(372.9)

1,032.8
208.5
12.6
92.3

(96.1)
(82.3)
(237.9)
(8,529.9)

1,081,443
1,223,509
(142,066)
(13.1)

75,329
292,023
(216,694)
(287.7)

37,972
409,317
(371,345)
(977.9)

1,335.6
319.0
34.4
95.4

98.4
(28.7)
41.6
70.6

We reported an operating loss for the winter season amounting to $161.4 million (28.8%), compared with $184.5 million
(372.9%) in 2021. The improvement in operating results was attributable to the gradual and partial resumption of airline
operations, substantially offset by the significant rise in fuel prices. At the beginning of February, the Corporation
cancelled more winter season flights, thereby reducing total winter season capacity by approximately 22% of the initially
deployed capacity. The Corporation cancelled flights due to the drop in demand and booking cancellations following the
emergence of the Omicron variant and restrictive measures put in place by the federal government on December 15, 2021.
Due to the COVID-19 pandemic, demand for the winter season remained low and the Corporation's deployed capacity for
winter 2022 was a fraction of 2019 capacity

During the summer season, the Corporation incurred an operating loss of $142.1 million (13.1%) compared with
$216.7 million (287.7%) for the previous year. The improvement in operating results was attributable to the gradual and
partial resumption of our operations, but was substantially offset by the significant rise in fuel prices and the weakening of
the dollar against the U.S. currency. Airline operations were suspended for the third quarters of 2021 and 2020. Since the
resumption of airline operations, demand and the Corporation's deployed capacity remains below the 2019 level; however,
the recovery of demand is stronger in 2021 compared with 2020 and continues to gather strength. In 2020, the decline in
operating results was accentuated by the special
items and the unfavourable settlement of fuel-related
derivative contracts.

During the winter season, the Corporation reported an adjusted operating loss of $87.4 million (15.6%), compared with an
adjusted operating loss of $104.6 million (211.3%) in 2021. For the summer season, we incurred an adjusted operating loss
of $69.4 million (6.4%) compared with $109.3 million (145.1%) in 2021. Overall, for the fiscal year, the Corporation reported
an adjusted operating loss of $156.8 million (9.5%), compared with $213.9 million (171.4%) in 2021.

OTHER EXPENSES AND REVENUES

Financing costs

Financing costs include interest on lease liabilities, long-term debt and other interest, standby fees, arrangement fees as
well as financial expenses, net of proceeds from deferred government grant. Financing costs increased by $28.3 million
(36.7%) in fiscal 2022 compared with 2021. The increase resulted from higher debt following the new credit facilities
entered into with the Government of Canada through the LEEFF. In 2021, the Corporation had incurred interest expenses,
standby and arrangement fees related to the $70.0 million subordinated credit facility.

Financing income

Financing income was up $8.5 million (192.3%) during fiscal 2022, compared with 2021, mainly due to the increases in
average balances of cash and cash equivalents and higher interest rates compared with 2021. Also, following a settlement
agreement with the tax authorities on the deductibility of losses related to ABCP (Asset-Backed Commercial Paper), the
Corporation recorded interest income of $2.1 million for the year.

Annual Report 2022 Transat A.T. inc. | 22

Transat A.T. inc.
Management's Discussion and analysis

Change in fair value of derivatives

The change in fair value of derivatives corresponds to the change in fair value, for the period, of the portfolio of derivative
financial instruments held and used by the Corporation to manage its exposure to fluctuations in fuel prices and exchange
rates as well as the change in fair value of the pre-payment option on the unsecured debt - LEEFF.

During fiscal 2022, the Corporation resumed the use of fuel-related and foreign currency derivatives to mitigate
fluctuations in fuel prices and exchange rates. During the year ended October 31, 2022, the fair value of derivative financial
instruments related to aircraft fuel and foreign currencies decreased by $7.9 million, mainly due to the decrease in the fair
value of fuel-related derivatives. During fiscal 2022, the fair value of the pre-payment option related to LEEFF unsecured
financing decreased by $1.8 million. In fiscal 2021, the $8.8 million increase in the fair value of derivatives was mainly due to
the maturing of fuel-related derivatives.

Revaluation of liability related to warrants

The revaluation of the liability related to warrants represents the change in fair value of warrants during the period. For the
year ended October 31, 2022, the fair value of warrants decreased by $22.0 million, owing mainly to the decline in the
closing price of the share from $4.39 to $2.60 between October 31, 2021 and October 31, 2022.

Gain on long-term debt modification

On March 9, 2022, the Corporation renegotiated certain terms of its agreement with the Government of Canada for the
unsecured debt - LEEFF. The Corporation concluded that the modifications related to the interest under the
March 9, 2022 amended agreement were non-substantial as defined in IFRS 9, Financial Instruments. Accordingly, as at
March 9, 2022, the carrying amount of the LEEEF unsecured financing facility was adjusted downward to the revised
amount of future cash flows discounted using the original effective interest rate. The $22.2 million adjustment was
recorded as a gain on long-term debt modification.

Gain on asset disposals

For the year ended October 31, 2022, the $3.9 million gain on asset disposals was mainly due to the early return of an
Airbus A330 to the lessor. This lease termination led to the recognition of a $4.1 million gain, which resulted from the
reversal of lease liabilities of $4.0 million and other assets and liabilities totalling $0.1 million. The carrying amount of the
right-of-use asset for this aircraft lease was fully impaired during the year ended October 31, 2021.

For the year ended October 31, 2021, the $17.3 million gain was primarily attributable to the termination of aircraft leases
for four Airbus A330s and one Boeing 737-800. The $14.6 million gain on termination of aircraft leases resulted from the
reversal of lease liabilities of $20.0 million, property, plant and equipment of $9.3 million and the provision for return
conditions of $3.9 million. The carrying amounts of right-of-use assets for four of these aircraft leases were fully impaired
during the year ended October 31, 2020. Moreover, during the year ended October 31, 2021, the Corporation recognized a
gain on real estate lease termination of $2.6 million that stemmed from the reversal of $22.1 million in lease liabilities and
$19.5 million in property plant and equipment.

Foreign exchange loss (gain)

For fiscal 2022, the Corporation recorded a foreign exchange loss of $92.2 million compared with a foreign exchange gain
of $53.3 million in 2021. In 2022, the foreign exchange loss resulted mainly from the unfavourable exchange effect on lease
liabilities related to aircraft, following the weakening of the dollar against the U.S. dollar.

INCOME TAXES

For the fiscal year, income tax recovery totalled $4.1 million, compared with an income tax expense of $0.0 million in 2021.
The effective tax rates were 0.9% and 0.0%, respectively, for the years ended October 31, 2022 and 2021. During the year
ended October 31, 2022, following a settlement agreement with the tax authorities on the deductibility of ABCP-related
losses, the Corporation recorded an income tax recovery of $5.3 million.

Annual Report 2022 Transat A.T. inc. | 23

Transat A.T. inc.
Management's Discussion and analysis

During the quarter ended April 30, 2020, the Corporation stopped recognizing deferred tax assets and wrote down
deferred tax asset balances related to Canadian operations whose recognition could no longer be justified under IFRS due
to the unfavourable impact of the COVID-19 pandemic on our results and the uncertainty as to when the Corporation would
return to profitability. Accordingly, during the year ended October 31, 2022, no deferred tax assets of Canadian
subsidiaries were recognized.

NET LOSS

Considering the items discussed in the Consolidated Operations section, a net loss of $445.3 million was reported for the
year ended October 31, 2022, compared with $389.4 million in 2021.

NET LOSS ATTRIBUTABLE TO SHAREHOLDERS AND ADJUSTED NET LOSS

For fiscal 2022, net loss attributable to shareholders amounted to $445.3 million or $11.77 per share (basic and diluted)
compared with $389.6 million or $10.32 per share (basic and diluted) for fiscal 2021. For the year ended October 31, 2022,
the weighted average number of outstanding shares used to compute per share amounts was 37,838,000 (basic and
diluted) compared with 37,747,000 (basic and diluted) for 2021.

For the year ended October 31, 2022, adjusted net loss was $403.7 million ($10.67 per share), compared with $446.4 million
($11.83 per share) in 2021.

SELECTED QUARTERLY FINANCIAL INFORMATION

The Corporation's operations are seasonal in nature; consequently, interim operating results do not proportionately reflect
the operating results for a full year. For all the quarters reported, revenue growth was attributable to partial and gradual
resumption of operations. The Corporation had to fully suspend its airline operations from January 29, 2021 to
July 30, 2021 due to the COVID-19 pandemic. Nevertheless, the recovery in demand continues to gather strength since
July 31, 2021, driving revenue growth.

The improvement in our operating results was driven by the partial and gradual resumption of operations. The operating
losses for winter 2021 (Q1 and Q2) and the first part of summer 2021 (Q3) were mainly attributable to the suspension of our
airline operations combined with a significant decrease in our capacity during the partial resumption of airline operations
due to the COVID-19 pandemic, as a result of which the decline in revenues was greater than the decrease in operating
expenses. The recovery of demand was stronger in 2022 than in 2021, and accordingly, operating results improved for the
2022 winter and summer seasons compared with 2021. As a result, the following quarterly financial information may vary
significantly from quarter to quarter.

Selected unaudited quarterly financial information
(in thousands of dollars,
except per share data)
Revenues
Operating loss
Net loss
Net loss attributable to shareholders
Basic loss per share

(1.60)

Diluted loss per share
Adjusted operating loss(1)
Adjusted net loss(1)
Adjusted net loss per share(1)
1 See non-IFRS financial measures

Q1-2021 Q2-2021 Q3-2021 Q4-2021 Q1-2022 Q2-2022 Q3-2022 Q4-2022
$
62,781 202,438 358,157 508,304 573,139
(87,513)
(48,848)
(93,218)
(98,276) (106,472) (126,231)
(98,276) (106,472) (126,231)

12,548
7,569
(86,480)
(98,368)
(69,537) (138,059)
(138,125)
(69,561)

(118,326)
(73,841)
(121,339) (114,345)
(121,339) (114,345)

41,920
(98,048)
(60,503)
(60,534)

(1.60)

(1.84)

(3.66)

(3.21)

(3.03)

(2.60)

(2.82)

(3.32)

(53,632)

(50,963)

(50,928)

(58,362)

(36,369)

(51,014)

(57,824)

(11,545)

(109,049) (103,287)
(2.74)

(2.89)

(115,641) (118,400)
(3.14)

(3.06)

(95,317)
(2.53)

(111,563) (120,901)
(3.20)

(2.95)

(75,930)
(2.00)

Annual Report 2022 Transat A.T. inc. | 24

Transat A.T. inc.
Management's Discussion and analysis

FOURTH-QUARTER HIGHLIGHTS

For the fourth quarter, the Corporation generated $573.1 million in revenues, up $510.4 million from $62.8 million for the
corresponding period of 2021. This increase resulted from the partial resumption of operations at a higher level in 2022
compared with 2021 since airline operations restarted on July 30, 2021. Operations generated an operating loss of
$48.8 million compared with an operating loss of $118.3 million in 2021. Operating results improved compared with 2021
but were strongly reined in by the significant rise in fuel prices and the weakening of the dollar against the U.S. currency. In
2021, the operating loss was aggravated by special items of $20.3 million, including an aircraft impairment charge of
$9.1 million, termination benefits of $6.7 million and impairment of contract balances of $4.5 million.

We reported a net loss of $126.2 million in the fourth quarter, compared with a net loss of $121.3 million in 2021. Net loss
attributable to shareholders was $126.2 million ($3.32 per share, basic and diluted), compared with a net loss of
$121.3 million ($3.21 per share, basic and diluted) in 2021.

For the fourth quarter, adjusted net loss amounted to $75.9 million ($2.00 per share) compared with an adjusted net loss
of $118.4 million ($3.14 per share) in 2021.

Annual Report 2022 Transat A.T. inc. | 25

Transat A.T. inc.
Management's Discussion and analysis

7. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

BASIS OF PREPARATION AND GOING CONCERN UNCERTAINTY

As part of the preparation of the financial statements, management is responsible for identifying any event or situation that
may cast significant doubt on the Corporation’s ability to continue as a going concern. Significant doubt regarding the
Corporation’s ability to continue as a going concern exists if events or conditions, considered collectively, indicate that the
Corporation will be unable to honour its obligations as they fall due during a period of at least, and not limited to,
12 months from October 31, 2022. If the Corporation concludes that events or conditions cast significant doubt on its
ability to continue as a going concern, it must assess whether the plans developed to mitigate these events or conditions
will remove any possible significant doubt.

Due to the global COVID-19 pandemic since the beginning of 2020, the Corporation’s operations have been severely
disrupted and its financial results significantly impacted. Among other things, the Corporation had to suspend all of its
flights twice, from April 1, 2020 to July 23, 2020 and from January 29, 2021 to July 30, 2021 and also to scale back its
offering to adjust to demand. Despite the resumption of operations since July 30, 2021, the Corporation reported a net
loss of $445.3 million and generated negative cash flows related to operating activities totalling $177.9 million for the year
ended October 31, 2022. However, as discussed in Note 14 and to overcome the impacts of the pandemic, the Corporation
renegotiated its agreement with the Government of Canada in order to be able to borrow up to $843.3 million in additional
liquidity through the Large Employer Emergency Financing Facility (“LEEFF”). The ratios applicable to the credit facilities are
now suspended until October 29, 2023 (previously October 30, 2022). As a result, total available credit amounts to a
maximum of $963.3 million, of which $863.2 million was drawn as at October 31, 2022.

The Corporation’s ability to continue as a going concern for the next 12 months involves significant judgment and is
dependent on its ability to increase revenues to generate positive cash flows from operations, and the continued support
of its financial institutions, suppliers, lessors, credit card processors and other creditors. As discussed above, the
Corporation entered into an agreement with the Government of Canada that allows it to borrow additional cash resources
up to a maximum of $843.3 million through the LEEFF, bringing total available financing to a maximum of $963.3 million.
The credit facilities in place are subject to certain conditions including requirements relating to minimum unrestricted
cash and certain financial ratios, which will be applicable once again as of October 30, 2023. In case of non-compliance,
the maturity of the Corporation’s borrowings could be accelerated. Management continues to assess liquidity needs and
the capital structure and is not ruling out any option that could provide greater financial flexibility to the Corporation.

Given the gradual resumption of airline operations and the uncertainty with respect to a recovery in demand, the
Corporation is exposed to the risk of being unable to honour its financial commitments by the deadlines set out under the
terms of such commitments and at a reasonable price. The Corporation has a Treasury Department in charge, among other
things, of ensuring sound management of available cash resources, financing and compliance with deadlines within the
Corporation’s scope of consolidation. With senior management’s oversight, the Treasury Department manages the
Corporation’s cash resources based on financial forecasts and anticipated cash flows. The Corporation has implemented
an investment policy designed to safeguard its capital and instrument liquidity and generate a reasonable return. The policy
sets out the types of allowed investment instruments, their concentration, acceptable credit rating and maximum maturity.

There can be no assurance that the Corporation will be able to borrow sufficient additional amounts to meet its future
needs, or that it will be able to do so on acceptable terms or that financial institutions, suppliers, lessors, credit card
processors and other creditors will continue to support the Corporation. The COVID-19 pandemic significantly strained the
Corporation’s ability to return to profitability. As a result, there can be no assurance that the Corporation will be able to
generate positive cash flows from operating activities in the next twelve months.

The situation indicates material uncertainty casting significant doubt on the Corporation’s ability to continue as a going
concern and, thereby, realize its assets and repay its debt in its normal course of business.

The consolidated financial statements have been prepared on a going concern basis which assumes that the Corporation
will continue to be in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities,
and meet its obligations in the normal course of business. The consolidated financial statements as at October 31, 2022 do
not include adjustments to the carrying amount and classification of assets, liabilities and recorded expenses that would
otherwise be required if the going concern basis proved to be inappropriate. Such adjustments may be significant.

Annual Report 2022 Transat A.T. inc. | 26

Transat A.T. inc.
Management's Discussion and analysis

CONSOLIDATED FINANCIAL POSITION

As at October 31, 2022, cash and cash equivalents totalled $322.5 million compared with $433.2 million as at
October 31, 2021. Cash and cash equivalents in trust or otherwise reserved amounted to $375.6 million at the end of
fiscal 2022, compared with $170.3 million as at October 31, 2021. The Corporation’s statement of financial position
reflected negative working capital of $21.7 million, for a ratio of 0.98, compared with working capital of $89.3 million and a
ratio of 1.14 as at October 31, 2021.

Total assets increased by $373.5 million (19.7%), from $1,897.7 million as at October 31, 2021 to $2,271.1 million as at
October 31, 2022. This increase is explained in the financial position table provided below. Equity decreased by
$435.1 million, from a negative amount of $315.1 million as at October 31, 2021 to negative equity of $750.2 million as at
October 31, 2022. The deterioration resulted primarily from the $445.3 million net loss attributable to shareholders.

(in thousands of dollars)

Assets
Cash and cash equivalents
Cash and cash equivalents
otherwise reserved

October 31,
2022
$

October 31,

2021 Difference
$

Main reasons for significant differences

322,535
375,557

433,195
(110,660) See Cash flows section
170,311 205,246 Higher business volume

Trade and other receivables

265,050

108,857

156,193 Increase in amounts receivable from credit card

processors

Income taxes receivable

5,537

16,220

(10,683) Collection of income taxes recoverable related

Inventories
Prepaid expenses
Deposits
Deferred tax assets

to ABCP

26,725
26,428
201,623
953

10,514
16,465
122,174
—

16,211 Increase in inventory of fuel and aircraft parts
9,963 Higher business volume

79,449 Increase in deposits for aircraft maintenance
953 Recognition of deferred tax assets by certain

Property, plant and equipment

1,000,151

974,229

Intangible assets

13,261

16,849

Derivative financial instruments

11,939

—

foreign subsidiaries

25,922 Delivery of two Airbus A321LRs and capitalization
of eligible aircraft maintenance partially offset by
depreciation for the period and by the
impairment of Boeing 737 spare parts inventory
(3,588) Amortization for the period, partially offset by

software acquisitions

11,939 Favourable change in fuel-related and foreign
currency derivatives contracted and premiums
paid

Investment
Deferred financing costs

8,820
12,552

9,476
19,368

(656) Share of net loss of a joint venture

(6,816) Deferred financing costs related to the recent

amendments to the LEEFF credit facilities,
offset by the full utilization of deferred financing
costs related to the initial LEEFF financing

Annual Report 2022 Transat A.T. inc. | 27

Transat A.T. inc.
Management's Discussion and analysis

(in thousands of dollars)
Liabilities
Trade and other payables
Income taxes payable
Customer deposits and deferred
revenues

October 31,
2022
$

October 31,

2021 Difference
$

Main reasons for significant differences

289,897
1,054
602,509

141,790
1,354
292,158

148,107 Higher business volume

(300) Decrease in amounts due

310,351 Higher business volume

Derivative financial instruments

6,209

—

6,209 Unfavourable change in currencies related to

Long-term debt and lease liabilities

1,752,068

contracted derivatives

1,419,538 332,530 Drawdowns on the credit facilities, addition of
two new aircraft leases, and weakening of the
dollar against the U.S. dollar, partially offset by
the gain on long-term debt modification and the
early return of an aircraft

Provision for return conditions
Liability related to warrants

154,772
24,360

126,244
36,557

28,528 Increase mainly related to the passage of time
(12,197) Decrease in fair value of warrants during the

period, partially offset by the issuance of
warrants

Deferred government grant

169,025

167,394

1,631 Drawdowns on the credit facility related to

travel credits, partially offset by proceeds from
government grants during the period

Employee benefits liability

20,773

27,120

(6,347) Decrease in the defined benefit obligation

following the increase in the discount rate and
the amendments

Deferred tax liabilities

644

613

31 No significant difference

Equity
Share capital

221,924

221,012

912 Shares issued from treasury

Share-based payment reserve

16,092

15,948

144 Share-based payment expense

Deficit

(984,602)

(544,881)

(439,721) Net loss

Cumulative exchange differences

(3,594)

(7,189)

3,595 Foreign exchange loss on translation of financial

statements of foreign subsidiaries

CASH FLOWS

(in thousands of dollars)
Cash flows related to operating activities
Cash flows related to investing activities
Cash flows related to financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents

Operating activities

2022
$

2021
$

(177,854)
(33,783)
99,689
1,288
(110,660)

(518,444)
4,542
522,071
(1,407)
6,762

2020
$

(46,136)
(60,414)
(33,374)
1,513
(138,411)

2022
%
65.7
(843.8)
(80.9)
191.5
(1,736.5)

Difference
2021
%
(1,023.7)
107.5
1,664.3
(193.0)
104.9

Operating activities used cash flows of $177.9 million during fiscal 2022, compared with $518.4 million in 2021. The
$340.6 million decrease in cash flows used in operating activities resulted from the $313.6 million increase in cash flows
generated by the net change in non-cash working capital balances related to operations, the $39.1 million decrease in net
loss before operating items not involving an outlay (receipt) of cash, and the $21.0 million increase in in the net change in
the provision for return conditions, partially offset by the $33.1 million decrease in the net change in other assets and
liabilities related to operations.

Annual Report 2022 Transat A.T. inc. | 28

Transat A.T. inc.
Management's Discussion and analysis

In 2021, the decrease in cash flows related to operating activities resulted mainly from a $362.3 million decline in the net
change in non-cash working capital balances related to operations combined with a $70.0 million increase in net loss
before operating items not involving an outlay (receipt) of cash, a $43.9 million decrease in the net change in other assets
and liabilities related to operations and a $3.9 million increase in the net change in the provision for return conditions. The
deterioration in cash flows related to operating activities resulted mainly from the suspension of airline operations for the
second and third quarters of 2021, combined with a significant reduction in capacity deployed in the first half of winter
2021, due to demand remaining below prior year level because of the COVID-19 pandemic, and the travel credits refunded
during the summer and payments made to suppliers.

Investing activities

Cash flows used in investing activities amounted to $33.8 million for fiscal 2022, compared with cash flows generated of
$4.5 million in 2021. For the year ended October 31, 2022, additions to property, plant and equipment and intangible assets
amounted to $32.5 million and consisted primarily in aircraft maintenance and spare parts, compared with $5.6 million in
2021. During the year ended October 31, 2021, cash flows were generated by the decrease in the cash and cash equivalents
reserved balance of $25.5 million partially offset by the $15.0 million consideration paid to acquire the 30% interest held by
the minority shareholder in Trafictours Canada inc.

Financing activities

Financing activities generated cash flows of $99.7 million, compared with $522.1 million in 2021. During the year ended
October 31, 2022, the Corporation made drawdowns on its credit facilities amounting to $213.2 million, compared with
$599.9 million in 2021. In addition, the Corporation made repayments on its lease liabilities amounting to $108.3 million
compared with $74.5 million in 2021. In 2021, the Corporation was able to negotiate rent deferral with certain lessors.

FINANCING

Funding from the Government of Canada

On July 29, 2022, the Corporation renegotiated its agreement with the Government of Canada. The new agreement allows
it to borrow up to $843.3 million in additional liquidity through the Large Employer Emergency Financing Facility (LEEFF), an
increase of $100.0 million from the original agreement. Under the new agreement, Transat also has access to an additional
credit facility of up to $50.0 million, subject to certain conditions precedent to be met on or before July 29, 2023,
including obtaining additional third-party financing. The fully repayable credit facilities made available by the Canada
Enterprise Emergency Funding Corporation ["CEEFC"] under the LEEFF, which Transat uses only on an as-needed basis, are
as follows:

Secured debt – LEEFF

On July 29, 2022, the Corporation renegotiated its secured LEEFF financing agreement in order to borrow additional
liquidity of $20.0 million, bringing the total amount of the credit facility to $98.0 million. The maturity date was extended to
April 29, 2024 (previously April 29, 2023). The other terms of the agreement remain unchanged. The non-revolving facility
is secured by a first ranking charge on the assets of the Corporation's Canadian, Mexican, Caribbean and European
subsidiaries, subject to certain exceptions and continues to bear interest at bankers' acceptance rate plus a premium of
4.5% or at the financial institution's prime rate plus a premium of 3.5%. In the event of a change of control, this credit
facility becomes immediately due and payable. During the year ended October 31, 2022, the Corporation drew down a total
amount of $34.0 million. Under the terms of the agreement, the Corporation is required to meet certain financial ratios
and covenants. The Corporation now benefits from a waiver of certain financial ratios and covenants from its lenders until
October 29, 2023 (previously October 30, 2022). As at October 31, 2022, an amount of $78.0 million was drawn down
($44.0 million as at October 31, 2021) with a carrying amount of $77.2 million ($43.8 million as at October 31, 2021).

The financing arrangement also provides Transat with an additional credit facility of up to $10.0 million, subject to certain
conditions precedent to be met on or before July 29, 2023, including obtaining additional third-party financing.

Annual Report 2022 Transat A.T. inc. | 29

Transat A.T. inc.
Management's Discussion and analysis

Unsecured debt – LEEFF

On March 9, 2022 and July 29, 2022, the Corporation renegotiated certain terms of its agreement with the Government of
Canada for the unsecured debt - LEEFF. Accordingly, on July 29, 2022, the Corporation obtained additional liquidity of
$80.0 million, bringing the total unsecured, non-revolving credit facility to $392.0 million. Under the agreement amended
on March 9, 2022, the credit facility now bears interest at a rate of 5.0% until December 31, 2023 (previously until
April 29, 2022), increasing to 8.0% until December 31, 2024 (previously until April 29, 2023), and increasing by 2.0% per
annum thereafter, with the option to capitalize interest until December 31, 2024 (previously until April 29, 2023). The
maturity date for the initial amount of $312.0 million of the credit facility remains April 29,2026 while the additional
amount of $80.0 million will mature on July 29, 2027. In the event of a change of control, this credit facility becomes
immediately due and payable. As at October 31, 2022, the amount drawn down was $312.0 million ($176.0 million as at
October 31, 2021) with a carrying amount of $284.8 million ($158.0 million as at October 31, 2021). During the year ended
October 31, 2022, the Corporation drew down a total amount of $136.0 million.

The Corporation concluded that the interest rate modifications under the agreement amended on March 9, 2022 were
non-substantial as defined in IFRS 9, Financial Instruments. Accordingly, as at March 9, 2022, the carrying amount of the
LEEFF unsecured financing facility was adjusted downward to the revised amount of future cash flows discounted using the
original effective interest rate. The $22.2 million adjustment was recorded as a gain on long-term debt modification.

The financing arrangement also provides Transat with an additional credit facility of up to $40.0 million, subject to certain
conditions precedent to be met on or before July 29, 2023, including obtaining additional third-party financing.

In the context of the initial financing arrangement related to the LEEFF unsecured financing facility, the Corporation issued
a total of 13,000,000 warrants for the purchase of an equivalent number of shares of the Corporation (subject to certain
limitations described below), with customary adjustment provisions, at an exercise price of $4.50 per share (representing
the volume-weighted average trading price for the five trading days preceding the issuance of the warrants) over a 10-year
period, representing 18.75% of the total commitment available under the unsecured debt - LEEFF.

On July 29, 2022, as part of the amendments to the financing arrangement related to the unsecured financing facility -
LEEFF, the Corporation issued an additional 4,687,500 warrants for the purchase of an equivalent number of shares of the
Corporation (subject to certain limitations described below), with customary adjustment provisions, at an exercise price of
$3.20 per share over a 10-year period, representing 18.75% of the additional commitment available under the unsecured
financing facility - LEEFF.

Warrants are to vest in proportion to the drawings that will be made. Under the terms of the LEEFF unsecured financing
agreement, if the loan was to be repaid prior to December 31, 2023 (previously April 29, 2022), 50% of the vested warrants
would be forfeited.

The number of shares issuable upon exercise of the warrants may not exceed 25% of the current number of issued and
outstanding shares, nor may it result in the holder owning 19.9% or more of the outstanding shares upon exercise of the
warrants. In the event of exercise of warrants that surpasses these thresholds, the excess will be payable in cash on the
basis of the difference between the market price of Transat's shares and the exercise price. Finally, in the event that the
unsecured debt – LEEFF is repaid in full by its maturity, Transat will have the right to redeem all of the warrants for a
consideration equal to their fair market value. The warrants will not be transferable prior to the expiry of the period giving
rise to the exercise of such redemption right. In addition, the holder of the warrants will benefit from registration rights to
facilitate the sale of the underlying shares and the warrants themselves (once the transfer restriction has been lifted).

As at October 31, 2022, a total of 13,000,000 warrants (7,333,333 warrants as at October 31, 2021) had vested under the
drawdowns on the unsecured debt - LEEFF and no warrants had been exercised.

Under the limitations set out above, if the 17,687,500 warrants issued are exercised:

•

a maximum of 9,503,036 warrants could be exercised through the issuance of shares;

8,184,464 warrants would be payable in cash on the basis of the difference between the market price of Transat's
shares and the exercise price.

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Transat A.T. inc.
Management's Discussion and analysis

Unsecured credit facility related to travel credits

On March 9, 2022, the Corporation renegotiated its agreement with the Government of Canada under the unsecured credit
facility related to travel credits in order to borrow additional funds up to a maximum of $43.3 million, bringing the total
amount to $353.3 million. The unsecured credit facility was granted to issue refunds to travellers who were scheduled to
depart on or after February 1, 2020 and to whom a travel credit was issued as a result of COVID–19. This credit facility
matures on April 29, 2028 and bears interest at 1.22%. In the event the secured debt – LEEFF and the unsecured debt –
LEEFF have not been repaid, this credit facility could become immediately due and payable upon default under the LEEFF
financing, including in the event of a change in control, and in the absence of a waiver by the lenders to enforce such due
and payable obligations or in the event of a change of control without the consent of the lenders.

As at October 31, 2022, the credit facility was fully drawn down ($310.0 million as at October 31, 2021) and its carrying
amount stood at $182.5 million ($140.6 million as at October 31, 2021). An amount of $169.0 million ($167.4 million as at
October 31, 2021) was also recognized as deferred government grant related to these drawdowns.

In connection with the arrangement of these credit facilities, the Corporation has made certain commitments, including:

•

To refund travellers who were scheduled to depart on or after February 1, 2020 and to whom travel credits have
been issued due to COVID-19. The Corporation started processing refunds in early May 2021. As per the
agreement, to be eligible, customers had to indicate their desire for a refund before August 26, 2021;

Complying with restrictions on dividends, stock repurchases and executive compensation;

Maintaining active employment at its level of April 28, 2021.

Other credit facilities

Revolving credit facility

On July 29, 2022, the Corporation renegotiated its $50.0 million revolving credit facility for its operations. Under the
amended agreement, the maturity date was extended to April 29, 2024 (previously April 29, 2023). The other terms remain
unchanged. This agreement can be extended for one year on each anniversary date subject to lender approval. The balance
becomes immediately due and payable in the event of a change in control. Under the terms of the agreement, funds may be
drawn down by way of bankers’ acceptances or bank loans, denominated in Canadian dollars and U.S. dollars. The
agreement is secured by a first ranking movable hypothec on the universality of assets, present and future, of the
Corporation’s Canadian, Mexican, Caribbean and European subsidiaries, subject to certain exceptions. The facility bears
interest at bankers’ acceptance rate or at SOFR (Secured Overnight Financing Rate) in U.S. dollars plus a premium of 4.5%
or at the financial institution’s prime rate plus a premium of 3.5%. Under the terms of the agreement, the Corporation is
required to comply with certain financial ratios and covenants. The Corporation now benefits from a waiver of certain
financial ratios and covenants from its lenders until October 29, 2023 (previously October 30, 2022). As at
October 31, 2022 and 2021, the credit facility was fully drawn.

Subordinated credit facility

On July 29, 2022, the Corporation renegotiated its $70.0 million subordinated credit facility for its operations. Under the
amended agreement, the maturity date was extended to April 29, 2024 (previously April 29, 2023). The other terms remain
unchanged. In the event of a change in control, the agreement becomes immediately due and payable. The agreement is
secured by a second ranking movable hypothec on the universality of assets, present and future, of the Corporation’s
Canadian, Mexican, Caribbean and European subsidiaries, subject to certain exceptions. The credit facility bears interest at
the bankers’ acceptance rate or at the SOFR in U.S. dollars, plus a 6.0% premium, or at the financial institution’s prime
rate, plus a 5.0% premium. Until October 29, 2023 (previously October 31, 2022), an additional compounding premium of
3.75% will be added to the interest. Under the terms of the agreement, the Corporation is required to comply with certain
financial ratios and covenants. The Corporation now benefits from a waiver of certain financial ratios and covenants from
its lenders until October 29, 2023 (previously October 30, 2022). As at October 31, 2022 and 2021, the credit facility was
fully drawn.

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Transat A.T. inc.
Management's Discussion and analysis

Off-balance sheet arrangements

In the normal course of business, Transat enters into arrangements and incurs obligations that will impact the
Corporation’s future operations and cash flows, some of which are reported as liabilities in the consolidated financial
statements and others are disclosed in the notes to the consolidated financial statements.

Obligations that are not presented as liabilities are considered off-balance sheet arrangements. These contractual
arrangements are entered into with non-consolidated entities and consist of the following:

•

Guarantees

Leases related to undelivered aircraft for which commitments have been made with a term of less than
12 months and/or for low value assets

Purchase obligations

Off-balance sheet arrangements that can be estimated, excluding agreements with suppliers and other obligations,
amounted to approximately $978.0 million as at October 31, 2022 ($549.8 million as at October 31, 2021) and are detailed
as follows:

OFF-BALANCE SHEET ARRANGEMENTS
(in thousands of dollars)
Guarantees

Irrevocable letters of credit

Collateral security contracts

Leases

Lease obligations

Agreements with suppliers

2022
$

978

469

976,510

977,957
17,352
995,309

2021
$

6,951

425

542,397

549,773
21,344
571,117

In the normal course of business, guarantees are required in the travel industry to provide indemnifications and guarantees
to counterparties in transactions such as leases, irrevocable letters of credit and collateral security contracts. Historically,
Transat has not made any significant payments under such guarantees. Leases are entered into to enable the Corporation
to lease rather than acquire certain items.

The Corporation has a $74.0 million annually renewable revolving credit facility for issuing letters of credit. Under this
agreement, the Corporation must pledge cash equal to 100% of the amount of the issued letters of credit. As at
October 31, 2022, $55.9 million of the facility was drawn ($38.2 million as at October 31, 2021), including $31.3 million
($30.7 million as at October 31, 2021) to secure obligations under senior executives defined benefit pension agreements;
this irrevocable letter of credit is held by a third-party trustee. In the event of a change of control, the irrevocable letter of
credit issued to secure obligations under senior executive defined benefit pension agreements will be drawn.

For its U.K. operations, the Corporation has a bank line of credit for issuing letters of credit secured by deposits from
which £0.2 million ($0.3 million) has been drawn down.

As at October 31, 2022, the off-balance sheet arrangements, excluding agreements with suppliers and other obligations,
had increased by $428.2 million compared with October 31, 2021. This increase is primarily due to the signing of an
agreement for the lease of three Airbus A321XLRs and one Airbus A321ceo (the agreement includes an option for the
Corporation to lease an additional Airbus A321XLR), the impact of higher interest rates on future rents and the weakening
of the dollar against the U.S. dollar.

Subject to going concern uncertainty discussed in Section 7. Financial Position, Liquidity and Capital Resources of this
MD&A and Note 2 to the consolidated financial statements, we believe that the Corporation will be able to meet its
obligations with cash on hand, cash flows from operations and drawdowns under existing credit facilities.

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Transat A.T. inc.
Management's Discussion and analysis

CONTRACTUAL OBLIGATIONS BY YEAR

Years ending October 31
Contractual obligations
Long-term debt
Lease liabilities
Leases (off-balance sheet)
Agreements with suppliers and other obligations

Debt levels

2023
$

2024
$

2025
$

2026
$

2027
$

2028
and up
$

Total
$

191,166

25,220 215,783 32,662 406,290
156,799

4,309 355,377 1,039,641
141,893 533,565 1,371,977
707,417 976,510
54,147
234,776 438,220 274,106 640,212 228,505 1,626,456 3,442,275

177,080
171,474
7,822 46,548 58,206
6,158
4,415

75,677 80,840
1,446

1,463 30,097

10,568

The Corporation reported $664.2 million in long-term debt and $1,087.9 million in lease liabilities in the consolidated
statement of financial position.

The Corporation’s total debt stood at $1,932.9 million as at October 31, 2022, up $328.8 million from October 31, 2021. The
increase was primarily due to a drawdown of $213.2 million from its credit facilities, the addition of two Airbus A321LRs to
the fleet and the strengthening of the U.S. dollar against the dollar, partially offset by the repayment of long-term debt and
lease liabilities, and the $22.2 million gain on long-term debt modification related to the modification of the LEEFF
unsecured financing facility.

Total net debt increased by $439.4 million from $1,170.9 million as at October 31, 2021 to $1,610.4 million as at
October 31, 2022. The increase in total net debt resulted from the increase in total debt and the decrease in cash and cash
equivalent balances.

Outstanding shares

As at October 31, 2022, the Corporation had three authorized classes of shares: an unlimited number of Class A Variable
Voting Shares, an unlimited number of Class B Voting Shares and an unlimited number of preferred shares. The preferred
shares are non-voting and issuable in series, with each series including the number of shares, designation, rights,
privileges, restrictions and conditions as determined by the Board of Directors.

As at December 9, 2022, there were a total of 38,090,534 voting shares outstanding.

Stock options

As at December 9, 2022, a total of 480,847 stock options was outstanding, 180,847 of which were exercisable.

Warrants

As at October 31, 2022 and as at December 9, 2022, a total of 17,687,500 warrants was issued. As at October 31, 2022 and
as at December 9, 2022, a total of 13,000,000 warrants had vested following drawdowns on the credit facility and no
warrants had been exercised. Under the terms of the unsecured debt – LEEFF financing agreement amended on
March 9, 2022, if the loan were to be repaid prior to December 31, 2023 (previously before April 29, 2022), 50% of the
vested warrants would be forfeited.

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Transat A.T. inc.
Management's Discussion and analysis

8. OTHER

FLEET

As at October 31, 2022, Air Transat’s fleet consisted of twelve Airbus A330s (332 or 345 seats), twelve Airbus A321LRs
(199 seats), seven Airbus A321ceos (199 seats) and one Boeing 737-800 (189 seats). Due to the COVID-19 pandemic and the
resulting significant capacity reductions, one Airbus A330 was returned to the lessor early during the year ended
October 31, 2022. In addition, a leased Boeing 737-800 will no longer be used until its return to the lessor; the carrying
amount of this leased aircraft is fully written down.

The Corporation took delivery of two Airbus A321LRs during the year ended October 31, 2022.

LITIGATION

In the normal course of business, the Corporation is exposed to various claims and legal proceedings. There are often many
uncertainties surrounding these disputes and the outcome of the individual cases is unpredictable. According to
management, these claims and proceedings are adequately provided for or covered by insurance policies and their
settlement should not have a significant negative impact on the Corporation’s financial position, subject to the paragraph
hereunder. The Corporation has directors’ and officers’ liability insurance and professional liability insurance, with
coverage under said insurance policies that is usually sufficient to pay amounts that the Corporation may be required to
disburse in connection with these lawsuits that are specific to the directors and officers, and not the Corporation. In
addition, the Corporation holds professional liability and general liability insurance for lawsuits relating to non-bodily or
bodily injuries sustained. In all these lawsuits, the Corporation has always defended itself vigorously and intends to
continue to do so.

As a result of the COVID-19 pandemic, the Corporation has been the subject of a number of petitions for class actions in
connection with the reimbursement of customer deposits for airline tickets and packages that had to be cancelled. While
some of these petitions have not yet been definitively settled, the Corporation has refunded almost all customers,
particularly since April 2021, using the unsecured credit facility related to travel credits. Consequently, petitions for class
actions that have not yet been settled may become moot. In any event, the Corporation will continue to defend itself
vigorously in this respect. If the Corporation had to pay an amount related to class actions, the unfavourable effect of the
settlement would be recognized in the consolidated statement of income (loss) and could have an unfavourable effect
on cash.

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Transat A.T. inc.
Management's Discussion and analysis

9. ACCOUNTING

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements requires management to make estimates and judgments about the
future. We periodically review these estimates, which are based on historical experience, changes in the business
environment and other factors, including expectations of future events, that management considers reasonable under the
circumstances. Our estimates involve judgments we make based on the information available to us. However, accounting
estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability
affected in future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year
are described below. The Corporation based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. However, existing circumstances and assumptions about future developments may
change due to market events or to circumstances beyond the Corporation’s control. Such changes are reflected in the
assumptions when they occur.

This discussion addresses only those estimates that we consider important based on the degree of uncertainty and the
likelihood of a material impact if we had used different estimates. There are many other areas in which we use estimates
about uncertain matters.

Impact of COVID-19 pandemic on significant accounting estimates and judgments

Due to the impacts of the COVID-19 pandemic, including that on demand, the estimates used and judgments made by
management in preparing the Corporation’s financial statements may change in the short term and the effect of such
changes may be material, which could result in, among other things, impairment of certain assets and/or an increase in
certain liabilities. In addition, these risks could have a significant adverse impact on the Corporation’s operating results and
financial position in the coming months.

Amortization and impairment of non-financial assets

Depreciation of property, plant and equipment

Property, plant and equipment are depreciated over their estimated useful lives taking into account their residual value.
The right-of-use assets of the fleet, the aircraft, their components and leasehold improvement are significant sub-
categories of property, plant and equipment. Depreciation expense depends on several assumptions including the period
over which the aircraft will be used, the fleet renewal schedule and the estimate of the residual value of aircraft and
aircraft components at the time of their anticipated disposal.

Changes in estimated useful life and residual value of aircraft could have a significant impact on depreciation expense. In
general, these changes are accounted for on a prospective basis and included in the depreciation expense. Property, plant
and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.

Impairment of non-financial assets

Impairment exists when the carrying amount of an asset or cash-generating unit [“CGU”], in the case of goodwill, exceeds
its recoverable amount, which is the higher of fair value less costs to sell the asset or CGU and value in use. To identify
CGUs, management has to take into account the contributions made by each subsidiary and the inter-relationships among
them in light of the Corporation’s vertical integration and the goal of providing a comprehensive offering of tourism
services in the markets served by the Corporation.

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Transat A.T. inc.
Management's Discussion and analysis

The Corporation assesses at each reporting date whether there is any indication that an asset or a CGU may be impaired. If
any indication exists, or when annual impairment testing for an asset or a CGU is required, the Corporation estimates the
recoverable amount of the asset or CGU. An asset’s recoverable amount is the higher of an asset’s fair value less costs to
sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets; in which case, the impairment test is performed at the
CGU level. Value in use is calculated using estimated net cash flows, typically based on detailed projections over a five-year
period with subsequent years extrapolated using a growth assumption. The estimated net cash flows are discounted to
their present value using a discount rate before income taxes that reflects current market assessments of the time value of
money and the risk specific to the asset. In determining fair value less costs to sell, recent market transactions are taken
into account, if available. If no such transactions can be identified, an appropriate valuation model may be used. Where the
carrying amount of an asset or CGU exceeds its recoverable amount, the asset or CGU is considered impaired and is
written down to its recoverable amount. Impairment losses are recognized through profit or loss.

As at October 31, 2022, the Corporation determined that the declines in revenues and demand owing to the COVID-19
pandemic are indications of impairment of its CGUs. Accordingly, the Corporation performed a new impairment test on its
CGUs. The recoverable amount of CGUs was determined based on their useful value, applying a discounted cash flow
model. This model is based on Level 3 inputs within the fair value hierarchy. Cash flows are derived from the financial
forecasts for the next four fiscal years, based on Corporation’s 2022–2026 strategic plan and the 2023 budget, which are
consistent with management’s best estimates and have been approved by the Board of Directors, and take into account
current and expected market conditions, including the impact of the COVID-19 pandemic. The Corporation has used
various assumptions in the preparation of these projections, which are by their nature uncertain and may change
unpredictably; accordingly, it is possible that these projections will not be achieved, particularly if demand remains at
lower-than-expected levels and travel restrictions persist over time.

The significant assumptions used in the impairment test are as follows:

•

An average discount rate of 15.70% (14.75% in 2021), which is the Corporation’s weighted average capital cost. This
rate was determined taking into account a number of factors such as the risk-free interest rate, the required return
on equity investments, risk factors specific to the air transportation industry and risk factors specific to the
Corporation’s CGUs;

A long-term growth rate of 2.0% beyond the 5-year period (2.0% in 2021), based on the Bank of Canada’s target
inflation rate;

A per gallon fuel price between US$2.24 and US$3.79 (between US$1.93 and US$2.53 in 2021), based on management's
best estimates.

As at October 31, 2022 and 2021, no impairment in the carrying amount of the Corporation’s two CGUs was recognized, as
their recoverable amount remained higher than their carrying amount. Sensitivity analyses were performed on the
significant assumptions used in the discounted cash flow model and no impairment would have resulted from a change in
those assumptions.

Property, plant and equipment

As at October 31, 2021, a leased Airbus A330 will no longer be used until its return to the lessor. An impairment charge
representing the entire carrying amount of the right-of-use assets, maintenance components and leasehold improvements
for this aircraft was recognized in the consolidated statement of loss under Special items; these impairment charges
totalled $9.1 million.

On May 20, 2021, due to the change in strategic objectives and the decline in liquidity as a result of the COVID-19
pandemic, the Corporation’s Board of Directors approved the discontinuation of the hotel division’s operations. As at
October 31, 2022 and 2021, the land in Mexico did not meet the required criteria to be presented as an asset held for sale.
Given the above-mentioned factors and the uncertainty surrounding future use of the land in Mexico, assessments of its
recoverable amount compared with its carrying amount were made as at October 31, 2022 and 2021. The recoverable
amount of the land at each of these dates was determined based on fair value less costs to sell. Fair value less costs to sell
was estimated using level 3 input data, according to valuations prepared by an independent, external evaluator as at
October 13, 2022 and October 19, 2021, respectively. As at October 31, 2022 and 2021, the recoverable amount of the land
in Mexico was equal to its carrying amount and accordingly, no impairment charge was required.

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Transat A.T. inc.
Management's Discussion and analysis

Investment

As at October 31, 2022 and 2021, the Corporation determined that there was no objective evidence of impairment of its
investment in a joint venture and that there was no increase in the value of the investment.

Discount rate of lease liabilities

The Corporation uses its incremental borrowing rate to calculate lease liabilities. The Corporation estimates the
incremental borrowing rate at the commencement of the lease by considering several factors, including the risk-free rate
at lease inception, the Corporation’s creditworthiness, the lease currency, the lease term and the nature of the leased
property. Given that various assumptions are used in determining the discount rate of lease liabilities, the calculation
involves some inherent measurement uncertainty.

Provision for return conditions

Aircraft- and equipment-related leases contain obligations arising from the conditions under which the assets must be
returned to the lessor on expiry of the lease (the “return conditions”). The Corporation records a provision arising from the
return conditions of leased aircraft and engines upon commencement of the lease based on the degree of use until
maintenance is performed to meet the return condition or until expiry of the lease. The provision is adjusted to reflect any
change in the related maintenance expenses anticipated and the significant accounting estimates and judgments used;
these changes are accounted for under “Aircraft maintenance” in the consolidated statement of income (loss) in the period
during which they are incurred. The provision is discounted using the risk-free pre-tax Canadian government bond rate as
at the reporting date for a term equal to the average remaining term to maturity before the related cash outflow.

The Corporation makes deposits to lessors based on the use of the leased aircraft in connection with certain future
maintenance work, namely maintenance deposits with lessors. Deposits made between the last maintenance performed by
the Corporation and expiry of the lease, as well as certain deposits made in excess of the actual cost of maintenance work,
will not be refunded to the Corporation when the maintenance is performed. These deposits are included in the provision
for return conditions of leased aircraft and engines.

The estimates used to determine the provision for return conditions are based on historical experience, actual costs of
work and the inflation rate of those costs, information from external suppliers, forecasted aircraft utilization, expected
timing of repairs, the U.S. dollar exchange rate and other facts and reasonable assumptions in the circumstances. Given
that various assumptions are used in determining the provision for return conditions, the calculation involves some
inherent measurement uncertainty. Actual results will differ from estimated results based on assumptions.

Liability related to warrants

Due to the existence of settlement mechanisms on a net cash or share basis, the warrants are recorded as derivative
financial instruments in the Corporation’s liabilities. As at the issuance date, the liability related to warrants, totalling
$51.3 million, was valued using the Black-Scholes model. The initial fair value of the warrants was also recorded under other
assets as a deferred financing cost related to the unsecured debt - LEEFF.

The liability related to warrants is remeasured at the end of each period at fair value through profit or loss. It is classified in
Level 3 of the fair value hierarchy. At each reporting date, the fair value of the liability related to warrants is determined
using the Black-Scholes model, which uses significant inputs that are not based on observable market data, hence the
classification in Level 3.

Employee future benefits

The Corporation offers defined benefit pension arrangements to certain senior executives. Pension expense is based on
actuarial calculations performed annually by independent actuaries using the projected unit credit method. The
determination of benefit expense requires assumptions such as the discount rate to measure obligations, expected
mortality and expected rate of future compensation. Actual results will differ from estimated results based on
assumptions. Plan obligations are discounted using current market interest rates. Given that various assumptions are used
in determining the cost and obligations associated with employee future benefits, the actuarial valuation process involves
some inherent measurement uncertainty. Actual results will differ from estimated results based on assumptions.

Annual Report 2022 Transat A.T. inc. | 37

Transat A.T. inc.
Management's Discussion and analysis

A 0.25 percentage point increase in the actuarial assumptions below would have the following impacts, all other actuarial
assumptions remaining the same:

Increase (decrease)
Discount rate
Growth rate of eligible earnings

Taxes

Retirement benefit expense
for the year ended
October 31, 2022
$
(32)
22

Retirement benefit
obligation as at
October 31, 2022
$
(594)
51

Due to the adverse impact of the COVID-19 pandemic on its results, the Corporation ceased to recognize deferred tax
assets of its Canadian subsidiaries and reduced the carrying amount of deferred tax asset balances for which it was no
longer able to justify recognition under IFRS. The Corporation measured the available indicators to determine whether
sufficient taxable income could be realized to utilize the existing deferred tax assets. As discussed in Section 7. Financial
Position, Liquidity and Capital Resources of this MD&A and Note 2 to the consolidated financial statements, due to the
COVID-19 pandemic, the losses generated during the years ended October 31, 2022 and 2021 and the uncertainty related to
the timing of the return of demand for leisure travel are adverse indications that deferred tax assets may be realized. For
the years ended October 31, 2022 and 2021, these adverse indications outweighed the historical favourable indications and
the Corporation did not record any deferred tax assets for its Canadian subsidiaries during the year ended
October 31, 2022. The tax deductions underlying these deferred tax assets remain available for future use against
taxable income.

From time to time, the Corporation is subject to audits by tax authorities that give rise to questions regarding the tax
treatment of certain transactions. Certain of these matters could entail significant costs that will remain uncertain until
one or more events occur or fail to occur. Although the outcome of such matters is difficult to predict with certainty, the
tax claims and risks for which there is a probable unfavourable outcome are recognized by the Corporation using the best
possible estimates of the amount of the loss.

FINANCIAL INSTRUMENTS

In the normal course of business, the Corporation is exposed to credit and counterparty risk, liquidity risk and market risk
arising from changes in certain foreign exchange rates, changes in fuel prices and changes in interest rates. The
Corporation manages these risk exposures on an ongoing basis. In order to limit the effects of changes in foreign exchange
rates, fuel prices and interest rates on its revenues, expenses and cash flows, the Corporation can avail itself of various
derivative financial instruments. The Corporation’s management is responsible for determining the acceptable level of risk
and only uses derivative financial instruments to manage existing or anticipated risks, commitments or obligations based on
its past experience.

Foreign exchange risk management

The Corporation is exposed to foreign exchange risk, primarily as a result of its many arrangements with foreign-based
suppliers, lease liabilities, fuel purchases, long-term debt and revenues in foreign currencies, and fluctuations in exchange
rates mainly with respect to the U.S. dollar, the euro and the pound sterling against the Canadian dollar and the euro, as
the case may be. Approximately 66% of the Corporation’s costs were incurred in a currency other than the measurement
currency of the reporting unit incurring the costs, whereas approximately 21% of revenues were earned in a currency other
than the measurement currency of the reporting unit making the sale. To safeguard the value of commitments and
anticipated transactions, the Corporation has a foreign currency risk management policy that authorizes the use of certain
types of foreign currency derivatives based on anticipated foreign exchange rate trends, expiring in generally less than
18 months. During fiscal 2022, the Corporation resumed the use of foreign currency derivatives to mitigate exchange
rate fluctuations.

The Corporation documents certain foreign exchange derivatives as hedging instruments and, if applicable, regularly
demonstrates that these instruments are sufficiently effective to continue using hedge accounting. These foreign exchange
derivatives are designated as cash flow hedges.

Annual Report 2022 Transat A.T. inc. | 38

Transat A.T. inc.
Management's Discussion and analysis

All derivative financial instruments are recorded at fair value in the consolidated statement of financial position. The
Corporation has defined a hedging ratio of 1:1 for its hedging relationships. For the derivative financial instruments
designated as cash flow hedges, changes in the fair value of the effective portion are recognized in Other comprehensive
income (loss) in the consolidated statement of comprehensive income (loss). Any ineffective portion within a cash flow
hedge is recognized in net income (loss), as incurred, under Change in fair value of derivatives. Should the cash flow hedge
cease to be effective, previously unrealized gains and losses remain within Accumulated other comprehensive income (loss)
as Unrealized gain (loss) on cash flow hedges until the hedged item is settled, and future changes in value of the derivative
instrument are recognized in income (loss) prospectively. The change in value of the effective portion of a cash flow hedge
remains in Accumulated other comprehensive income (loss) as Unrealized gain (loss) on cash flow hedges until the related
hedged item is settled, at which time amounts recognized in Unrealized gain (loss) on cash flow hedges are reclassified to
the same consolidated statement of income (loss) account in which the hedged item is recognized.

Management of fuel price risk

The Corporation is particularly exposed to fluctuations in fuel prices. Due to competitive pressures in the industry, there
can be no assurance that the Corporation would be able to pass along any increase in fuel prices to its customers by
increasing prices, or that any eventual price increase would fully offset higher fuel costs, which could in turn adversely
impact its business, financial position or operating results. To mitigate fuel price fluctuations, the Corporation has
implemented a fuel price risk management policy that authorizes certain types of fuel-related derivative financial
instruments, expiring in generally less than 12 months. During fiscal 2022, the Corporation resumed the use of fuel-related
derivatives to mitigate fuel price fluctuations.

The derivative financial instruments used for fuel purchases are measured at fair value at the end of each period, and the
unrealized gains or losses arising from remeasurement are recorded and reported under Change in fair value of derivatives
in the consolidated statement of income (loss). When realized, at maturity of fuel-related derivative financial instruments,
any gains or losses are reclassified to Aircraft fuel.

Credit and counterparty risk

Credit risk is primarily attributable to the potential inability of customers, service providers, aircraft and engine lessors and
financial institutions, including the other counterparties to cash equivalents and derivative financial instruments, to
discharge their obligations.

Trade accounts receivable included under Trade and other receivables in the consolidated statement of financial position
totalled $9.5 million as at October 31, 2022 ($9.8 million as at October 31, 2021). Trade accounts receivable consist of
balances receivable from a large number of customers, including travel agencies. Trade accounts receivable generally result
from the sale of vacation packages to individuals through travel agencies and the sale of seats to tour operators dispersed
over a wide geographic area. No customer represented more than 10% of total accounts receivable as at October 31, 2022
and 2021. As at October 31, 2022, approximately 14% (approximately 11% as at October 31, 2021) of accounts receivable
were over 90 days past due, whereas approximately 78% (approximately 85% as at October 31, 2021) were current, that is,
under 30 days. Historically, the Corporation has not incurred any significant losses in respect of its trade receivables.
Therefore, the allowance for doubtful accounts at the end of each period and the change recorded for each period
is insignificant.

Receivables included receivables from two credit card processors totalling $196.9 million ($77.7 million as at
October 31, 2021). The credit risk for these receivables is negligible.

Pursuant to certain agreements entered into with its service providers, primarily hotel operators, the Corporation pays
deposits to capitalize on special benefits, including pricing, exclusive access and room allotments. These deposits totalled
$28.1 million as at October 31, 2022 ($7.5 million as at October 31, 2021). These deposits are offset by purchases of person-
nights at these hotels and purchases from suppliers. Risk arises from the fact that these hotels might not be able to honour
their obligations to provide the agreed number of person-nights and that the suppliers might not be able to provide the
required services. The Corporation strives to minimize its exposure by limiting deposits to recognized and reputable hotel
operators and suppliers in its active markets. These deposits are spread across a large number of hotels and suppliers and,
historically, the Corporation has not been required to write off a considerable amount for its deposits with suppliers.

Annual Report 2022 Transat A.T. inc. | 39

Transat A.T. inc.
Management's Discussion and analysis

Under the terms of its aircraft and engine leases, the Corporation pays deposits when aircraft and engines are
commissioned, particularly as collateral for remaining lease payments. These deposits totalled $37.9 million as at
October 31, 2022 ($33.9 million as at October 31, 2021) and are returned as leases expire. The Corporation is also required
to pay cash security deposits to lessors over the lease term to guarantee the serviceable condition of aircraft. Cash
security deposits with lessors are generally returned to the Corporation upon receipt of documented proof that the related
maintenance has been performed by the Corporation. As at October 31, 2022, the cash security deposits with lessors that
have been claimed totalled $10.0 million ($1.6 million as at October 31, 2021) and are included in Trade and other
receivables. Historically, the Corporation has not written off any significant amount of deposits and claims for cash security
deposits with aircraft and engine lessors. The credit risk for these receivables is negligible.

For financial institutions including the various counterparties, the maximum credit risk as at October 31, 2022 related to
cash and cash equivalents, including cash and cash equivalents in trust or otherwise reserved, and derivative financial
instruments accounted for in assets. These assets are held or traded with a limited number of financial institutions and
other counterparties. The Corporation is exposed to the risk that the financial institutions and other counterparties with
which it holds securities or enters into agreements could be unable to honour their obligations. The Corporation minimizes
risk by entering into agreements only with large financial institutions and other large counterparties with appropriate credit
ratings. The Corporation’s policy is to invest solely in products that are rated R1-Mid or better (by Dominion Bond Rating
Service [“DBRS”]), A2 (by Standard & Poor’s) or P2 (by Moody’s) and rated by at least two rating firms. Exposure to these
risks is closely monitored and maintained within the limits set out in the Corporation’s various policies. The Corporation
revises these policies on a regular basis.

The Corporation does not believe it was exposed to a significant concentration of credit risk as at October 31, 2022.

Liquidity risk

The Corporation is exposed to the risk of being unable to honour its financial commitments by the deadlines set out under
the terms of such commitments and at a reasonable price (refer to Section 7. Financial Position, Liquidity and Capital
Resources). The Corporation has a Treasury Department in charge, among other things, of ensuring sound management of
available cash resources, financing and compliance with deadlines within the Corporation’s scope of consolidation. With
senior management’s oversight, the Treasury Department manages the Corporation’s cash resources based on financial
forecasts and anticipated cash flows. The Corporation has implemented an investment policy designed to safeguard its
capital and instrument liquidity and generate a reasonable return. The policy sets out the types of allowed investment
instruments, their concentration, acceptable credit rating and maximum maturity.

Interest rate risk

The Corporation is exposed to interest rate fluctuations, primarily due to its variable-rate credit facility. The Corporation
manages its interest rate exposure and could potentially enter into swap agreements consisting in exchanging variable rates
for fixed rates.

Furthermore, interest rate fluctuations could have an effect on the Corporation’s interest income derived from its cash
and cash equivalents.

Changes in accounting policies

Interbank Offered Rates [“IBOR”] Reform - Phase 2

In August 2020, the IASB published its Interest Rate Benchmark Reform - Phase 2 amendments to IFRS 9, Financial
Instruments; IAS 39, Financial Instruments - Recognition and Measurement; IFRS 7, Financial Instruments - Disclosures;
IFRS 4, Insurance Contracts; and IFRS 16, Leases. The amendments complement those issued in 2019 and focus on the
effects on financial statements when a company replaces the old benchmark rate with an alternative as a result of
the reform.

For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in
contractual cash flows is a direct result of IBOR reform and occurs on an economically equivalent basis to the previous
determination, the change will result in no immediate recognition of gain or loss. For hedge accounting, the practical
expedient allows hedging relationships that are directly affected by the reform to continue. However, it may be necessary
to account for additional inefficiencies.

Annual Report 2022 Transat A.T. inc. | 40

Transat A.T. inc.
Management's Discussion and analysis

The Corporation adopted these amendments on November 1, 2021 by applying the practical expedient. The adoption of
these amendments did not have any impact on the Corporation's consolidated financial statements as of the date of first
application or for the comparative periods.

Demand Deposits with Restrictions on Use Arising from a Contract with a Third Party (IAS 7, Statement of Cash
Flows)

In April 2022, the IFRS Interpretations Committee finalized the agenda decision Demand Deposits with Restrictions on Use
arising from a Contract with a Third Party (IAS 7, Statement of Cash Flows), which clarifies that restrictions on the use of a
demand deposit arising from a contract with a third party do not result in the deposit no longer being cash. Accordingly,
such demand deposits should be presented as a component of cash and cash equivalents in the statements of cash flows
and statements of financial position, unless those restrictions change the nature of the deposit in a way that it would no
longer meet the definition of cash in IAS 7, Statement of Cash Flows.

The application of this agenda decision did not have any impact on the Corporation's consolidated financial statements.

Annual Improvements to IFRS Standards 2018-2020 - IFRS 9, Financial Instruments

The Annual Improvements to IFRS Standards 2018–2020 issued on May 14, 2020 makes the following amendments to IFRS 9,
Financial Instruments: the standard has been amended to clarify which fees an entity includes in the "10 per cent" test for
the derecognition of financial liabilities in connection with debt modifications and settlements. An entity includes only fees
paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or
the lender on the other’s behalf. This amendment is effective for annual reporting periods beginning on or after
January 1, 2022.

The Corporation has elected to early adopt this amendment. The application of this amendment did not have a significant
impact on the Corporation's consolidated financial statements.

Amendments to IAS 1, Presentation of Financial Statements

In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1) which amends
IAS 1, Presentation of Financial Statements. The amendments aim to clarify how an entity classifies its debt instruments and
other financial liabilities with uncertain settlement dates as current or non-current in particular circumstances. On
October 31, 2022, the IASB published amendments to Classification of Liabilities as Current or Non-current (Amendments
to IAS 1). The amendments aim to improve the information an entity provides when the right to defer settlement of a liability
for at least 12 months is subject to the entity complying with covenants after the reporting date. More specifically, the
amendments clarify that when an entity has to comply with covenants after the reporting date, those covenants would not
affect the classification of debt instruments or other financial liabilities as current or non-current at the reporting date.
The amendments require an entity to disclose information about these covenants in the notes to the financial statements.

The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application
permitted. It is too early to determine whether the application of these amendments could have an impact on the
Corporation's consolidated financial statements at the date of adoption.

Annual Report 2022 Transat A.T. inc. | 41

Transat A.T. inc.
Management's Discussion and analysis

10. RISKS AND UNCERTAINTIES

This section provides an overview of the general risks as well as specific risks to which Transat and its subsidiaries are
exposed, and which are likely to have a significant impact on the Corporation’s financial position, operating results and
activities. These include risks directly related to the COVID-19 pandemic, of which several have materialized.

This section does not purport to cover all contingencies or to describe all factors that are likely to affect the Corporation
or its activities. Moreover, the risks and uncertainties described may or may not materialize, and may develop differently or
have consequences other than those contemplated in this MD&A. Additional risks and uncertainties not currently known to
the Corporation or that are currently considered immaterial could also materialize in the future and adversely affect
the Corporation.

RISK GOVERNANCE

To improve its risk management capacities, the Corporation has set up a framework for identifying, assessing and managing
the different risks applicable to its industry and to companies in general. This framework is based on the
following principles:

•

Promote a culture of risk awareness at the head office and in subsidiaries; and

Integrate risk management into strategic, financial and operating objectives.

For each risk, an owner has been designated as accountable for designing and implementing measures to mitigate the
consequences of risks for which he or she is responsible, and/or limit the likelihood of these risks materializing. This owner
is the first line of defence from a risk management standpoint. The Corporation’s support services, namely the Finance,
Legal Affairs, IT Security and Human Resources functions, constitute a second line of defence through their involvement in
the design and operation of the complementary risk mitigating actions. Lastly, the Internal Audit department of the
Corporation is the third line of defence to provide independent assurance on the effectiveness and efficiency of controls
over these mitigating actions.

In addition, the Corporation has adopted an ongoing risk management process that includes a quarterly assessment of risk
exposures for the Corporation and its subsidiaries, under the oversight of the Audit Committee (financial risks), the Human
Resources and Compensation Committee (human resource risks) and the Risk Management and Corporate Responsibility
Committee (strategic and operational risks).

Managing these risks is also shared between members of the Corporation’s management and the members of the Board of
Directors using consistent mapping and language in order to eliminate a silo approach to risk management. As a result of
the COVID-19 pandemic period, all risks to which the Corporation is exposed have been re-assessed in detail by the
Corporation’s officers. As part of this essential process, risks were reprioritized based on their level of probability of
occurrence and their quantitative and qualitative impact on the Corporation’s business. The outcome of this annual
exercise comprised a total of 48 risks, rated in order of importance: red for the 16 high-priority risks, orange for the 7
priority risks, yellow for the 5 moderate risks and green for the 20 low risks. These risks were then grouped according to
the subject matter and the owner for ease of reference and to ensure that mitigation measures are properly applied as set
out in the following paragraphs.

KEY RISKS

An overview of each of the key risk categories is provided below, along with a description of the main measures to reduce
the occurrence and mitigate, where possible, the potential impact of these risks on the Corporation’s business objectives.
Although insurance coverage is purchased for some of these risks, and operational mitigating actions are in place, there
can be no assurance that these actions would effectively reduce risks that could have an adverse impact on the
Corporation’s financial position, reputation and/or ability to achieve its strategic and operational objectives.

Annual Report 2022 Transat A.T. inc. | 42

Transat A.T. inc.
Management's Discussion and analysis

RISKS RELATING TO THE ABILITY TO CONTINUE AS A GOING CONCERN

As discussed in Section 7. Financial Position, Liquidity and Capital Resources of this MD&A and Note 2 to the consolidated
financial statements, there are material uncertainties that cast significant doubt about the Corporation’s ability to continue
as a going concern and, therefore, realize its assets and discharge its liabilities in the normal course of business. The
consolidated financial statements as at October 31, 2022 have been prepared on a going concern basis which assumes that
the Corporation will continue to be in operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities, and meet its obligations in the normal course of business. The consolidated financial statements as
at October 31, 2022 and for the year then ended do not include adjustments to the book value and classification of assets,
liabilities and recorded expenses that would otherwise be required if the going concern basis proved to be inappropriate.
Such adjustments may be significant.

The Corporation is making every effort and remains confident of returning to profitability under its strategic plan, based on
current market conditions and the gradual resumption of its operations. However, there can be no assurance that the
Corporation will be able to settle its debts and meet its obligations in the normal course of business. In addition, to finance
the Corporation’s operations until the maturity of the credit facilities, the Corporation might have to again borrow
sufficient amounts to meet its needs but there can be no assurance that it will be able to do so on acceptable terms, or
that suppliers, lessors, credit card processors and other creditors will continue to support the Corporation. While the signs
of resumption of the Corporation's operations are encouraging, the COVID-19 pandemic significantly strained the
Corporation’s ability to return to profitability. As a result, there can be no assurance that the Corporation will be able to
generate positive cash flows from operating activities in the next twelve months.

Other socio-economic and geo-political factors are also present and create additional uncertainty related to travel
demand in the coming months. These factors are further discussed below in the Economic and General Risks section.

CYBER ATTACK RISK

In connection with its operations, the Corporation gathers, uses and retains over a fixed period of time large amounts of
customer data for commercial, marketing and other purposes in our various computer systems. This data is stored and
processed in our facilities and in third-party facilities, including, for example, in a cloud-based environment hosted by a
third party. The integrity and protection of the data of our customers, employees and business, as well as the continued
operation of our systems and other third-party service providers, are essential to our operations. Security and privacy
regulations and contractual obligations are increasingly demanding and have onerous penalties for non-compliance.

Despite our efforts to protect against unauthorized access to our systems and sensitive information, due to the scope and
complexity of their information technology structure, our reliance on third parties to support and protect our structure
and data, and a constantly evolving cyber threat environment, our systems and those of third parties we rely on are subject
to disruptions, failures, unauthorized access, cyber terrorism, employee errors, negligence, fraud or other misuse. In
addition, given the sophistication of hackers to gain unauthorized access to our sensitive information, we may be unable to
detect the violation for long periods of time, or even not at all.

Such events, whether accidental or intentional, could result in the theft, unauthorized access or disclosure, loss, misuse or
unlawful use of customer data that could damage our reputation, disrupt our services or result in business loss, as well as
repair and other costs, fines, investigations, legal actions or proceedings. As a result, future incidents could have a material
adverse effect on the Corporation, including our business, financial condition, liquidity and operating results.

COVID-19-RELATED RISKS

This section provides an overview of the specific risks to which Transat and its subsidiaries have been and/or will be
exposed as a result of the persisting COVID-19 pandemic even though there are some encouraging signs that the pandemic
is in the process of slowly disappearing. While the Corporation has resumed its airline operations, there is still a risk that
cross-border travel restrictions will be imposed again by domestic government authorities and the countries that the
Corporation serves. This would once again lead to a significant decrease in cash flows from operations despite the
mitigation actions taken by the Corporation and considering that Transat does not expect operations to reach pre-
pandemic levels before 2024.

Annual Report 2022 Transat A.T. inc. | 43

Transat A.T. inc.
Management's Discussion and analysis

The crisis surrounding the COVID-19 pandemic is continuously evolving and is affecting the entire global tourism industry as
well as the air transportation sector. The extent of the potential impact of COVID-19 on the Corporation and its operations
will depend on the evolution of the pandemic, which remains highly uncertain and cannot be accurately predicted. The
outlook for travel demand to destinations served by the Corporation for the coming years remains very difficult to
determine. The Corporation is monitoring the situation very closely and continues to take appropriate measures as the
COVID-19 pandemic evolves.

The potential negative impacts of the COVID-19 pandemic include but are not limited to:

•

A significant reduction in demand for the Corporation’s products and services, both for its flights offered on Air
Transat and for its vacation packages, resulting from, among other things, a possible return of government travel
and border restrictions, travellers’ concerns about COVID-19, new constraints imposed on travellers at airports
and on flights due to COVID-19, lower discretionary consumer spending caused by high inflation, job losses or
salary reductions resulting from a decline in economic activity, service disruptions and changes in consumer travel
patterns, which could have a material adverse effect on cash flows from operations;

Impact of new laws, new regulations and other government interventions resulting from the COVID-19 pandemic,
including travel-related measures different from those currently in place that could result in additional costs to
the Corporation, a lower load factor and increases in the price of the Corporation’s products and services that
could adversely affect demand for such products and services;

Tighter credit conditions proposed by the Corporation’s business partners to manage their own cash flows;

Amounts that may be withheld by credit card processors that would delay the availability of these funds for the
Corporation, creating additional adverse pressure on the Corporation’s cash flows;

Heightened volatility of fuel prices and exchange rates and the resulting adverse effect on operating expenses and
cash flows from operations;

• Write-down of assets as well as non-recurring expenses resulting from adjustments to the Corporation’s

cost structure;

•

Refunds to most clients holding travel credits were made during the previous fiscal year, following funding from
the Government of Canada, but delays deemed too long for some may result again in new class action lawsuits
before the refunds were put in place. Accordingly, the outcome of these class actions is impossible to predict with
certainty and the financial effect that could result from it cannot be reliably estimated. If the Corporation had to
pay an amount related to class actions, the unfavourable effect of the settlement would be recognized in the
consolidated statement of income (loss) and could have a very unfavourable effect on cash.

Until the Corporation is able to resume operations at a sufficient level, the situation will affect its cash position. The
Corporation continues to review various options to refinance a portion of the existing debt on more advantageous terms
than those currently in place. The Corporation cannot guarantee it will have access to such sources of financing or
acceptable financing terms, or that such supplementary measures will enable it to mitigate the risks arising from the
COVID-19 pandemic, including those mentioned above.

HUMAN RESOURCE RISKS

The Corporation’s ability to achieve its plan to resume operations is dependent on the experience of its key executives and
employees and their knowledge of the tourism, travel and airline industries. In the current economic environment and that
of the tourism industry, it is difficult to retain the resources necessary for recovery due to the limited ability to pay
employees their fair value. As a result, the loss of key employees could adversely affect our business and operating results.

In addition, our recruitment program, salary structure, performance management programs, succession plan, retention
plan and training plan involve risks that could negatively impact our ability to attract and retain the skilled resources
needed to regain the pre-pandemic level of operations and support the Corporation's future growth and success. The
resumption of the Corporation's activities requires new hires and represents a serious challenge given the labour shortage
in the overall economy in Québec and Canada. This shortage has given rise to salary expectations that are challenging for
the Corporation because of its limited capacity to compensate employees in this new labour market context. In some
respects, certain positions are necessary for the Corporation to operate normally. If such skilled labour cannot be found,
the Corporation may have to suspend its operations.

Annual Report 2022 Transat A.T. inc. | 44

Transat A.T. inc.
Management's Discussion and analysis

As of October 31, 2022, the total workforce was approximately 3,900, up by about 1,800 from last year, representing
approximately 75% of the pre-pandemic headcount. Labour costs are a significant component of the Corporation's
operating expenses. There can be no assurance that Transat will be able to maintain these costs at levels that will not
adversely affect its operations, results of operations or financial condition.

The Corporation’s Air Transat subsidiary is the only subsidiary with unionized employees, who are governed by five
collective agreements, two of which will expire in 2023. The agreement with the crew assignment office, which covers,
among others, employees involved in crew planning will expire on December 31, 2022. The agreement governing flight
attendants, namely the Canadian Union of Public Employees (Airline Division), which covers a significant pool of employees,
will expire on January 31, 2023. Furthermore, it is possible that negotiations to renew these collective agreements,
particularly that of flight attendants, could give rise to work stoppages or slowdowns or substantially higher labour costs in
the coming years that could unfavourably impact our operations and operating income.

FINANCIAL RISKS

Due to the COVID-19 related risks discussed previously as well as those described below under economic and general risks,
our operating results in future periods could fall short of the expectations of securities analysts and investors, thus
affecting the market price of our shares.

The Corporation's current credit facilities are subject to compliance with certain financial ratios and covenants, which
have been suspended up to October 29, 2023. There can be no assurance that, in the future, our ability to use our existing
credit facilities or to obtain additional financing will not be jeopardized. Moreover, financial market volatility could limit
access to credit and raise borrowing costs, hampering access to additional funding under satisfactory terms and
conditions. Our business, financial position and operating results could thus be adversely affected.

In addition, in the normal course of business, the Corporation is facing a number of short-term maturities related to
service contracts with credit card processors. These agreements will have to be renewed or replaced under market
conditions prevailing at the time of their expiry, which could result in more onerous borrowing and operating terms and
conditions for the Corporation or an inability to renew or replace such contracts.

The Corporation is negotiating with all of its suppliers to obtain cost reductions and changes to its payment terms, and has
implemented measures to reduce expenses and investments.

Transat is particularly exposed to fluctuations in fuel costs, which were very significant in fiscal 2022. Although Transat has
implemented a fuel price hedging program, due to competitive pressures in the industry, there can be no assurance that
we would be able to pass along any increase in fuel prices to our customers by increasing fares, or that any such fare
increase would offset higher fuel costs, which could in turn adversely impact our business, financial position or
operating results.

Transat has significant non-cancellable lease liabilities relating to its aircraft fleet. If the Corporation’s operations do not
return to sufficient levels, the payments to be made under our existing lease agreements could have a substantial impact
on our business.

Transat is exposed, due to its many arrangements with foreign-based suppliers, to fluctuations in exchange rates mainly
concerning the U.S. dollar, the euro and the pound sterling against the Canadian dollar. These exchange rate fluctuations
could increase our operating costs or decrease our revenues. Changes in interest rates could also impact interest income
from our cash and cash equivalents as well as interest expenses on our fixed- and variable-rate debt instruments, which in
turn could affect our interest income and interest expenses.

In the normal course of business, we receive customer deposits and advance payments. If funds from advance payments
were to diminish or be unavailable to pay our suppliers, we would be required to secure alternative capital funding. There
could be no assurance that additional funding would be available under terms and conditions suitable to the Corporation,
which could adversely affect our business. Moreover, these advance payments generate interest income for Transat. In
accordance with our investment policy, we are required to invest these deposits and advance payments exclusively in
investment-grade securities. Any failure of these investment securities to perform at historical levels could reduce our
interest income. In addition, the Corporation is exposed to the risk that the financial institutions with which it holds
securities or enters into agreements would be unable to honour their obligations.

Annual Report 2022 Transat A.T. inc. | 45

Transat A.T. inc.
Management's Discussion and analysis

As a Corporation that processes information with respect to credit cards used by our customers, we must comply with the
regulatory requirements of our credit card processors. Failure to comply with certain financial ratios or certain rules
regarding deposits or bank card data security may result in penalties or in the suspension of service by credit card
processors. In addition, credit card processors have already taken mitigation measures such as withholding funds until the
service is re-established. The inability to use credit cards could have a significant negative impact on our reservations and
consequently on our operating results and profitability.

It is also sometimes difficult to foresee how certain Canadian or international tax laws will be interpreted by the
appropriate tax authorities. Subsequent to interpretation of these laws by the different authorities, the Corporation may
have to review its own interpretations of tax laws, which in turn could have an adverse impact on our profit margin.

Lastly, the travel industry in general and our operations in particular are seasonal. As a result, our quarterly operating
results are subject to fluctuations. In our view, comparisons of our operating results between quarters or between six-
month periods are not necessarily meaningful and should not be relied on as indicators of future performance.

COMPETITION RISKS

Transat operates in an industry in which competition has always been intense, despite the slow resumption of operations
by all industry players. Some of them are larger, with strong brand name recognition and an established presence in
specific geographic areas, substantial financial resources, including government subsidies, and preferred relationships with
travel suppliers. We also face competition from travel suppliers selling directly to travellers at very competitive prices. The
Corporation could thus be unable to compete successfully against existing or potential competitors, and intense
competition could have a material adverse effect on its operations, prospects, revenues and profit margin.

In addition, traveller needs dictate how our industry evolves. In recent years, travellers have demanded higher value, better
product selection and personalized service, all at competitive prices. Widespread adoption of the Internet makes it easier
for travellers to access information on travel products and services directly from suppliers, thus bypassing not only tour
operators such as Transat, but also retail travel agents through whom we generate a portion of our revenues. Since our
available seat capacity and person-nights are also influenced by market forces, our business model is called into question
in some respects. The Corporation’s inability to rapidly meet those expectations in a proactive manner could adversely
impact its competitive positioning while reducing profitability of its products.

Further, given that we rely to some extent on retail travel agencies for access to travellers and revenues, any consumer
shift away from travel agencies and toward direct purchases from travel suppliers could impact the Corporation.

These competitive pressures could adversely impact our revenues and margins since we would likely have to match
competitors’ prices. The Corporation’s performance in all of the countries in which it operates will depend on its
continued ability to offer quality products at competitive prices.

ECONOMIC AND GENERAL RISKS

The holiday travel industry is sensitive to global, national, regional and local economic conditions, particularly since the
pandemic situation that we have been experiencing starting in March 2020. Economic factors such as a significant
downturn in the economy, a recession or a decline in consumer purchasing power or the employment rate in North
America, Europe or key international markets could have a negative impact on our business and operating results by
affecting demand for our products and services. All these factors are creating feelings of anxiety among the Corporation's
customers, affecting demand for leisure travel. As a result, revenues might not be sufficient to cover the fixed expenses
related to the resumption of operations and bring about profitability in the medium term.

Seasonal planning of flight and person-night capacity is another risk in the tourism industry. For the Corporation, it entails
forecasting traveller demand in advance and anticipating trends in future preferred destinations. This is all the more
difficult during times of economic troubles. Poor planning for those needs could unfavourably impact our business,
financial situation and operating results.

Annual Report 2022 Transat A.T. inc. | 46

Transat A.T. inc.
Management's Discussion and analysis

In addition to the foregoing factors, our operating results could also be adversely affected by factors beyond Transat’s
control, including the following: socio-political instability in Eastern Europe, namely the war in Ukraine, extreme weather
conditions, climate-related or geological disasters, terrorism whether actual or apprehended, new epidemics or disease
outbreaks, consumer preferences and spending patterns, consumer perceptions of destination-based service and airline
safety, demographic trends, disruptions to air traffic control systems, and costs of safety, security and environmental
measures. Furthermore, our revenues are sensitive to events affecting domestic and international air travel as well as the
level of car rentals and hotel reservations.

ESG RISKS

The market and travelers are increasingly requiring that a public company, such as Transat, be recognized as a socially
responsible company and that it adhere to environmental, social and governance ("ESG") criteria, i.e., factors that have an
impact on the environment, that are related to the social involvement of the Corporation and that are related to the way
the Corporation runs its business governs itself. In this respect, over the years, the Corporation has adopted multiple
measures related to these factors, especially its Travelife certification program, its agreement with the SAF+ Consortium to
build fuel-efficient aircraft, its new fleet of more efficient, energy-saving Airbus A321LR aircraft, its ISO and LEED
certifications, its involvement with communities in Canada and where it flies, its approach to managing human resources
and corporate governance, and many others. Despite these initiatives, it is possible that, in the eyes of current and future
clients, certain organizations, institutions or shareholders, the Corporation may not fully meet the definition of a socially
responsible company, which could also tarnish the Corporation’s reputation.

REPUTATION RISKS

All the risks discussed in this section have an impact on the Corporation's reputation. If mitigation measures are not
sufficient, the arising of a risk can harm the Corporation's reputation. In addition, the ability to maintain favourable
relationships with its existing customers and attract new customers greatly depends on Transat’s service offering and its
reputation. While the Corporation has already implemented sound governance practices, including a code of ethics, and
developed certain mechanisms over the years to prevent its reputation from being adversely affected, there can be no
assurance that Transat will continue to enjoy a good reputation or that events beyond its control, such as a cyberattack,
will not tarnish its reputation. The loss or tarnishing of its reputation could have a material unfavourable effect on the
Corporation’s operations, prospects, financial position and operating results.

KEY SUPPLIES AND SUPPLIER RISKS

Despite being well positioned due to our vertical integration, we depend on third parties who supply us with certain
components of our packages. Any significant interruption in the flow of goods and services from these suppliers, which
may be outside our control, could have a significant adverse impact on our business, financial position and
operating results.

Our dependence, among others, on Airbus, Rolls-Royce, Pratt & Whitney, CFM, STS Aviation, Kelowna Flightcraft Aerospace,
Lufthansa Technik, Sabena Technic and A.J. Walter means that we could be adversely affected by problems connected with
Airbus aircraft, and Rolls-Royce and Pratt & Whitney engines, including defective material or parts, mechanical problems or
negative perceptions among travellers. The Corporation also relies on certain suppliers for its information system security
and maintenance. See the Technological Risks section.

We are also dependent on a large number of hotels. In general, these suppliers can terminate or modify existing
agreements with us on relatively short notice. The potential inability to replace these agreements, to find similar suppliers,
or to renegotiate agreements at reduced rates could have an adverse effect on our business, financial position and
operating results.

Furthermore, any decline in the quality of travel products or services provided by these suppliers, or any perception by
travellers of such a decline, could adversely affect our reputation. Any loss of contracts, changes to our pricing agreements
including widespread increases in these prices resulting from current economic factors, access restrictions to travel
suppliers’ products and services or negative shifts in public opinion regarding certain travel suppliers resulting in lower
demand for their products and services could have a significant effect on our results.

Annual Report 2022 Transat A.T. inc. | 47

Transat A.T. inc.
Management's Discussion and analysis

AVIATION RISKS

To carry on business or extend its outreach, the Corporation requires access to aircraft that are largely operated by its
subsidiary Air Transat. This fleet consists primarily of aircraft leased for several years, sometimes under renewable leases,
with varying renewal dates and conditions. If the Corporation were unable to renew its leases for long-term or seasonal
leasing, secure timely access to appropriate aircraft under adequate conditions or retire certain aircraft as anticipated,
such an outcome could adversely affect the Corporation.

Our focus on two types of Airbus aircraft (A321 and A330) could result in significant downtime for part of our fleet if
mechanical problems arise or if the regulator releases any mandatory inspection or maintenance directives applicable to
our types of aircraft. If our operations are disrupted due to aircraft unavailability, the loss of associated revenues could
have an adverse impact on our business, financial position and operating results.

An incident involving one of our aircraft during our operations could give rise to repair costs or major replacement costs
for the damaged aircraft, service interruption, and claims. Consequently, such an event could have an unfavourable impact
on the Corporation’s reputation.

The Corporation also requires access to airport facilities in its source markets and multiple destinations. In particular, the
Corporation must have access to takeoff and landing slots and gates under conditions that allow it to be competitive.
Accordingly, any difficulty in securing such access or disruptions in airport operations caused, for instance, by labour
conflicts or other factors could adversely affect our business.

With the privatization of airports and air navigation authorities in Canada, airports and air navigation authorities have
imposed significant increases in airport user fees and air navigation fees, particularly since some of these airports are
located in U.S. border towns and are not subject to such fees. If these user and navigation fees were to increase again
substantially, our business, financial position and operating results could be adversely affected, which would result in
certain routes being conceded to our U.S. competitors.

TECHNOLOGICAL RISKS

Transat relies heavily on various information and telecommunications technologies to operate its business, increase its
revenues and reduce its operating expenses. Our business depends on our ability to manage reservation systems, including
handling high telephone call volumes on a daily basis, monitor product profitability and inventory, adjust prices quickly,
access and protect information, distribute our products to retail travel agents and other travel intermediaries, and stave
off information system intrusions. Rapid changes in these technologies and growing demand for web-based or mobile
reservations could require higher-than-anticipated capital expenditures to improve customer service, which could impact
our operating results.

In addition to the cyber attacks discussed previously, these technology systems may be vulnerable to a variety of sources of
failure, interruption or misuse, including by reason of third-party suppliers’ acts or omissions, natural disasters, terrorist
attacks, telecommunication systems failures, power failures, computer viruses, computer hacking, unauthorized or
fraudulent users, and other operational and security issues. Furthermore, the exploitation of system vulnerabilities is
increasingly sophisticated and frequent and requires constant management of and developments in the measures taken.
While Transat continues to invest in initiatives, including security initiatives and disaster recovery plans, these measures
may not be adequate or implemented properly or in a timely manner. Any systems failures or outages could materially and
adversely affect the Corporation’s operations and its customer relationships and could have an adverse effect on the
Corporation’s reputation, its operating results and financial position.

Furthermore, several of those information technology systems depend on third-party providers, such as Softvoyage,
Datalex and Radixx. Those suppliers sell more external solutions (through partnerships or cloud services) requiring
additional control measures. If these providers were to become incapable of maintaining or improving efficient technology
solutions in a profitable and timely manner, the Corporation would be unable to react effectively to information security
attacks, obtain new systems to meet growth in its customer base or support new products offered by the Corporation.
Consequently, such situations could generate additional expenses, which would unfavourably impact the Corporation’s
financial position.

Annual Report 2022 Transat A.T. inc. | 48

Transat A.T. inc.
Management's Discussion and analysis

REGULATORY RISKS

The industry in which Transat operates is subject to extensive Canadian and foreign government regulations. These relate
to, among other things, security, safety, consumer rights, permits, licensing, intellectual property rights, privacy,
competition, pricing and the environment. Consequently, Transat’s future results may vary depending on the actions of
government authorities with jurisdiction over our operations. These actions include the granting and timing of certain
government approvals or licences; the adoption of regulations impacting customer service standards (such as new
passenger security standards); the adoption of more stringent noise restrictions or curfews; and the adoption of provincial
regulations impacting the operations of retail and wholesale travel agencies. In addition, the adoption of new or different
regulatory frameworks or amendments to existing legislation or regulations and tax policy changes could affect our
operations, particularly as regards hotel room taxes, car rental taxes, airline taxes and airport fees.

Various measures are in place to combat climate change. The Corporation is subject to CORSIA (Carbon Offsetting and
Reduction Scheme for International Aviation) for most of its international flights. Airlines will begin to meet their
obligations under CORSIA when the aviation industry as a whole recovers and exceeds its 2019 emission levels. Due to the
decrease in the number of flights caused by the pandemic, the Corporation does not anticipate at this time that it would
have to purchase offsets for the first years of the scheme. However, the costing of this obligation will depend on the
participating countries, growth in applicable routes and the type of eligible carbon offsets. Should changes occur in these
regulations, the Corporation may incur additional costs as a result.

The Corporation is also subject to Canada's Clean Fuel Regulations, which are an important part of Canada's climate plan
to reduce emissions, accelerate the use of clean technologies and fuels, and support long-term, sustainable jobs in a
diversified economy. The version of the regulations published on July 6, 2022 excludes aircraft fuel.

In addition, under the Greenhouse Gas Pollution Pricing Act, Canada established a minimum royalty for carbon pollution.
This is in the form of a fossil fuel charge and a regulatory greenhouse gas emissions trading system called the Output-Based
Pricing System. It currently applies only to interprovincial flights in certain provinces, such as British Columbia. The
Corporation is currently not affected by this legislation. However, the federal government has indicated it could broaden
the scope of the legislation to include interprovincial (domestic) flights. In Canada's 2022 Aviation Climate Action Plan, the
Canadian government recognizes that more work needs to be done to draw up a coherent policy to address interprovincial
aviation emissions. In the future, it may decide to implement an emissions trading system for domestic flights, which would
have an impact on our costs, and in turn, apply pressure on the Corporation's margins.

In the course of our business in the air carrier and travel industry, the Corporation is exposed to claims and legal
proceedings, including class action suits. Litigation and claims could adversely affect our business and operating results.

INSURANCE COVERAGE RISKS

We hold and maintain full force insurance policies for amounts conforming to industry standards. Our liability insurance for
our tour operator and travel agency activities covers the liability for bodily harm or property damage suffered by travellers
or third parties. In the context of our activities as a tour operator, we use reasonable efforts to ensure that our service
providers also have insurance covering bodily harm or property damage suffered by travellers. Furthermore, in
collaboration with an insurer, we established a voluntary professional liability insurance (errors and omissions) plan for
our franchisees.

We also hold and maintain in full force insurance policies for amounts in accordance with airline industry standards and in
compliance with applicable statutory requirements and the covenants of our aircraft lease agreements. Our liability
insurance for airline operations covers liability related to damages resulting from injury or death of passengers, as well as
to damage suffered by third parties. The limit for any single event is US$1.25 billion with the exception of war risk bodily
injury/property damage to third parties excluding passengers where the limit is US$250 million for any single event in the
aggregate. In this latter regard, additional insurance is carried and maintained for war risk bodily injury/property damage to
third parties excluding passengers covering the excess of US$250 million up to the limit of US$1.0 billion for any single event
in the aggregate.

In addition, the Corporation has directors’ and officers’ liability insurance and professional liability insurance to pay the
amounts the Corporation may be required to disburse in connection with lawsuits specifically involving directors and
officers, not the Corporation.

However, there can be no assurance of all risks being covered in this manner or our ability to secure coverage providing
favourable levels and conditions at an acceptable cost.

Annual Report 2022 Transat A.T. inc. | 49

Transat A.T. inc.
Management's Discussion and analysis

Although we have never faced a liability claim for which we did not have adequate insurance coverage, there can be no
assurance that our coverage will be sufficient to cover larger claims or that the insurer concerned will be solvent at the
time of any covered loss. In addition, there can be no assurance that we will be able to obtain coverage at acceptable levels
and cost in the future. These uncertainties could adversely affect our business and operating results.

11. CONTROLS AND PROCEDURES

The implementation of the Canadian Securities Administrators National Instrument 52-109 represents a continuous
improvement process, which has prompted the Corporation to formalize existing processes and control measures and
introduce new ones. Transat has chosen to make this a corporate-wide project, which will result in operational
improvements and better management.

In accordance with this instrument, the Corporation has filed certificates signed by the President and Chief Executive
Officer and the Chief Financial Officer that, among other things, report on the design and effectiveness of disclosure
controls and procedures [“DC&P”] and the design and effectiveness of internal control over financial reporting [“ICFR”].

The President and Chief Executive Officer and the Chief Financial Officer have designed DC&P or caused them to be
designed under their supervision to provide reasonable assurance that material information relating to the Corporation has
been made known to them and that information required to be disclosed in the Corporation’s filings is recorded,
processed, summarized and reported within the prescribed time periods under securities legislation.

Also, the President and Chief Executive Officer and the Chief Financial Officer have designed ICFR or have caused it to be
designed under their supervision to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for financial reporting purposes in accordance with IFRS.

EVALUATION OF DC&P AND ICFR

An evaluation of the design and operating effectiveness of DC&P and ICFR was carried out under the supervision of the
President and Chief Executive Officer and the Chief Financial Officer. This evaluation consisted of a review of
documentation, audits and other procedures that management considered appropriate in the circumstances. Among other
things, the evaluation took into consideration the Corporate Disclosure Policy, the code of professional ethics, the sub-
certification process and the operation of the Corporation’s Disclosure Committee.

Based on this evaluation and using the criteria set by the Committee of Sponsoring Organizations of the Treadway
Commission on Internal Control – Integrated Framework (COSO-Framework 2013) and in connection with the preparation
of its year-end financial statements, the two certifying officers concluded that the design of DC&P and ICFR were effective
as at October 31, 2022.

Lastly, no significant changes in ICFR occurred during the fourth quarter ended October 31, 2022 that materially affected
the Corporation’s ICFR.

12. OUTLOOK

For 2023 as a whole, the Corporation expects to deploy capacity equivalent to 90% of the 2019 level. This level is
consistent with International Air Transport Association (IATA) projections for the Corporation's main markets.

To date, for winter 2023, load factors are comparable to 2019 levels and are already over 55% across the network. Airline
unit revenues, expressed in revenue per passenger-mile (or yield), are approximately 15% higher than in winter 2019. The
combination of demand and higher prices will allow the Corporation to deal with higher costs.

For 2023 as a whole, the Corporation expects an adjusted operating income margin of approximately 4% to 6%. In making
forward-looking statements, the Corporation has relied on a number of assumptions, including moderate growth in
Canada's GDP taking into account the risk of a short recession, an exchange rate of C$1.34 to US$1 and an average price per
gallon of aviation fuel of C$4.50.

Annual Report 2022 Transat A.T. inc. | 50

MANAGEMENT’S REPORT

The consolidated financial statements and MD&A of Transat A.T. Inc., and all other information in the financial report, are
the responsibility of management and have been reviewed and approved by the Board of Directors.

The consolidated financial statements have been prepared by management in accordance with IFRS issued by the
International Accounting Standards Board. The MD&A has been prepared in accordance with the requirements of the
Canadian Securities Administrators. Management’s responsibility in these respects includes the selection of appropriate
accounting principles as well as the exercise of sound judgment in establishing reasonable and fair estimates in accordance
with IFRS and the requirements of the Canadian Securities Administrators, and which are adequate in the circumstances.
The financial information presented throughout the MD&A and elsewhere in this Annual Report is consistent with that
appearing in the consolidated financial statements.

The Corporation and its affiliated companies have set up accounting and internal control systems designed to provide
reasonable assurance that the Corporation’s assets are safeguarded against loss or unauthorized use and that its books of
account may be relied upon for the preparation of consolidated financial statements and the MD&A.

The Board of Directors is responsible for the financial information presented in the consolidated financial statements and
the MD&A, primarily through its Audit Committee. The Audit Committee, which is appointed by the Board of Directors and
comprised entirely of independent and financially literate directors, reviews the annual consolidated financial statements
and the MD&A and recommends their approval to the Board of Directors. The Audit Committee is also responsible for
analyzing, on an ongoing basis, the results of the audits by the external auditors, the accounting methods and policies used
as well as the internal control systems set up by the Corporation. These consolidated financial statements have been
audited by Ernst & Young LLP. Their report on the consolidated financial statements appears on the next page.

Annick Guérard
President and Chief Executive Officer

Patrick Bui
Chief Financial Officer

December 14, 2022

Annual Report 2022 Transat A.T. inc. | 51

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Transat A.T. Inc.,

Opinion

We have audited the consolidated financial statements of Transat A.T. Inc. and its subsidiaries [the “Group”], which
comprise the consolidated statement of financial position as at October 31, 2022 and 2021 and the consolidated
statements of loss, the consolidated statements of comprehensive loss, the consolidated statements of changes in equity
and the consolidated statements of cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at October 31, 2022 and 2021 and its consolidated financial performance
and its consolidated cash flows for the years then ended, in accordance with International Financial Reporting
Standards [”IFRS”].

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report. We are independent of the Group in accordance with the ethical requirements that are
relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.

Material uncertainty related to going concern

We draw attention to Note 2 to the consolidated financial statements, which indicates that the Group incurred a net loss of
$445.3 million and generated negative cash flows related to operating activities totalling $177.9 million for the year ended
October 31, 2022. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate
that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our
opinion is not modified in respect of this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. In addition to the matters described in the "Material uncertainty
related to going concern" section of our report, we have determined the matters described below to be the key audit
matters to be communicated in our report. These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including the procedures performed to address the matters below,
provide the basis for our audit opinion on the accompanying consolidated financial statements.

Annual Report 2022 Transat A.T. inc. | 52

Key audit matter
Impairment of long-lived non-financial assets
As at October 31, 2022, the Group held $1,022.2 million
in long-lived non-financial assets, including property,
plant and equipment, intangible assets and a long-term
investment.
As indicated in Notes 3, 4, 9, 10 and 11, the Group
assesses at each reporting date whether there is any
indication that an asset or a cash-generating unit
(“CGU”) may be impaired. If any indication exists, or
when annual impairment testing for an asset or a CGU is
required, the Group estimates the recoverable amount
of the asset or CGU. The recoverable amount is defined
as the higher of the asset’s fair value less costs to sell
and its value in use.
We determined that auditing the impairment of long-
lived non-financial assets is a key audit matter due to the
significance of the balance and the degree of subjectivity
in evaluating management’s significant assumptions
relating to the discount rate, long-term growth rate and
per gallon fuel price used in its model.

Revenue recognition

As indicated in Notes 3 and 19, the Group recognizes
revenue when it satisfies the performance obligation,
that is, when the service is transferred to the customer
and the customer obtains control of that service. The
amounts received from customers for services not yet
provided are included in current liabilities as Customer
deposits and deferred revenues. The Group's revenues
for the year ended October 31, 2022 amounted to
$1,642.0 million. As at October 31, 2022, customer
deposits and deferred revenues totalled $602.5 million.

How our audit addressed the key audit matter

Our approach to addressing the matter included the following
procedures, among others:

– We assessed management’s documentation of the

CGUs;

– We involved our valuation specialists to assist in

evaluating the discount rate, the long-term growth
rates and the per gallon fuel price used by the Group
and the valuation methods used;

– We tested the reasonableness of cash flow projections
by comparing them to external economic data from
the airline and tourism industry and to the Group's
past results;

– We conducted sensitivity testing to assess the
potential impact of changes in the significant
assumptions used by management in its models;
– We examined the adequacy of the disclosures relating
to CGUs, impairment tests and impairment charges
presented in Notes 3, 4, 9, 10, and 11 to the Group’s
consolidated financial statements.

Our approach to addressing the matter included the following
procedures, among others:

– We tested certain controls related to IT systems used

by the Group to record revenues;

– We obtained and assessed the report certifying the
effectiveness of internal controls implemented by a
service organization used by the Group to record
revenues, particularly for bookings;

– We tested a sample of revenue-generating

transactions for fiscal 2022 by tracing selected items
to source documents;

– We tested a sample of airline transportation services,
hotel services and manual adjustments recorded close
to fiscal year-end by examining the source documents
and supporting documents at the time the services
were rendered.

Group revenues are recorded using a number of IT
systems and controls for processing, recording and
recognizing a large volume of low-value transactions.

We considered this issue to be a key audit matter due to
the significance of revenues and the large volume of
transactions that required significant audit effort to test
recorded revenues.

Other information

Management is responsible for the other information. The other information comprises:

– Management’s Discussion and Analysis

–

The information, other than the consolidated financial statements and our auditor’s report thereon, in the
Annual Report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information,
and in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis and the Annual Report prior to the date of this auditor’s report. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact in this auditor’s report. We have nothing to report in this regard.

Annual Report 2022 Transat A.T. inc. | 53

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative
but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:

–

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during
our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.

Annual Report 2022 Transat A.T. inc. | 54

From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Sylvain Boucher.

Montréal, Canada

December 14, 2022

1 CPA auditor, CA, public accountancy permit No. A113209

Annual Report 2022 Transat A.T. inc. | 55

TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

[Note 2, Uncertainty related to going concern]

(in thousands of Canadian dollars)

ASSETS
Cash and cash equivalents
Cash and cash equivalents in trust or otherwise reserved
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Derivative financial instruments
Current portion of deposits
Current assets
Cash and cash equivalents reserved
Deposits
Income taxes receivable
Deferred tax assets
Property, plant and equipment
Intangible assets
Investment
Deferred financing costs
Non-current assets

LIABILITIES
Trade and other payables
Income taxes payable
Customer deposits and deferred revenues
Derivative financial instruments
Current portion of lease liabilities
Current portion of liability related to warrants
Current portion of provision for return conditions
Current liabilities
Long-term debt and lease liabilities
Liability related to warrants
Deferred government grant
Provision for return conditions
Employee benefits liability
Deferred tax liabilities
Non-current liabilities

NEGATIVE EQUITY

Share capital
Share-based payment reserve
Deficit
Cumulative exchange differences

See accompanying notes to the consolidated financial statements

On behalf of the Board,

As at
October 31,
2022
$

As at
October 31,
2021
$

Notes

5
6
22

7
8

5
8
22
22
9
10
11
12

7
14
15
16

14
15
14
16
17
22

322,535
344,284
265,050
5,537
26,725
26,428
11,939
29,392
1,031,890
31,273
172,231
—
953
1,000,151
13,261
8,820
12,552
1,239,241
2,271,131

289,897
1,054
602,509
6,209
137,165
16,799
—
1,053,633
1,614,903
7,561
169,025
154,772
20,773
644
1,967,678

433,195
139,583
108,857
1,120
10,514
16,465
—
10,130
719,864
30,728
112,044
15,100
—
974,229
16,849
9,476
19,368
1,177,794
1,897,658

141,790
1,354
292,158
—
171,557
20,622
3,065
630,546
1,247,981
15,935
167,394
123,179
27,120
613
1,582,222

221,924
16,092
(984,602)
(3,594)
(750,180)
2,271,131

221,012
15,948
(544,881)
(7,189)
(315,110)
1,897,658

Director

Annual Report 2022 Transat A.T. inc. | 56

TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF LOSS

[Note 2, Uncertainty related to going concern]

Years ended October 31
(in thousands of Canadian dollars, except per share amounts)
Revenues
Operating expenses
Aircraft fuel
Costs of providing tourism services
Salaries and employee benefits
Depreciation and amortization
Airport and navigation fees
Sales and distribution costs
Aircraft maintenance
Aircraft rent
Other airline costs
Other
Share of net loss of a joint venture
Special items

Operating loss
Financing costs
Financing income
Change in fair value of derivatives
Revaluation of liability related to warrants
Gain on long-term debt modification
Gain on asset disposals
Foreign exchange (gain) loss
Loss before income tax expense
Income taxes (recovery)

Current
Deferred

Net loss for the year

Net income (loss) attributable to:
Shareholders
Non-controlling interests

Loss per share

Basic
Diluted

See accompanying notes to the consolidated financial statements

Notes
19

2022
$

1,642,038

2021
$
124,818

19, 23
19

11
20

15
14
21

526,152
355,250
288,889
153,429
128,318
116,105
114,159
6,018
162,082
90,949
2,477
1,630
1,945,458
(303,420)
105,314
(12,982)
9,685
(21,989)
(22,191)
(3,934)
92,150
(449,473)

22,373
31,958
122,770
159,765
13,032
13,020
48,832
—
24,643
57,371
4,704
27,572
526,040
(401,222)
77,024
(4,441)
(8,849)
(4,934)
—
(17,347)
(53,260)
(389,415)

(3,174)
(975)
(4,149)
(445,324)

(52)
75
23
(389,438)

(445,324)
—
(445,324)

(389,559)
121
(389,438)

(11.77)
(11.77)

(10.32)
(10.32)

Annual Report 2022 Transat A.T. inc. | 57

TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

[Note 2, Uncertainty related to going concern]

Years ended October 31
(in thousands of Canadian dollars)
Net loss for the year

Other comprehensive income (loss)

Items that will be reclassified to net loss

Reclassification to net loss

Deferred taxes

Foreign exchange gain (loss) on translation of financial
statements of foreign subsidiaries
Reclassification to net loss

Items that will never be reclassified to net loss

Retirement benefits – Net actuarial gains and losses

Total other comprehensive income (loss)

Comprehensive loss for the period

Comprehensive loss attributable to:

Shareholders

Non-controlling interests

See accompanying notes to the consolidated financial statements

Notes

2022
$

2021
$

(445,324)

(389,438)

—

3,955
(360)

3,595

447

522

(1,196)
—

(1,196)

5,603

5,603
9,198
(436,126)

(597)

(597)
(1,271)
(390,709)

(436,126)

(386,822)

—

(3,887)

(436,126)

(390,709)

Annual Report 2022 Transat A.T. inc. | 58

TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

[Note 2, Uncertainty related to going concern]

Accumulated other
comprehensive income
(loss)

Share-
based
payment
reserve
$

Share
capital
$

221,012

15,948

Unrealized
gain (loss)
on cash
flow hedges
$
(522)

Deficit
$

(164,138)

Cumulative
exchange
differences
$

Total
$

(5,993)

66,307

Non-
controlling
interests
$
—

Total equity
$
66,307

—

(389,559)

—

(389,559)

121

(389,438)

—

(597)

522

2,812

2,737

(4,008)

(1,271)

—

(390,156)

522

2,812

(386,822)

(3,887)

(390,709)

(in thousands of Canadian dollars)
Balance as at October 31, 2020

Net income (loss) for the year

Other comprehensive income
(loss)

Comprehensive income
(loss) for the year

Fair value changes of non-
controlling interest liabilities

Reclassification of non-controlling
interest liabilities

Reclassification of non-controlling
interest exchange difference

—

9,413

—

9,413

Balance as at October 31, 2021

221,012

15,948

(544,881)

Net loss for the year
Other comprehensive income
Comprehensive income
(loss) for the year
Issued from treasury
Share-based payment expense

—

912

—

912

—

(445,324)

—

5,603

—

144

(439,721)

—

Balance as at October 31, 2022

221,924

16,092 (984,602)

See accompanying notes to the consolidated financial statements

—

9,413

(9,413)

—

9,292

(4,008)

4,008

—

(4,008)

5,405

3,887

9,292

(7,189)

(315,110)

—

(315,110)

—

(445,324)

3,595

9,198

—

(445,324)

—

9,198

3,595

(436,126)

—

(436,126)

—

912

144

1,056

—

912

144

1,056

(3,594)

(750,180)

—

(750,180)

Annual Report 2022 Transat A.T. inc. | 59

TRANSAT A.T. INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

[Note 2, Uncertainty related to going concern]

Years ended October 31
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net loss for the year
Operating items not involving an outlay (receipt) of cash:

Depreciation and amortization
Change in fair value of derivatives
Revaluation of liability related to warrants
Gain on long-term debt modification
Gain on asset disposals
Foreign exchange (gain) loss
Asset impairment
Share of net loss of a joint venture
Capitalized interests on long-term debt and lease liabilities
Deferred taxes
Employee benefits
Share-based payment expense

Net change in non-cash working capital balances related to operations
Net change in provision for return conditions
Net change in other assets and liabilities related to operations
Cash flows related to operating activities
INVESTING ACTIVITIES
Additions to property, plant and equipment and other intangible assets
Decrease (increase) in cash and cash equivalents reserved
Capital contribution to a joint venture
Proceeds from disposal of assets
Consideration paid for the buyback of a non-controlling interest
Cash flows related to investing activities
FINANCING ACTIVITIES
Proceeds from borrowings
Transaction costs
Proceeds from issuance of shares
Repayment of long-term debt
Repayment of lease liabilities
Cash flows related to financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary information (as reported in operating activities)
Net income taxes recovered
Net interest paid

See accompanying notes to the consolidated financial statements

Notes

2022
$

2021
$

(445,324)

(389,438)

14
21

20
11

11
21
7

153,429
9,685
(21,989)
(22,191)
(3,934)
92,150
783
2,477
45,902
(975)
377
144
(189,466)
46,548
13,299
(48,235)
(177,854)

(32,531)
(545)
(707)
—
—
(33,783)

213,217
(2,760)
912
(3,344)
(108,336)
99,689
1,288
(110,660)
433,195
322,535

(12,171)
42,112

159,765
(8,849)
(4,934)
—
(17,347)
(53,260)
33,450
4,704
41,537
75
5,754
—
(228,543)
(267,096)
(7,653)
(15,152)
(518,444)

(5,599)
25,540
(821)
422
(15,000)
4,542

599,852
(3,242)
—
—
(74,539)
522,071
(1,407)
6,762
426,433
433,195

(2,383)
18,288

Annual Report 2022 Transat A.T. inc. | 60

Transat A.T. inc.
Notes to Consolidated Financial Statements

[Amounts are expressed in thousands of Canadian dollars, except for per share amounts or unless specified otherwise]

Note 1

Corporate information

Transat A.T. Inc. [the “Corporation”], headquartered at 300 Léo-Pariseau Street, Montréal, Québec, Canada, is
incorporated under the Canada Business Corporations Act. Its Class A Variable Voting Shares and Class B Voting Shares are
listed on the Toronto Stock Exchange and traded under a single ticker, namely “TRZ”.

Transat A.T. Inc. is an integrated company specializing in the organization, marketing and distribution of holiday travel. The
core of its business consists of a Canadian leisure airline, offering international and Canadian destinations, and is vertically
integrated with its other services of holiday packages, distribution through a dynamic travel agency network and
value-added services at travel destinations.

The consolidated financial statements of Transat A.T. Inc. for the year ended October 31, 2022 were approved by the
Corporation’s Board of Directors on December 14, 2022.

Note 2

Uncertainty related to going concern

Due to the global COVID-19 pandemic since the beginning of 2020, the Corporation's operations have been severely
disrupted and its financial results significantly impacted. Among other things, the Corporation had to suspend all of its
flights twice, from April 1, 2020 to July 23, 2020 and from January 29, 2021 to July 30, 2021, and also to scale back its
offering to adjust to demand. Despite the resumption in airline operations since July 30, 2021, the Corporation reported a
net loss of $445,324 and generated negative cash flow related to operating activities totalling $177,854 for the year ended
October 31, 2022. However, as discussed in Note 14 and to help overcome the impact of the pandemic, the Corporation
renegotiated its agreement with the Government of Canada in order to be able to borrow up to $843,300 in additional
liquidity through the Large Enterprise Emergency Financing Facility ("LEEFF"). The ratios applicable to the credit facilities
are now suspended until October 29, 2023, (previously October 30, 2022). In total, the available financing amounts to a
maximum of $963,300, of which $863,216 was drawn down as at October 31, 2022.

As a result of the COVID-19 pandemic, the global air transportation and tourism industry has faced a collapse in traffic and
demand. Despite the easing of sanitary measures and travel restrictions initially put in place, travel restrictions and
vaccination requirements introduced by numerous countries as well as concerns related to the pandemic and its economic
impacts, combined with the uncertainty of a possible economic downturn, ongoing inflation in many countries, including
Canada, and the military conflict between Russia and Ukraine are creating significant demand uncertainty, and the effects
will still be partially present in fiscal 2023. For the 2022 winter season, the Corporation rolled out a reduced winter
program that had to be adjusted following the emergence of the Omicron variant and new restrictive measures
implemented by Canada and other countries. For the summer 2022 season, the Corporation also deployed a reduced
program although much more similar to pre-pandemic levels. While the situation considerably improved since the second
quarter of 2022, the Corporation cannot yet predict with certainty all the impacts of COVID-19 on its operations and
results, the pace at which the situation will improve or precisely when conditions will become normal again. Since the
beginning of the pandemic, the Corporation implemented a series of operational, commercial and financial measures,
including new financing and cost reduction measures, aimed at preserving its cash. The Corporation is monitoring the
situation daily to adjust these measures as it evolves. However, until the Corporation is able to resume operations at a
sufficient level, the COVID-19 pandemic will have significant negative impacts on its revenues, cash flows from operations
and operating results. Although the lifting of most restrictions has allowed a significant resumption of operations during
2022, the Corporation does not expect to reach the pre-pandemic level before 2024.

Annual Report 2022 Transat A.T. inc. | 61

Transat A.T. inc.
Notes to Consolidated Financial Statements

The Corporation’s ability to continue as a going concern for the next 12 months involves significant judgment and is
dependent on its ability to increase revenues to generate positive cash flows from operations, and the continued support
of its financial institutions, suppliers, lessors, credit card processors and other creditors. As discussed above, the
Corporation entered into an agreement with the Government of Canada to borrow additional liquidity up to $843,300
through the LEEFF, bringing the total available financing to a maximum of $963,300. The credit facilities in place are
subject to certain conditions including requirements relating to minimum unrestricted cash and certain financial ratios
applicable once again as of October 30, 2023. In case of non-compliance, the maturity of the Corporation’s borrowings
could be accelerated. Management continues to assess its liquidity needs and the capital structure and is not ruling out any
options that could provide greater financial flexibility to the Corporation.

Given the gradual resumption of airline operations and the uncertainty with respect to a resurgence in demand, the
Corporation is exposed to the risk of being unable to honour its financial commitments by the deadlines set out under the
terms of such commitments and at a reasonable price. The Corporation has a Treasury Department in charge, among other
things, of ensuring sound management of available cash resources, financing and compliance with deadlines within the
Corporation’s scope of consolidation. With senior management’s oversight, the Treasury Department manages the
Corporation’s cash resources based on financial forecasts and anticipated cash flows. The Corporation has implemented
an investment policy designed to safeguard its capital and instrument liquidity and generate a reasonable return. The policy
sets out the types of allowed investment instruments, their concentration, acceptable credit rating and maximum maturity.

These condensed consolidated financial statements have been prepared on a going concern basis which assumes that the
Corporation will continue to be in operation for the foreseeable future and will be able to realize its assets and discharge
its liabilities, and meet its obligations in the normal course of business. These consolidated financial statements as at
October 31, 2022 do not include adjustments to the carrying value and classification of assets, liabilities and recorded
expenses that would otherwise be required if the going concern basis proved to be inappropriate. Such adjustments may
be significant.

Note 3

Significant accounting policies

Basis of preparation

These consolidated financial statements of the Corporation and its subsidiaries have been prepared in accordance with
International Financial Reporting Standards [“IFRS”], as issued by the International Accounting Standards Board [“IASB”]
and as adopted by the Accounting Standards Board of Canada.

These consolidated financial statements are presented in Canadian dollars, the Corporation’s functional currency, except
where otherwise indicated. Each entity of the Corporation determines its own functional currency and items included in
the financial statements of each entity are measured using that functional currency.

These consolidated financial statements have been prepared on a going concern basis, using historical cost accounting,
except for certain financial assets and liabilities classified as financial assets/liabilities at fair value through profit or loss
and measured at fair value.

Annual Report 2022 Transat A.T. inc. | 62

Transat A.T. inc.
Notes to Consolidated Financial Statements

Basis of consolidation

The consolidated financial statements include the financial statements of the Corporation and its subsidiaries.

Subsidiaries

Subsidiaries are entities over which the Corporation has control. Control is achieved where the Corporation has the power
to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Subsidiaries
are fully consolidated from the date of acquisition, being the date on which the Corporation obtains control, and continue
to be consolidated until the date when such control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries as follows:

•

Cost is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or
assumed at the date of exchange, excluding transaction costs which are expensed as incurred;

Identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date;

The excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as goodwill;

If the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net assets is
re-assessed and any remaining difference is recognized directly in the statement of income;

Contingent consideration is measured at fair value on the acquisition date, with subsequent changes in the fair
value recorded through the statement of income when the contingent consideration is a financial liability;

Upon gaining control in a step acquisition, the existing ownership interest is re-measured to fair value through the
statement of income; and

For each business combination including the non-controlling interest, the acquirer measures the non-controlling
interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.

The non-controlling interest, which represent the portion of net income and net assets in subsidiaries that are not 100%
owned by the Corporation, is reported separately within equity in the consolidated statement of financial position. The
non-controlling interest in respect of which shareholders hold an option entitling them to require the Corporation to buy
back their shares is reclassified from equity to liabilities, deeming exercise of the option. The carrying amount of the
reclassified interest is also adjusted to match its estimated redemption value. Any changes in the estimated redemption
value are recognized as equity transactions in retained earnings.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company and using
consistent accounting policies. All balances, transactions and unrealized gains and losses resulting from intragroup
transactions and all intragroup dividends are fully eliminated on consolidation.

Investment in a joint venture

A joint venture is an entity in which the parties that have joint control over the entity have rights to the net assets of
the entity.

The Corporation’s investment in a joint venture is accounted for using the equity method as follows:

•

Investment is initially recognized at cost;

Investment in an associate includes goodwill identified on acquisition, net of any accumulated impairment loss;

The Corporation’s share of post-acquisition net income (loss) is recognized in the statement of income and is also
added to (netted against) the carrying amount of the investment; and

Gains on transactions between the Corporation and the joint venture are eliminated to the extent of the
Corporation’s interest in this entity and losses are eliminated unless the transaction provides evidence of an
impairment of the asset transferred.

Annual Report 2022 Transat A.T. inc. | 63

Transat A.T. inc.
Notes to Consolidated Financial Statements

Foreign currency translation

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the functional
currency spot rate of exchange at the reporting date.

Foreign exchange gains and losses resulting from the settlement of such transactions as well as from the translation of
monetary assets and liabilities not denominated in the functional currency of the subsidiary are recognized in the
statement of income, except for qualifying cash flow hedges, which are deferred and presented as Unrealized gain (loss) on
cash flow hedges in Accumulated other comprehensive income (loss) in the statement of changes in equity.

Group companies

Assets and liabilities of entities with functional currencies other than the Canadian dollar are translated at the period-end
rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The
exchange differences arising from translation are recognized in Cumulative exchange differences in Accumulated other
comprehensive income (loss) in equity. On disposal of an interest, the exchange difference component relating to that
particular interest is recognized in net income.

Cash equivalents

Cash equivalents consist primarily of term deposits and bankers’ acceptances that are highly liquid and readily convertible
into known amounts of cash with initial maturities of less than three months.

Inventories

Inventories, consisting primarily of spare parts, supplies and fuel, are valued at the lower of cost, determined using the
first-in, first-out method, and net realizable value. Net realizable value is the estimated selling price in the normal course
of business less estimated costs to sell. Replacement cost may be indicative of net realizable value. Inventories are
presented net of the provision for impairment of inventories, if applicable. The Corporation did not record a provision for
impairment of inventories in 2022 and 2021.

Leases

The Corporation is party to leases, primarily for aircraft, aircraft engines, real estate and automotive equipment. At the
commencement date of the lease, the Corporation recognizes a right-of-use asset and a lease liability at the present value
of future lease payments, using the Corporation’s incremental borrowing rate. The Corporation has elected to separate
lease and non-lease components of lease agreements.

Initial measurement of lease liabilities includes fixed lease payments and variable lease payments that depend on an index
or a rate, during the non-cancellable period of the lease and for extension options reasonably certain to be exercised by
the Corporation. The initial value of lease liabilities is reduced by lease incentives receivable.

The initial value of right-of-use assets is obtained through the calculation of lease liabilities. Right-of-use assets are
recognized in accordance with IAS 16, Property, Plant and Equipment, and depreciated over the term of the lease.

The Corporation presents right-of-use assets under Property, plant and equipment and lease liabilities under Lease
liabilities in the consolidated statement of financial position. The current portion of lease liabilities is reported under
Current liabilities.

Variable lease payments that do not depend on an index or a rate are recognized as a lease expense in the consolidated
statement of income (loss) in the period during which the event or condition that triggers the payment occurs. Expenses
associated with lease payments under leases with terms of less than 12 months and low-value leases are recognized as
lease expenses in the consolidated statement of income (loss) on a straight-line basis over the term of the lease.

Annual Report 2022 Transat A.T. inc. | 64

Transat A.T. inc.
Notes to Consolidated Financial Statements

Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation and provision for impairment, if any.
Right-of-use assets under leases are recognized at the lower of the current value of future lease payments, using the
Corporation’s incremental borrowing rate and fair value.

Depreciation on property, plant and equipment with finite useful lives is calculated on a straight-line basis, unless
otherwise specified, and serves to write down the cost of the assets to their estimated residual value over their expected
useful lives as follows:

Leasehold improvements to leased aircraft Lease term or useful life
5–10 years or use
Aircraft equipment, including spare engines and rotable spare parts
3–10 years
Office furniture and equipment
10-20 years
Administrative building
Lease term or useful life
Right-of-use assets and leasehold improvements

Land and property, plant and equipment under construction or development are not depreciated.

Estimated residual values and useful lives are reviewed annually and adjusted as appropriate.

Right-of-use assets

For leased aircrafts, on initial recognition, right-of-use assets are broken down between the airframe and major
maintenance components. Eligible maintenance costs related to major maintenance components are capitalized and
depreciated over the shorter of the lease term or expected useful life. The total of these items is recorded under
Right-of-use assets related to the fleet. Subsequently, eligible maintenance costs over the lease term are capitalized and
depreciated over the shorter of the lease term or expected useful life.

The Corporation is party to real estate leases, in particular for offices, spaces in airports and travel agencies. Moreover, the
Corporation is party to equipment and aircraft engine leases, including automotive equipment. Right-of-use assets are
recognized in respect of such leases, except for leases with terms of less than 12 months and leases with substantial
substitution rights.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired at the
date of acquisition. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment
losses. For the purposes of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Corporation’s cash-generating units [“CGUs”] that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Intangible assets

Intangible assets are recorded at cost. The cost of intangible assets acquired in a business combination is recorded at fair
value as at the acquisition date. Internally generated intangible assets include developed or modified application software.
These costs are capitalized when the following criteria are met:

•

It is technically feasible to complete the software product and make it available for use;

Management intends to complete the software product and use it;

The Corporation has ability to use the software product;

It can be demonstrated how the software product will generate probable future economic benefits;

Adequate technical, financial and other resources to complete the development and use the software product
are available;

The expenditures attributable to the software product during its development can be reliably measured.

Annual Report 2022 Transat A.T. inc. | 65

Transat A.T. inc.
Notes to Consolidated Financial Statements

Costs that qualify for capitalization include both internal and external costs, but are limited to those that are directly
related to the specific project.

Following initial recognition, intangible assets are carried at cost less any accumulated depreciation and impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite useful lives are amortized on a straight-line basis over their respective useful economic lives,
as follows:

Software
Customer lists

3–10 years
7–10 years

Intangible assets with finite useful lives are assessed for impairment whenever there is an indication that the intangible
asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life
are reviewed at least annually and adjusted as appropriate.

Financial instrument

A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity
instrument of another party. Financial assets of the Corporation include cash and cash equivalents, cash and cash
equivalents in trust or otherwise reserved, trade and other receivables other than amounts receivable from the
government, deposits on leased aircraft and engines, and derivative financial instruments with a positive fair value.
Financial liabilities of the Corporation include trade and other payables other than amounts due to the government, long-
term debt, lease liabilities, liabilities related to warrants, and derivative financial instruments with a negative fair value.

Financial assets and financial liabilities, including derivative financial instruments, are initially measured at fair value.
Subsequent to initial recognition, financial assets and financial liabilities are measured based on their classification:
financial assets/liabilities at fair value through profit or loss, at fair value through other comprehensive income (loss), or at
amortized cost. The classification of financial assets is determined based on the business model under which risks are
managed and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified by default at
amortized cost except for derivative financial instruments. Derivative financial instruments, including embedded derivative
financial instruments that are not closely related to the host contract, are classified as financial assets or liabilities at fair
value through profit or loss unless they are designated within an effective hedging relationship; in that event, they are
classified as financial assets or liabilities at fair value through other comprehensive income (loss).

Classification of financial instruments

Financial assets and financial liabilities at fair value through profit or loss

Financial assets, financial liabilities and derivative financial instruments classified as financial assets or liabilities at fair
value through profit or loss are measured at fair value at the period-end date. Gains and losses realized on disposal and
unrealized gains and losses from changes in fair value are reflected in the consolidated statement of income (loss)
as incurred.

Financial assets and financial liabilities at fair value through other comprehensive income (loss)

Derivative financial instruments designated within an effective hedging relationship classified as financial assets or financial
liabilities at fair value through other comprehensive income (loss) are measured at fair value as at the reporting date.

Amortized cost

Financial assets and financial liabilities classified at amortized cost are measured at amortized cost using the effective
interest method.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Derivative financial instruments and hedge accounting

The Corporation uses derivative financial instruments to hedge against future foreign currency fluctuations in relation to its
lease payments, receipts of revenues from certain tour operators and disbursements pertaining to certain operating
expenses in foreign currencies. For hedge accounting purposes, the Corporation designates some of its foreign currency
derivatives as hedging instruments.

The Corporation formally documents all relationships between the hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedging transactions. This process includes linking all
derivative financial instruments to forecasted cash flows or to a specific asset or liability. The Corporation also formally
documents and assesses, both at the hedge’s inception and on an ongoing basis, whether the hedging instruments are
highly effective in offsetting the changes in the fair value or cash flows of the hedged items.

These derivative financial instruments are designated as cash flow hedges.

All derivative financial instruments are recorded at fair value in the consolidated statement of financial position. The
Corporation has defined a hedging ratio of 1:1 for its hedging relationships. For the derivative financial instruments
designated as cash flow hedges, changes in the fair value of the effective portion are recognized in Other comprehensive
income (loss) in the consolidated statement of comprehensive income. Any ineffective portion within a cash flow hedge is
recognized in net income (loss), as incurred, under Change in fair value of derivatives. Should the cash flow hedge cease to
be effective, previously unrealized gains and losses remain within Accumulated other comprehensive income (loss) as
Unrealized gain (loss) on cash flow hedges until the hedged item is settled, and future changes in value of the derivative
instrument are recognized in income prospectively. The change in value of the effective portion of a cash flow hedge
remains in Accumulated other comprehensive income (loss) as Unrealized gain (loss) on cash flow hedges until the related
hedged item is settled, at which time amounts recognized in Unrealized gain (loss) on cash flow hedges are reclassified to
the same consolidated statement of income (loss) account in which the hedged item is recognized.

The Corporation enters into foreign currency contract options and designates the intrinsic value of these contracts as cash
flow hedging on future purchases of foreign currencies. The time value of these options, including premiums paid, is
recognized in Other comprehensive income (loss) in the consolidated statement of comprehensive income (loss) for
effective hedging relationships. The time value of these options, including premiums paid, remains in Accumulated other
comprehensive income (loss) as “Unrealized gain (loss) on cash flow hedges” until the settlement of the underlying hedged
item, at which time the premiums paid accounted for under “Unrealized gain (loss) on cash flow hedges” are reclassified
under the same account in the consolidated statement of income (loss) than the underlying hedged item.

For derivative financial instruments designated as fair value hedges, periodic changes in fair value are recognized in the
same account in the consolidated statement of income (loss) as the hedged item.

Derivative financial instruments that do not qualify for hedge accounting

In the normal course of business, the Corporation also uses fuel-related derivatives to manage its exposure to unstable fuel
prices as well as foreign currency derivatives to offset the future risks of fluctuations in foreign currencies that have not
been designated for hedge accounting. These derivative financial instruments used for fuel purchases are measured at fair
value at the end of each period, and the unrealized gains or losses arising from remeasurement are recorded and reported
under Change in fair value of derivatives in the consolidated statement of income (loss). When realized, at maturity of fuel-
related derivative financial instruments, any gains or losses are reclassified to Aircraft fuel. When realized, at maturity of
foreign currency derivatives that do not qualify for hedge accounting, any gains or losses are reclassified to the same
consolidated statement of income (loss) account in which the hedged item is recognized.

It is the Corporation’s policy not to speculate on derivative financial instruments; accordingly, these instruments are
normally purchased for risk management purposes and held to maturity.

Transaction costs

Transaction costs related to financial assets and financial liabilities classified as financial assets or liabilities at fair value
through profit or loss are expensed as incurred. Transaction costs related to financial assets or to financial liabilities
classified at amortized cost are reflected in the carrying amount of the financial asset or financial liability and are then
amortized over the estimated useful life of the instrument using the effective interest method.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Fair value

The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to
quoted prices in an active market at the close of business on the reporting date. For financial instruments where there is
no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s
length market transactions, reference to the current fair value of another instrument that is substantially the same,
discounted cash flow analysis or other valuation models.

The Corporation categorizes its financial assets and liabilities measured at fair value into one of three different levels
depending on the observability of the inputs used in the measurement.

Level 1:

This level includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical
assets and liabilities in active markets accessible to the Corporation at the measurement date.

Level 2:

This level includes valuations determined using directly or indirectly observable inputs other than quoted
prices included within Level 1. Derivative instruments in this category are valued using models or other
industry standard valuation techniques derived from observable market inputs.

Level 3:

This level includes valuations based on inputs which are less observable, unavailable or where the observable
data does not support a significant portion of the instruments’ fair value.

Impairment of financial assets classified at amortized cost

The Corporation assesses at each reporting date whether there is any objective evidence that a financial asset or a group of
financial assets classified at amortized cost is impaired. A financial asset or a group of financial assets is deemed to be
impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset [an “incurred loss event”] and that incurred loss event has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can be reliably estimated. In addition, the Corporation
assesses expected credit losses related to its financial assets classified at amortized cost. Accordingly, the Corporation
must determine whether credit risk has increased significantly by comparing the risk of a default occurring on the asset as
at each reporting date with the risk of a default occurring on the asset as at the initial recognition date, taking into account
the information it has been able to obtain, including relevant forward-looking information. Impairment losses are
recognized through profit or loss. For Trade and other receivables, the Corporation applies the simplified approach
permitted by IFRS 9 which requires that full lifetime expected credit losses be recognized starting from initial recognition.

Impairment of non-financial assets

Intangible assets

Intangible assets with indefinite useful lives, such as trademarks, are tested for impairment annually and when
circumstances indicate that the carrying value may be impaired.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Reversal of impairment losses

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or have decreased. If such indication exists, the Corporation
estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has
been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was
recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount or
exceed the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss
been recognized for the asset in prior years. The reversal is recognized in the statement of income (loss). Impairment
losses relating to goodwill cannot be reversed in future periods.

Provisions

Provisions are recognized when the Corporation has a present, legal or constructive obligation as a result of a past event, it
is probable that an outflow of resources will be required to settle the obligation and the cost can be reliably estimated.
Provisions are measured at their present value.

Provision for return conditions

Aircraft- and equipment-related leases contain obligations arising from the conditions under which the assets must be
returned to the lessor on expiry of the lease [the “return conditions”]. The Corporation records a provision arising from the
return conditions of leased aircraft and engines upon commencement of the lease based on the degree of use until
maintenance is performed to meet the return condition or until expiry of the lease. The provision is adjusted to reflect any
change in the related maintenance expenses anticipated and the significant accounting estimates and judgments used;
these changes are accounted for under “Aircraft maintenance” in the consolidated statement of income (loss) in the period
during which they are incurred. The provision is discounted using the risk-free pre-tax Canadian government bond rate as
at the reporting date for a term equal to the average remaining term to maturity before the related cash outflow.

Employee future benefits

The Corporation offers defined benefit pension arrangements to certain senior executives. Pension expense is based on
actuarial calculations performed annually by independent actuaries using the projected unit credit method. The
determination of benefit expense requires assumptions such as the discount rate to measure obligations, expected
mortality and expected rate of future compensation. Actual results will differ from estimated results based on
assumptions. The vested portion of past service cost arising from plan amendments is recognized immediately in the
statement of income (loss). The unvested portion is amortized on a straight-line basis over the average remaining period
until the benefits vest.

The liability recognized in the consolidated statement of financial position is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized
past service costs. The present value of the defined benefit obligation is determined by discounting the estimated future
cash outflows using interest rates of high-quality corporate bonds that have terms to maturity approximating the term of
the related pension liability. All actuarial gains and losses that arise in calculating the present value of the defined benefit
obligation and the fair value of plan assets are recognized immediately in Retained earnings and included in the statement
of comprehensive income (loss).

Contributions to defined contribution pension plans are expensed as incurred, which is as the related employee service
is rendered.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Revenue recognition

The Corporation recognizes revenue when it satisfies the performance obligation, that is, when the service is transferred
to the customer and the customer obtains control of that service. Amounts received from customers for services not yet
rendered, including amounts received from customers for trips that had to be cancelled and for which the Corporation has
issued travel credits, are included in current liabilities as Customer deposits and deferred revenues.

Revenue from contracts with customers includes revenue from passenger air transportation, revenue from the land portion
of holiday packages and commission revenue from travel agencies. Revenue from passenger air transportation is
recognized when such transportation is provided. Revenue from the land portion of holiday packages includes hotel
services, among others, and the related costs are recognized when the corresponding services are rendered over the
course of the stay. Commission revenue from travel agencies is recognized when passengers depart.

Other revenue includes, among others, aircraft subleasing, cargo and franchising revenue.

Revenue for which the Corporation provides multiple services, such as air transportation, hotel and travel agency services,
is recognized once the service is provided to the customer based on the Corporation’s accounting policy for revenue
recognition. These different services are considered as separate units of accounting, as each service has value to the
customer on a stand-alone basis, and the selling price is allocated using the expected cost plus a reasonable market
margin approach.

Breakdown of revenue from contracts with customers

The Corporation has determined that it conducts its activities in a single industry segment, namely holiday travel. With
respect to geographic areas, the Corporation operates mainly in the Americas, and serves two main programs that also
represent its two main product lines: the transatlantic program and the Americas program, which includes the sun
destinations program.

Contract balances

Contract balances with customers are included in Trade and other receivables, Prepaid expenses and Customer deposits
and deferred revenues in the consolidated statement of financial position. Trade accounts receivable included under Trade
and other receivables comprise receivables related to passenger air transportation, the land portion of holiday packages
and commissions. Payment is generally received before services are provided, but some tour operators make payments
after services are provided. Amounts receivable from credit card processors are included in Trade and other receivables.
Contract assets in Prepaid expenses include additional costs incurred to earn revenue from contracts with customers,
consisting of hotel room costs, costs related to the worldwide distribution system and credit card fees. These costs are
capitalized upon payment and expensed when the related revenue is recognized. Customer deposits and deferred revenues
represent amounts received from customers for services not yet provided.

Given that contracts with customers have a duration of one year or less, the Corporation applies the practical expedient
set forth in paragraph 121 of IFRS 15, Revenue from Contracts with Customers, under which no information is disclosed
about the remaining performance obligations that are part of a contract that has a duration of one year or less.

Government grants

When there is reasonable assurance that grant-related conditions will be met and grants will be received, the Corporation
recognizes income-related government grants as deduction from the related expenses.

The difference between the fair value of drawdowns under the unsecured credit facility related to travel credits and their
nominal value was recognized as Deferred government grant at the time of the drawdown. The proceeds from the deferred
government grant are recognized on the consolidated statement of income (loss) as a reduction of the corresponding
financing costs using the effective interest method.

Income Taxes

The Corporation provides for income taxes using the liability method. Under this method, deferred tax assets and liabilities
are calculated based on differences between the carrying value and tax basis of assets and liabilities and measured using
substantively enacted tax rates and laws expected to be in effect when the differences reverse.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Deferred tax assets and liabilities are recognized directly through profit or loss, other comprehensive income (loss), or
equity based on the classification of the item to which they relate.

Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all
deductible temporary differences, carryforwards of unused tax credits and unused tax losses, to the extent that it is
probable that taxable income will be available against which the deductible temporary differences, and the carryforwards
of unused tax credits and unused tax losses can be utilized.

Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current
tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Share-based payment plans

The Corporation offers to certain employees' various equity-settled and cash-settled share-based compensation plans
under which it receives services from employees.

Equity-settled transactions

For equity-settled share-based compensation (stock option plan and performance share unit plan), including share-based
payment transactions with a net settlement feature to satisfy withholding tax obligations, the compensation expense is
based on the grant date fair value of the share-based awards expected to vest over the period in which the performance
and/or service conditions are fulfilled, with a corresponding increase in the share-based payment reserve. Compensation
expense related to the stock option plan is calculated using the Black-Scholes model, whereas the performance share unit
expense is measured based on the closing price of the shares of the Corporation on the Toronto Stock Exchange at the
grant date adjusted to take into account the terms and conditions upon which the units were granted. For awards with
graded vesting, the fair value of each tranche is recognized through profit or loss over its respective vesting period. Any
consideration paid by employees on exercising these awards and the corresponding portion previously credited to the
share-based payment reserve are credited to share capital.

Cash-settled transactions

For cash-settled share-based compensation [deferred share unit plan and restricted share unit plan], the expense is
determined based on the fair value of the liability at the end of the reporting period until the award is settled. The value of
the compensation is measured based on the closing price of the shares of the Corporation on the Toronto Stock Exchange
adjusted to take into account the terms and conditions upon which the units were granted, and is based on the units that
are expected to vest. The expense is recognized over the period in which the performance or service conditions are
satisfied. At the end of each reporting period, the Corporation re-assesses its estimates of the number of awards that are
expected to vest and recognizes the impact of the revisions through profit or loss.

Employee share purchase plans

The Corporation’s contributions to the employee share purchase plans [stock ownership incentive and capital
accumulation plan and permanent stock ownership incentive plan] consist of shares acquired in the marketplace by the
Corporation. These contributions are measured at cost and are recognized over the period from the acquisition date to the
date that the award vests to the participant. Any consideration paid by the participant to purchase shares under the share
purchase plan is credited to share capital.

Earnings per share

Basic earnings per share is computed based on net income (loss) attributable to shareholders of the Corporation, divided
by the weighted-average number of Class A Variable Voting Shares and Class B Voting Shares outstanding during the year.

Diluted earnings per share is calculated by adjusting net income (loss) attributable to shareholders of the Corporation for
any changes in income or expense that would result from the exercise of dilutive elements. The weighted-average number
Class A Variable Voting Shares and Class B Voting Shares outstanding is increased by the weighted-average number of
additional Class A Variable Voting Shares and Class B Voting Shares that would have been outstanding assuming the exercise
of all dilutive elements.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Changes in accounting policies

Interbank Offered Rates [“IBOR”] Reform - Phase 2

Demand Deposits with Restrictions on Use Arising from a Contract with a Third Party (IAS 7, Statement of Cash
Flows)

The application of this agenda decision did not have any impact on the Corporation's consolidated financial statements.

Annual Improvements to IFRS Standards 2018-2020 - IFRS 9, Financial Instruments

The Corporation has elected to early adopt this amendment. The application of this amendment did not have a significant
impact on the Corporation's consolidated financial statements.

Amendments to IAS 1 Presentation of Financial Statements

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 4

Significant accounting estimates and judgments

The preparation of consolidated financial statements requires management to make estimates and judgments about the
future. Estimates and judgments are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. However, accounting
estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability
affected in future periods.

Impact of COVID-19 pandemic on significant accounting estimates and judgments.

Amortization and impairment of non-financial assets

Depreciation of property, plant and equipment

Impairment of non-financial assets

Impairment exists when the carrying amount of an asset or CGU, in the case of goodwill, exceeds its recoverable amount,
which is the higher of fair value less costs to sell the asset or CGU and value in use. To identify CGUs, management has to
take into account the contributions made by each subsidiary and the inter-relationships among them in light of the
Corporation’s vertical integration and the goal of providing a comprehensive offering of tourism services in the markets
served by the Corporation. The fair value less costs to sell calculation is based on available data from arm’s length
transactions for similar assets or observable market prices less incremental costs to sell. The value in use calculation is
based on a discounted cash flow model. Cash flows are derived from the budget or financial forecasts for the next five
fiscal years, that were approved by the Corporation’s Board of Directors, and do not include restructuring activities that
the Corporation is not yet committed to or significant future investments that will enhance the performance of the asset of
the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow
model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

As at October 31, 2022, the Corporation has determined that the significant declines in revenues and demand due to the
COVID-19 pandemic are indications of impairment of its CGUs. Accordingly, the Corporation performed a new impairment
test on its CGUs. The recoverable amount of CGUs was determined based on their useful value, applying a discounted cash
flow model. This model is based on Level 3 inputs within the fair value hierarchy. Cash flows are derived from the financial
forecasts for the next four fiscal years, based on the Corporation's 2022–2026 strategic plan and the 2023 budget, which
are consistent with management’s best estimates and have been approved by the Board of Directors, and take into account
current and expected market conditions, including the impact of the COVID-19 pandemic. The Corporation has used
various assumptions in the preparation of these projections, which are by their nature uncertain and may change
unpredictably; accordingly, it is possible that these projections will not be achieved, particularly if demand remains at
lower-than-expected levels and travel restrictions persist over time.

The significant assumptions used in the impairment test are as follows:

–

An average discount rate of 15.70% [14.75% in 2021], which is the Corporation’s weighted average capital cost. This rate
was determined taking into account a number of factors such as the risk-free interest rate, the required return on
equity investments, risk factors specific to the air transportation industry and risk factors specific to the
Corporation’s CGUs;

A long-term growth rate of 2.0% beyond the 5-year period [2.0% in 2021], based on the Bank of Canada’s target
inflation rate;

A per gallon fuel price between US$2.24 and US$3.79 [between US$1.93 and US$2.53 in 2021], based on management's
best estimates.

Impairment tests of the land held in Mexico and the investment in a joint venture were performed separately from the test
performed on the Corporation’s CGUs. Given that various assumptions are used in determining impairment charges, some
inherent measurement uncertainty exists regarding such charges. Actual results will differ from estimated results based on
assumptions.

Discount rate of lease liabilities

Provision for return conditions

Liability related to warrants

Due to the existence of settlement mechanisms on a net cash or share basis, the warrants are recorded as derivative
financial instruments in the Corporation’s liabilities. As at the issuance date, the liability related to warrants, totalling
$51,283, was valued using the Black-Scholes model. The initial fair value of the warrants was also recorded under other
assets as a deferred financing cost related to the unsecured debt – LEEFF.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Employee future benefits

The cost of defined benefit pension plans and other post-employment benefits and the present value of the associated
obligations are determined using actuarial valuations. These actuarial valuations require the use of assumptions such as the
discount rate to measure obligations, expected mortality and expected rate of future compensation. Given that various
assumptions are used in determining the cost and obligations associated with employee future benefits, the actuarial
valuation process involves some inherent measurement uncertainty. Actual results will differ from estimated results based
on assumptions.

Taxes

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax legislation and the amount
and timing of future taxable income. Given the Corporation’s wide range of international business relationships,
differences arising between actual results and the assumptions made, or future changes in such assumptions, could give
rise to future adjustments in the amounts of income taxes previously reported. Such interpretive differences may arise in a
variety of areas depending on the conditions specific to the respective tax jurisdiction of the Corporation’s subsidiaries.
The Corporation establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax
authorities of the respective countries in which it operates. The amount of such provisions is based on various factors,
such as experience of previous tax audits and interpretations of tax regulations by the taxable entity and the responsible
tax authority.

Deferred income tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will
be available against which the losses can be utilized. Significant judgment is required by management to determine the
amount of deferred income tax assets that can be recognized, based upon the likely timing and the level of future taxable
income together with future tax planning strategies.

Due to the adverse impact of the COVID-19 pandemic on its results, the Corporation ceased to recognize deferred tax
assets of its Canadian subsidiaries and reduced the carrying amount of deferred tax asset balances for which it was no
longer able to justify recognition under IFRS. The Corporation measured the available indicators to determine whether
sufficient taxable income could be realized to utilize the existing deferred tax assets. As discussed in Note 2, due to the
COVID-19 pandemic, the losses generated during the year ended October 31, 2022 and previous fiscal years and the
uncertainty related to the timing of the return of demand for leisure travel are adverse indications that deferred tax assets
may be realized. For the years ended October 31, 2022 and 2021, these adverse indications outweighed the historical
favourable indications and the Corporation did not record any deferred tax assets for its Canadian subsidiaries during the
year ended October 31, 2022. The tax deductions underlying these deferred tax assets remain available for future use
against taxable income.

Note 5

Cash and cash equivalents in trust or otherwise reserved

As at October 31, 2022, cash and cash equivalents in trust or otherwise reserved included $319,162 [$128,154 as at
October 31, 2021] in funds received from customers, primarily Canadians, for services not yet rendered or for which the
restriction period had not ended, in accordance with Canadian regulators and the Corporation’s business agreements with
certain credit card processors. Cash and cash equivalents in trust or otherwise reserved also included an amount of
$56,395, $31,273 of which was recorded as non-current assets [$42,157 as at October 31, 2021, $30,728 of which was
recorded as non-current assets], which was pledged as collateral security against letters of credit.

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Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 6

Trade and other receivables

Credit card processors receivables
Government receivables

Trade receivables

Cash receivable from lessors

Other receivables

2022
$

196,894

31,179

9,497

9,959

17,521

2021
$

77,733

13,111

9,775

1,610

6,628

265,050

108,857

Government receivables as at October 31, 2022 did not include any wage subsidy amounts related to the Tourism and
Hospitality Recovery Program ("THRP") or the Hardest-Hit Business Recovery Program ("HHBRP") [Government receivables
as at October 31, 2021 included a wage subsidy of $1,296 related to the Canada Emergency Wage Subsidy ("CEWS")]. The
THRP and the HHBRP [Note 19] expired on May 7, 2022.

Note 7

Financial instruments

Classification of financial instruments

The classification of financial instruments and their carrying amounts and fair values are detailed as follows:

As at October 31, 2022
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust or
otherwise reserved
Trade and other receivables
Deposits on leased aircraft and engines
Derivative financial instruments
- Fuel-related derivatives
- Foreign currency derivatives
- Prepayment option

Financial liabilities
Trade and other payables
Derivative financial instruments

- Foreign currency derivatives

Long-term debt
Liability related to warrants

Carrying amount

Fair value
through other
comprehensive

income Amortized cost
$

Total
$

Fair value
$

Fair value
through net
income
$

322,535

375,557
—
—

4,339
7,600
128
710,159

—

6,209
—
24,360
30,569

—

—
—
—

—
—
—
—

—

—
—
—
—

—

322,535

—
233,871
37,920

—
—
—
271,791

375,557
233,871
37,920

4,339
7,600
128
981,950

375,557
233,871
37,920

4,339
7,600
128
981,950

277,319

—
664,288
—
941,607

6,209
664,288
24,360
972,176

6,209
654,954
24,360
962,842

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Transat A.T. inc.
Notes to Consolidated Financial Statements

As at October 31, 2021
Financial assets
Cash and cash equivalents
Cash and cash equivalents in trust or
otherwise reserved
Trade and other receivables
Deposits on leased aircraft and engines
Derivative financial instruments

- Prepayment option

Financial liabilities
Trade and other payables
Long-term debt
Liability related to warrants

Carrying amount

Fair value
through other
comprehensive

income Amortized cost
$

Total
$

Fair value
$

Fair value
through net
income
$

433,195

170,311
—
—

1,377
604,883

—
—
36,557
36,557

—

—
—
—

—
—

—
—
—
—

—

433,195

—
95,746
33,926

170,311
95,746
33,926

—
129,672

1,377
734,555

131,009
464,557
—
595,566

131,009
464,557
36,557
632,123

131,009
466,557
36,557
634,123

Determination of fair value of financial instruments

The fair value of financial instruments is the amount for which the instrument could be exchanged between knowledgeable,
willing parties in an arm’s length transaction. The following methods and assumptions were used to measure fair value:

The fair value of cash and cash equivalents, in trust or otherwise reserved or not, trade and other receivables, and
accounts payable and accrued liabilities approximates their carrying amount due to the short-term maturity of these
financial instruments.

The fair value of deposits on leased aircraft and engines approximates their carrying amount given that they are subject to
terms and conditions similar to those available to the Corporation for instruments with comparable terms.

The fair value of derivative financial instruments related to fuel or currencies is measured using a generally accepted
valuation method, i.e., by discounting the difference between the value of the contract at expiration determined according
to contract price or rate and the value of the contract at expiration determined according to contract price or rate that the
financial institution would have used had it renegotiated the same contract under the same conditions at the current date.
The Corporation also factors in the financial institution’s credit risk when determining the value of financial assets and its
own credit risk when determining the value of financial liabilities.

The fair value of the pre-payment option related to the unsecured debt – LEEFF was determined using a trinomial tree
approach based on the Hull-White model [Note 14].

The fair value of long-term debt is measured using a generally accepted valuation method, i. e., by discounting long-term
debt-related cash outflows based on the prevailing market interest rate for similar debt, taking into account guarantees,
current credit market conditions and the Corporation’s credit risk.

The fair value of the liability related to warrants was measured using the Black-Scholes model [Note 15].

Annual Report 2022 Transat A.T. inc. | 77

Transat A.T. inc.
Notes to Consolidated Financial Statements

The following table details the fair value hierarchy of financial instruments by level:

Quoted prices
in active
markets
(Level 1)
$

Other
observable
inputs
(Level 2)
$

Unobservable
inputs
(Level 3)
$

As at October 31, 2022
Financial assets
Derivative financial instruments
- Fuel-related derivatives
- Foreign currency derivatives
- Prepayment option

Financial liabilities
Derivative financial instruments

- Foreign currency derivatives

Liability related to warrants

As at October 31, 2021
Financial assets
Derivative financial instruments

- Prepayment option

Financial liabilities
Liability related to warrants

Non-controlling interest

Total
$

4,339
7,600
128
12,067

—
—
—
—

—
—
—

4,339
7,600
—
11,939

—
—
128
128

6,209
—
6,209

—
24,360
24,360

6,209
24,360
30,569

Quoted prices
in active
markets
(Level 1)
$

Other
observable
inputs
(Level 2)
$

Unobservable
inputs
(Level 3)
$

—
—

1,377
1,377

36,557
36,557

Total
$

1,377
1,377

36,557
36,557

On May 31, 2021, following a mutual agreement between the two parties, the Corporation acquired the 30% interest held
by the minority shareholder of Trafictours, Canada inc. ["Trafictours"], thereby increasing its interest to 100%. Trafictours
is an incoming tour operator that offers excursions and other services to travellers vacationing in Mexico, the Dominican
Republic and Jamaica. The purchase price amounted to $24,500, which is lower than the amount of $37,800 recorded in
the Corporation’s consolidated financial statements as at October 31, 2020, $15,000 of which was paid on May 31, 2021.
The balance of $9,500, included in Trade and other payables as at October 31, 2022, was settled on November 2, 2022.

Up to May 31, 2021, the minority shareholder of the subsidiary Trafictours could require that the Corporation purchase its
Trafictours shares at a price equal to a pre-determined formula, subject to adjustment according to the circumstances,
payable in cash.

Annual Report 2022 Transat A.T. inc. | 78

Transat A.T. inc.
Notes to Consolidated Financial Statements

The change in the non-controlling interest is as follows:

Balance, beginning of year
Net income
Other comprehensive loss
Change in fair value of non-controlling interest
Buyback of non-controlling interest

2022
$
—
—
—
—
—
—

2021
$
37,800
121
(4,008)
(9,413)
(24,500)
—

Management of risks arising from financial instruments

In the normal course of business, the Corporation is exposed to credit and counterparty risk, liquidity risk and market risk
arising from changes in certain foreign exchange rates, changes in fuel prices and changes in interest rates. The
Corporation manages these risk exposures on an ongoing basis. In order to limit the effects of changes in foreign exchange
rates, fuel prices and interest rates on its revenues, expenses and cash flows, the Corporation may use various derivative
financial instruments. The Corporation’s management is responsible for determining the acceptable level of risk and only
uses derivative financial instruments to manage existing or anticipated risks, commitments or obligations based on its past
experience.

Credit and counterparty risk

Trade accounts receivable included under Trade and other receivables in the consolidated statement of financial position
totalled $9,497 as at October 31, 2022 [$9,775 as at October 31, 2021]. Trade accounts receivable consist of balances
receivable from a large number of customers, including travel agencies. Trade accounts receivable generally result from the
sale of vacation packages to individuals through travel agencies and the sale of seats to tour operators dispersed over a
wide geographic area. No customer represented more than 10% of total accounts receivable as at October 31, 2022 and
2021. As at October 31, 2022, approximately 14% [approximately 11% as at October 31, 2021] of accounts receivable were
over 90 days past due, whereas approximately 78% [approximately 85% as at October 31, 2021] were current, that is, under
30 days. Historically, the Corporation has not incurred any significant losses in respect of its trade receivables. Therefore,
the allowance for doubtful accounts at the end of each period and the change recorded for each period is insignificant.

Receivables from two credit card processors totalled $196,894 [$77,733 as at October 31, 2021]. The credit risk for these
receivables is negligible.

Pursuant to certain agreements entered into with its service providers, primarily hotel operators, the Corporation pays
deposits to capitalize on special benefits, including pricing, exclusive access and room allotments. These deposits totalled
$28,140 as at October 31, 2022 [$7,471 as at October 31, 2021]. These deposits are offset by purchases of person-nights at
these hotels and purchases from suppliers. Risk arises from the fact that these hotels might not be able to honour their
obligations to provide the agreed number of person-nights and that the suppliers might not be able to provide the required
services. The Corporation strives to minimize its exposure by limiting deposits to only those hotel operators and suppliers
that are recognized and reputable in the relevant markets. These deposits are spread across a large number of hotels and
suppliers and, historically, the Corporation has not been required to write off a considerable amount for its deposits with
suppliers.

Under the terms of its aircraft and engine leases, the Corporation pays deposits when aircraft and engines are
commissioned, particularly as collateral for remaining
lease payments. These deposits totalled $37,920 as at
October 31, 2022 [$33,926 as at October 31, 2021] and are returned as leases expire. The Corporation is also required to
pay cash security deposits to lessors over the lease term to guarantee the serviceable condition of aircraft. Cash security
deposits with lessors are generally returned to the Corporation upon receipt of documented proof that the related
maintenance has been performed by the Corporation. As at October 31, 2022, the cash security deposits with lessors that
have been claimed totalled $9,959 [$1,610 as at October 31, 2021] and are included in Trade and other receivables.
Historically, the Corporation has not written off any significant amount of deposits and claims for cash security deposits
with aircraft and engine lessors. The credit risk for these receivables is negligible.

Annual Report 2022 Transat A.T. inc. | 79

Transat A.T. inc.
Notes to Consolidated Financial Statements

For financial institutions including the various counterparties, the maximum credit risk as at October 31, 2022 relates to
cash and cash equivalents, including cash and cash equivalents in trust or otherwise reserved, and derivative financial
instruments accounted for in assets. These assets are held or traded with a limited number of financial institutions and
other counterparties. The Corporation is exposed to the risk that the financial institutions and other counterparties with
which it holds securities or enters into agreements could be unable to honour their obligations. The Corporation minimizes
risk by entering into agreements with only large financial institutions and other large counterparties with appropriate credit
ratings. The Corporation’s policy is to invest solely in products that are rated R1-Mid or better (by Dominion Bond Rating
Service [“DBRS”]), A2 (by Standard & Poor’s) or P2 (by Moody’s) and rated by at least two rating firms. Exposure to these
risks is closely monitored and maintained within the limits set out in the Corporation’s various policies. The Corporation
revises these policies on a regular basis.

The Corporation does not believe it was exposed to a significant concentration of credit risk as at October 31, 2022.

Liquidity risk

The Corporation is exposed to the risk of being unable to honour its financial commitments by the deadlines set out under
the terms of such commitments and at a reasonable price [see Note 2]. The Corporation has a Treasury Department in
charge, among other things, of ensuring sound management of available cash resources, financing and compliance with
deadlines within the Corporation’s scope of consolidation. With senior management’s oversight, the Treasury Department
manages the Corporation’s cash resources based on financial forecasts and anticipated cash flows. The Corporation has
implemented an investment policy designed to safeguard its capital and instrument liquidity and generate a reasonable
return. The policy sets out the types of allowed investment instruments, their concentration, acceptable credit rating and
maximum maturity.

The maturities of the Corporation’s financial liabilities as at October 31, 2022 are summarized in the following table,
excluding lease liabilities, which are disclosed in Note 14:

Maturing in
under 1 year
$

Accounts payable and accrued liabilities
Long-term debt
Derivative financial instruments
Liability related to warrants
Total

277,319
25,220
6,500
16,799
325,838

Maturing in
1 to 2 years
$
—
215,783
—
7,561
223,344

Maturing in
2 to 5 years
$
—
443,261
—
—
443,261

Maturing in
5 years and up
$
—
355,377
—
—
355,377

Total
contractual
cash flows
$

277,319
1,039,641
6,500
24,360
1,347,820

Total
carrying
amount
$
277,319
664,288
6,209
24,360
972,176

Market risk

Foreign exchange risk

The Corporation is exposed to foreign exchange risk, primarily as a result of its many arrangements with foreign-based
suppliers, lease liabilities, fuel purchases, long-term debt and revenues in foreign currencies, and fluctuations in exchange
rates mainly with respect to the U.S. dollar, the euro and the pound sterling against the Canadian dollar and the euro, as
applicable. Approximately 66% of the Corporation’s costs were incurred in a currency other than the measurement
currency of the reporting unit incurring the costs, whereas approximately 21% of revenues were earned in a currency other
than the measurement currency of the reporting unit making the sale. To safeguard the value of commitments and
anticipated transactions, the Corporation has a foreign currency risk management policy that authorizes the use of certain
types of derivative financial instruments related to foreign currencies based on anticipated foreign exchange rate trends,
expiring in generally less than 18 months. During fiscal 2022, the Corporation resumed the use of foreign currency
derivatives to mitigate exchange rate fluctuations.

Annual Report 2022 Transat A.T. inc. | 80

Transat A.T. inc.
Notes to Consolidated Financial Statements

Expressed in Canadian dollars, the net financial assets and net financial liabilities of the Corporation and its subsidiaries
denominated in currencies other than their financial statement measurement currency as at October 31, based on their
financial statement measurement currency, are summarized in the following tables:

Net assets (liabilities)

2022
Financial statement measurement
currency of the group’s companies
U.S. dollar
Pound sterling
Canadian dollar
Other currencies
Total

U.S. dollar
$

Euro
$

Pound
sterling
$

Canadian
dollar
$

Other
currencies
$

Total
$

—
255
(1,046,906)
(1,592)
(1,048,243)

—
88
28,230
6
28,324

—
—
22,501
—
22,501

19
3,144
—
—
3,163

(1,816)
—
(210)
1,226
(800)

(1,797)
3,487
(996,385)
(360)
(995,055)

For the year ended October 31, 2022, a 1% rise in the Canadian dollar against the other currencies, assuming that all other
variables had remained the same, would have resulted in a $9,353 decrease in the Corporation’s net loss for the year,
whereas other comprehensive loss would have decreased by $90. Conversely, a 1% fall in the Canadian dollar against the
other currencies, assuming that all other variables had remained the same, would have resulted in a $6,204 increase in the
Corporation’s net loss for the year, whereas other comprehensive loss would have increased by $90. Taking the U.S. dollar
individually for the sensitivity analysis, the impact on the Corporation’s net loss for the year would have resulted in a
decrease of $9,401 had the Canadian dollar strengthened or an increase of $6,253 had it weakened. Also, for sensitivity
analysis purposes, the impact of any other single currency on the Corporation’s net loss would not be material.

As at October 31, 2022, 31% of estimated requirements for fiscal 2023 were covered by foreign exchange derivatives [none
of the estimated requirements for fiscal 2022 were covered by foreign exchange derivatives as at October 31, 2021].

Risk of fluctuations in fuel prices

For the year ended October 31, 2022, a 10% increase or decrease in fuel prices, assuming that all other variables had
remained the same, would have resulted in a $4,410 decrease or increase in the Corporation’s net loss.

As at October 31, 2022, 24% of estimated requirements for fiscal 2023 were covered by fuel-related derivatives [none of
the estimated requirements for fiscal 2022 were covered by fuel-related derivatives as at October 31, 2021].

Interest rate risk

Furthermore, interest rate fluctuations could have an effect on the Corporation’s interest income derived from its cash
and cash equivalents.

For the year ended October 31, 2022, a 25-basis point increase or decrease in interest rates, assuming that all other
variables had remained the same, would have resulted in a $327 increase or decrease in the Corporation’s net loss.

Annual Report 2022 Transat A.T. inc. | 81

Transat A.T. inc.
Notes to Consolidated Financial Statements

Capital risk management

The Corporation’s capital management objectives are first to ensure the longevity of the Corporation so as to support its
continued operations, provide its shareholders with a return, generate benefits for its other stakeholders and maintain the
most optimal capitalization possible with a view to keeping capital costs to a minimum.

The Corporation manages its capitalization in accordance with changes in economic conditions. In order to maintain or
adjust its capitalization, the Corporation may elect to declare dividends to shareholders, return capital to its shareholders
and repurchase its shares in the marketplace or issue new shares. The Corporation uses non-IFRS financial ratios to
evaluate its capitalization. These ratios are described in the following paragraphs.

Since October 31, 2021, the Corporation monitors its capitalization using the total net debt/total capitalization ratio, with a
long-term target of less than 50%. This ratio is calculated by dividing total net debt by total capitalization, which is the sum
of total net debt and market capitalization. Total net debt is equal to the aggregate of long-term debt, lease obligations,
liability related to warrants and deferred government grant less deferred financing costs and cash and cash equivalents (not
held in trust or otherwise reserved). Although commonly used, this measure does not reflect the fair value of leases as it
does not take into account current rates for similar obligations with similar terms and risks. The calculation of the total net
debt/total capitalization is summarized as follows:

Total net debt
Long-term debt
Deferred government grant
Liability related to warrants
Deferred financing costs
Lease liabilities
Cash and cash equivalents

Number of outstanding shares (in thousands)
Closing share price
Market capitalization
Total net debt
Total capitalization
Total net debt/Total capitalization ratio

2022
$

2021
$

664,160
169,025
24,360
(12,552)
1,087,908
(322,535)
1,610,366
38,012
2.60
98,831
1,610,366
1,709,197

463,180
167,394
36,557
(19,368)
956,358
(433,195)
1,170,926
37,747
4.39
165,709
1,170,926
1,336,635

94.2 %

87.6 %

The Corporation’s credit facilities are subject to certain covenants including a ratio related to adjusted operating results
and a minimum level of cash and cash equivalents. These ratios are monitored by management and submitted to the
Corporation’s Board of Directors on a quarterly basis. As at October 31, 2022, the Corporation benefited from a temporary
suspension of these ratios by its lenders up to October 29, 2023. Except for the credit facility covenants, the Corporation
is not subject to any third-party capital requirements.

Note 8

Deposits

Maintenance deposits with lessors
Deposits on leased aircraft and engines
Deposits with suppliers

Less current portion

2022
$

135,563
37,920
28,140
201,623
29,392
172,231

2021
$
80,777
33,926
7,471
122,174
10,130
112,044

Annual Report 2022 Transat A.T. inc. | 82

Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 9

Property, plant and equipment

Leasehold
improvements
Fleet
$

Aircraft
equipment
$

Office
furniture
and
equipment
$

Land, building
and leasehold
improvements
$

Right of use
Fleet
$

Right of use
Real estate
and other
$

Total
$

117,118
537
(4,585)
(7,159)
—
—

135,486
7,605
(36)
(2)
(783)
—

57,193
4,646
(815)
(14,302)
—
121

78,684 1,300,068
158,425
(32,358)
(10,765)
—
—

19
(229)
(20,189)
—
4,924

122,450 1,810,999
172,233
(41,029)
(61,417)
(783)
5,049

1,001
(3,006)
(9,000)
—
4

105,911

142,270

46,843

63,209

1,415,370

111,449 1,885,052

67,277
8,115
(4,585)
(7,159)
—

78,803
7,611
(36)
(2)
—

43,180
4,506
(663)
(14,302)
121

30,168
1,680
(229)
(20,189)
104

539,787
118,148
(29,028)
(10,765)
—

77,555 836,770
146,347
6,287
(37,027)
(2,486)
(61,417)
(9,000)
228
3

63,648

86,376

32,842

11,534

618,142

72,359 884,901

42,263

55,894

14,001

51,675

797,228

39,090 1,000,151

Cost
Balance as at
October 31, 2021
Additions
Disposals
Write-offs
Depreciation
Exchange difference
Balance as at
October 31, 2022

Accumulated depreciation
Balance as at
October 31, 2021
Depreciation
Disposals
Write-offs
Exchange difference
Balance as at
October 31, 2022
Net book value as at
October 31, 2022

Annual Report 2022 Transat A.T. inc. | 83

Transat A.T. inc.
Notes to Consolidated Financial Statements

Leasehold
improvements
Fleet
$

Aircraft
equipment
$

Office
furniture
and
equipment
$

Land, building
and leasehold
improvements
$

Right of use
Fleet
$

Right of use
Real estate
and other
$

Total
$

162,773
3,160
(46,562)
(69)
(2,184)
—

136,183
713
(790)
(620)
—
—

58,649
580
(174)
(1,741)
—
(121)

82,966
—
—
(773)
—
(3,509)

1,457,559
241,754
(379,552)
(12,760)
(6,933)
—

148,971 2,047,101
432 246,639
(446,531)
(23,058)
(9,117)
(4,035)

(19,453)
(7,095)
—
(405)

117,118

135,486

57,193

78,684

1,300,068

122,450 1,810,999

102,260
10,808
(45,722)
(69)
—

71,272
8,850
(699)
(620)
—

39,844
5,225
(60)
(1,741)
(88)

29,591
1,394
—
(773)
(44)

806,496
117,268
(371,217)
(12,760)
—

81,256 1,130,719
150,590
7,045
(421,065)
(3,367)
(23,058)
(7,095)
(416)
(284)

67,277

78,803

43,180

30,168

539,787

77,555 836,770

49,841

56,683

14,013

48,516

760,281

44,895 974,229

Cost
Balance as at
October 31, 2020
Additions
Disposals
Write-offs
Depreciation
Exchange difference
Balance as at
October 31, 2021

Accumulated depreciation
Balance as at
October 31, 2020
Depreciation
Disposals
Write-offs
Exchange difference
Balance as at
October 31, 2021
Net book value as at
October 31, 2021

Property, plant and equipment related to the fleet

During the year ended October 31, 2022, the Corporation early returned to the lessor a leased Airbus A330. This return
resulted in disposals of property, plant and equipment and accumulated depreciation balances of $21,457. In addition, the
Corporation took delivery of two Airbus A321LR aircraft.

During the year ended October 31, 2021, the Corporation early returned five leased aircraft to the lessors, four Airbus
A330s and one Boeing 737-800 while two Airbus A330 leases expired. These returns resulted in disposals of property, plant
and equipment and accumulated depreciation balances of $426,114 and $416,939, respectively. In addition, one leased
Airbus A330 will not be used until it is returned to the lessor. An impairment charge equal to the full carrying value of the
right-of-use assets, maintenance components and leasehold improvements for this aircraft has been recorded in the
consolidated statement of operations under Special items; these impairment charges total $9,117 [Note 20].

Land, building and leasehold improvements

During the year ended October 31, 2021, the Corporation renegotiated real estate leases, resulting in a reduction of the
real estate right-of-use asset of $19,453 [Note 21].

On May 20, 2021, due to the change in strategic objectives and the decrease in liquidity related to the COVID-19 pandemic,
the Corporation's Board of Directors approved the discontinuation of the hotel division's operations. As at
October 31, 2022 and 2021, the land held in Mexico did not meet the criteria to be presented as an asset held for sale.
Given the above factors and the uncertainty of the future use of the land held in Mexico, assessments of its recoverable
amount compared to its carrying amount were performed as at October 31, 2022 and 2021. The recoverable amount of the
land at each of these dates has been assessed based on fair value less costs to sell. The fair value less costs to sell was
estimated based on Level 3 inputs, which are valuations prepared by an independent external evaluator as at
October 13, 2022 and October 19, 2021, respectively. As at October 31, 2022 and 2021, the recoverable amount of the land
in Mexico was equal to its carrying amount and accordingly no impairment charge was required.

Annual Report 2022 Transat A.T. inc. | 84

Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 10

Intangible assets

Cost
Balance as at October 31, 2021

Additions

Disposals

Write-offs

Exchange difference
Balance as at October 31, 2022

Accumulated amortization and impairment
Balance as at October 31, 2021
Amortization
Disposals
Write-offs
Exchange difference
Balance as at October 31, 2022
Net book value as at October 31, 2022

Cost

Balance as at October 31, 2020

Additions

Write-offs and impairment

Exchange difference

Balance as at October 31, 2021

Accumulated amortization and impairment
Balance as at October 31, 2020

Amortization

Write-offs and impairment

Exchange difference

Balance as at October 31, 2021
Net book value as at October 31, 2021

Software
$

Trademarks Customer lists
$

Total
$

156,279

3,697

(110)

(979)

(167)
158,720

141,713
6,997
(65)
(979)
(135)
147,531
11,189

20,391

12,594

189,264

—

(126)
20,265

—
12,594

18,193
—
—
—
—
18,193
2,072

12,509
85
—
—
—
12,594
—

3,697

(110)

(979)

(293)
191,579

172,415
7,082
(65)
(979)
(135)
178,318
13,261

Software
$

Trademarks Customer lists
$

Total
$

158,543

20,418

12,594

191,555

560

(2,720)

(104)

—

(27)

—

560

(2,720)

(131)

156,279

20,391

12,594

189,264

135,391

18,193

12,462

166,046

9,128

(2,720)
(86)

141,713

14,566

—

—
—

18,193

2,198

12,509

9,175

(2,720)
(86)

172,415

16,849

Annual Report 2022 Transat A.T. inc. | 85

Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 11

Investment

The Corporation holds a 50% interest in Desarrollo Transimar, a Mexican company operating a hotel, the Marival Armony.
This interest in a joint venture is accounted for using the equity method.

The change in the investment in Desarrollo Transimar is detailed as follows:

Opening balance
Capital contribution
Share of net loss
Translation adjustment
Closing balance

2022
$

9,476
707
(2,477)
1,114
8,820

2021
$
14,509
821
(4,704)
(1,150)
9,476

The investment was translated at the USD/CAD closing rate of 1.3641 as at October 31, 2022 [1.2397 as at October 31, 2021].

As at October 31, 2022 and 2021, the Corporation determined that there was no objective evidence of impairment in its
investment in a joint venture or increase in the value of the investment.

The following table shows the condensed financial information regarding Desarrollo Transimar as at October 31, 2022
and 2021:

Statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Carrying amount of investment

Statement of comprehensive income:
Revenues
Net loss and comprehensive loss
Share of net loss

Note 12

Other assets

Deferred financing costs

2022
$

8,127
87,330
4,768
73,049
17,640
8,820

2021
$

6,667
80,335
3,875
64,175
18,952
9,476

14,296
(4,954)
(2,477)

12,402
(9,408)
(4,704)

2022
$

12,552

2021
$

19,368

The initial fair value of the warrants was also recorded under other assets as a deferred financing cost related to the
unsecured debt – LEEFF. When the LEEFF unsecured financing is drawn, the deferred financing costs recorded as an asset
are applied against the initial carrying amount of the liabilities recorded, pro rata to the amounts drawn [Note 15]. Deferred
financing costs also include financing costs related to the unused portion of the LEEFF credit facilities [Note 14].

Annual Report 2022 Transat A.T. inc. | 86

Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 13

Trade and other payables

Trade payables
Salaries and employee benefits payable
Accrued expenses
Government remittances

2022
$

195,088
59,351
22,880
12,578
289,897

2021
$

72,127
36,836
22,046
10,781
141,790

Note 14

Long-term debt and lease liabilities

The following table details the maturities and weighted average interest rates related to long-term debt and lease liabilities
as at October 31, 2022 and 2021. The current portion of lease liabilities included deferred rent payments related to aircraft
leases and real estate leases of $32,148 and $51, respectively [$80,989 and $2,340 in 2021, respectively]:

Long-term debt

Secured debt - LEEFF
Unsecured debt - LEEFF
Unsecured credit facility - Travel credits
Revolving credit facility
Subordinated credit facility

Long-term debt
Lease liabilities

Fleet
Real estate and other

Lease liabilities
Total long-term debt and lease liabilities
Current portion of lease liabilities
Long-term debt and lease liabilities

Final maturity

2024
2026
2028
2024
2024

2023-2034
2023-2037

Weighted
average
effective
interest rate
%

5.55
13.27
14.00
8.27
13.55
12.23

5.85
5.43
5.83
8.26

2022
$

77,215
284,757
182,520
49,644
70,024
664,160

1,044,951
42,957
1,087,908
1,752,068
(137,165)
1,614,903

2021
$

43,827
157,985
140,590
49,805
70,973
463,180

904,922
51,436
956,358
1,419,538
(171,557)
1,247,981

Annual Report 2022 Transat A.T. inc. | 87

Transat A.T. inc.
Notes to Consolidated Financial Statements

Funding from the Government of Canada

On July 29, 2022, the Corporation renegotiated its agreement with the Government of Canada. The new agreement allows
the Corporation to borrow up to $843,300 in additional liquidity through the Large Employer Emergency Financing Facility
(LEEFF), an increase of $100,000 from the original agreement. Under the new agreement, Transat also has access to an
additional credit facility of up to $50,000 subject to certain conditions precedent to be met on or before July 29, 2023,
including obtaining additional third-party financing. The fully repayable credit facilities made available by the Canada
Enterprise Emergency Funding Corporation ["CEEFC"] under the LEEFF, which Transat uses on an as-needed basis, are
as follows:

Secured debt - LEEFF

On July 29, 2022, the Corporation renegotiated its secured LEEFF financing agreement in order to borrow additional
liquidity of $20,000, bringing the total amount of the credit facility to $98,000. The maturity date was extended to
April 29, 2024 (previously April 29, 2023). The other terms of the agreement remain unchanged. The non-revolving facility
is secured by a first ranking charge on the assets of the Corporation's Canadian, Mexican, Caribbean and European
subsidiaries, subject to certain exceptions, and continues to bear interest at bankers' acceptance rate plus a premium of
4.5%, or at the financial institution's prime rate plus a premium of 3.5%. In the event of a change of control, this credit
facility becomes immediately due and payable. During the year ended October 31, 2022, the Corporation drew down a total
amount of $34,000. Under the terms of the agreement, the Corporation is required to meet certain financial ratios and
covenants. The Corporation now benefits from a waiver of certain financial ratios and covenants from its lenders until
October 29, 2023 (previously October 30, 2022). As at October 31, 2022, an amount of $78,000 was drawn down [$44,000
as at October 31, 2021] with a carrying value of $77,215 [$43,827 as at October 31, 2021].

The Corporation concluded that the modification related to the extension of the maturity date was non-substantial as
defined by IFRS 9, Financial Instruments. As this floating-rate financial liability was initially recorded at an amount equal to
the principal to be repaid at maturity, a new estimate of future payments did not have an effect on the carrying amount of
the liability. No adjustment has been recorded in relation to this amendment.

In addition, the additional liquidity granted under the secured LEEFF financing agreement amended on July 29, 2022 has
been treated as a new tranche of existing long-term debt. Future draw downs will be accounted for in the same manner as
previous draw downs.

The financing arrangement also provides Transat with an additional credit facility of up to $10,000, subject to certain
conditions precedent to be met on or before July 29, 2023, including obtaining additional third-party financing.

Unsecured debt - LEEFF

On March 9, 2022 and July 29, 2022, the Corporation renegotiated certain terms of its agreement with the Government of
Canada for the unsecured debt - LEEFF. Accordingly, on July 29, 2022, the Corporation obtained additional liquidity of
$80,000, bringing the total unsecured, non-revolving credit facility to $392,000. Under the agreement amended on
March 9, 2022, the credit facility now bears interest at 5.0% until December 31, 2023 (previously until April 29, 2022),
increasing to 8.0% until December 31, 2024 (previously until April 29, 2023) and increasing by 2.0% per annum thereafter,
with the option to capitalize interest until December 31, 2024 (previously until April 29, 2023). The maturity date for the
initial amount of $312,000 of the credit facility remains April 29, 2026 while the additional amount of $80,000 will mature
on July 29, 2027. In the event of a change in control, this credit facility becomes immediately due and payable.

The Corporation concluded that the interest rate modifications related to the LEEFF unsecured financing amended on
March 9, 2022 were non-substantial, as defined in IFRS 9, Financial Instruments. Accordingly, as at March 9, 2022, the
carrying amount of the LEEFF unsecured financing facility was adjusted downward to the revised amount of future cash
flows discounted using the original effective interest rate. The $22,191 adjustment was recorded as a gain on long-term
debt modification and was calculated as follows:

Financial liability carrying amount before the modification as at March 9, 2022
Financial liability carrying amount under the new terms as at March 9, 2022
Gain on long-term debt modification

$
265,906
243,715
(22,191)

Annual Report 2022 Transat A.T. inc. | 88

Transat A.T. inc.
Notes to Consolidated Financial Statements

The additional liquidity granted under the agreement related to the LEEFF unsecured financing amended on July 29, 2022
will be treated as a new tranche of existing long-term debt. Future drawdowns will be accounted for in the same manner as
previous drawdowns.

The financing arrangement also provides Transat with an additional credit facility of up to $40,000, subject to certain
conditions precedent to be met on or before July 29, 2023, including obtaining additional third-party financing.

As of October 31, 2022, $312,000 was drawn [$176,000 as at October 31, 2021] with a carrying amount of $284,757
[$157,985 as at October 31, 2021]. During the year ended October 31, 2022, the Corporation drew down a total of $136,000.
The credit facility includes a prepayment option, which is an embedded derivative, the fair value of which is recorded as a
deduction from the carrying amount of the credit facility. This embedded derivative is separated from the host contract
and designated at fair value through profit or loss, with changes in its fair value recorded in the consolidated statement of
loss under Change in fair value of derivatives. As at October 31, 2022, the fair value of the prepayment option was
$128 [$1,377 as at October 31, 2021] and was determined using a trinomial interest rate tree based on the Hull-White model.

As part of the amended financing package, the Corporation issued an additional 4,687,500 warrants, bringing the total
warrants to 17,687,500 [Note 15] in connection with the unsecured financing - LEEFF.

Unsecured credit facility related to travel credits

On March 9, 2022, the Corporation renegotiated its agreement with the Government of Canada under the unsecured credit
facility related to travel credits in order to borrow additional funds up to a maximum of $43,300. The Corporation has now
access to an amount of $353,300 under the unsecured credit facility to issue refunds to travellers who were scheduled to
depart on or after February 1, 2020 and to whom a travel credit was issued as a result of COVID–19. This credit facility
matures on April 29, 2028 and bears interest at 1.22%. In the event the secured debt – LEEFF and the unsecured debt –
LEEFF have not been repaid, this credit facility could become immediately due and payable upon default under the LEEFF
financing, including in the event of a change in control, and in the absence of a waiver by the lenders to enforce such due
and payable obligations or in the event of a change of control without the consent of the lenders.

Additional liquidity obtained under the unsecured credit facility related to travel credits was treated as a new tranche of
existing long-term debt and was accounted for in the same way as previous tranches.

As at October 31, 2022, the credit facility was fully drawn [$310,000 as at October 31, 2021] and its carrying amount stood
at $182,520 [$140,590 as at October 31, 2021]. An amount of $169,025 [$167,394 as at October 31, 2021] was also
recognized as deferred government grant related to these drawdowns. During the year ended October 31, 2022, an amount
of $18,864 [$5,056 for the year ended October 31, 2021] was recognized under proceeds from government grants as a
reduction of financing costs.

In connection with the arrangement of these credit facilities, the Corporation has made certain commitments, including:

•

To refund travellers who were scheduled to depart on or after February 1, 2020 and to whom travel credits
have been issued due to COVID-19. The Corporation started processing refunds in early May 2021. As per the
agreement, to be eligible, customers had to indicate their desire for a refund before August 26, 2021;

Complying with restrictions on dividends, stock repurchases and executive compensation;

Maintaining active employment at its level of April 28, 2021.

Annual Report 2022 Transat A.T. inc. | 89

Transat A.T. inc.
Notes to Consolidated Financial Statements

Other credit facilities

Revolving credit facility

On July 29, 2022, the Corporation renegotiated its $50,000 revolving term credit agreement for its operations. Under the
amended agreement, the maturity date was extended to April 29, 2024 (previously April 29, 2023). The other terms remain
unchanged. This agreement can be extended for one year on each anniversary date subject to lender approval and
becomes immediately due and payable in the event of a change of control. Under the terms of the agreement, funds may
be drawn down by way of bankers' acceptances or bank loans, denominated in Canadian and U.S. dollars. The agreement is
secured by a first ranking moveable hypothec on the universality of assets, present and future, of the Corporation's
Canadian, Mexican, Caribbean and European subsidiaries, subject to certain exceptions. The facility bears interest at
bankers' acceptance rate or at SOFR (Secured Overnight Financing Rate) in U.S. dollars, plus a premium of 4.5% or at the
financial institution's prime rate, plus a premium of 3.5%. Under the terms of the agreement, the Corporation is required
to meet certain financial ratios and conditions. The Corporation now benefits from a waiver of certain financial ratios and
covenants from its lenders until October 29, 2023 (previously October 30, 2022). As at October 31, 2022 and 2021, the
credit facility was fully drawn.

Subordinated credit facility

On July 29, 2022, the Corporation renegotiated its $70,000 subordinated credit facility for its operations. Under the
amended agreement, the maturity date was extended to April 29, 2024 (previously April 29, 2023). The other terms remain
unchanged. In the event of a change of control, the agreement becomes immediately due and payable. The agreement is
secured by a second ranking movable hypothec on the universality of assets, present and future, of the Corporation's
Canadian, Mexican, Caribbean and European subsidiaries, subject to certain exceptions. The facility bears interest at
bankers' acceptance rate plus a premium of 6.0% or at the financial institution's prime rate, plus a premium of 5.0%. Until
October 29, 2023 (previously October 31, 2022), an additional compounding premium of 3.75% will be added to the
interest. Under the terms of the agreement, the Corporation is required to meet certain financial ratios and conditions.
The Corporation now benefits from a waiver of certain financial ratios and covenants from its lenders until
October 29, 2023 (previously October 30, 2022). As at October 31, 2022 and 2021, the credit facility was fully drawn.

Revolving credit facility agreement - Letters of credit

The Corporation has a $74,000 annually renewable revolving credit facility for the issuance of letters of credit. Under this
agreement, the Corporation must pledge cash equal to 100% of the amount of the issued letters of credit. As at
October 31, 2022, $55,935 of the facility was drawn [$38,161 as at October 31, 2021], of which $31,273 was to secure the
obligations under senior executive defined benefit pension agreements; this irrevocable letter of credit is held by a third-
party trustee. In the event of a change of control, the irrevocable letter of credit issued to secure the obligations under
senior executive defined benefit pension agreements will be drawn.

Annual Report 2022 Transat A.T. inc. | 90

Transat A.T. inc.
Notes to Consolidated Financial Statements

Financing costs

Interest expense for the years ended October 31, 2022 and 2021 is detailed as follows:

Interest expense on long-term debt
Interest expense on lease liabilities
Accretion on provision for return conditions
Other interest
Financing costs

2022
$

50,377
47,660
2,973
4,304
105,314

2021
$
16,520
45,567
983
13,954
77,024

Other interest for the year ended October 31, 2021 consisted mainly of interest expense and standby and arrangement fees
related to the $70,000 subordinated credit facility.

Rent expense

Rent expense for the years ended October 31, 2022 and 2021 is detailed as follows:

Variable lease payments
Aircraft rent
Variable lease payments
Short-term leases
Low value leases

2022
$

6,018
6,018
1,059
3,483
351
10,911

2021
$
—
—
—
950
558
1,508

Cash flows related to lease liabilities

The following table details cash flows related to repayments of lease liabilities:

2022

Non-cash
changes
$

Cash flows
$

Total Cash flows
$

2021

Non-cash
changes
$

Total
$

Balance as at October 31, 2021

956,358

853,906

Repayments
New lease liabilities (new contracts and amendments)
Interest portion of deferred rent payments
Offset of rent payments and lease terminations
Exchange difference
Balance as at October 31, 2022

(108,336)
—
—
—

—
145,656
12,162
(9,842)

(108,336)
145,656
12,162
(9,842)

(74,539)
—
—
—

—
241,605
33,174
(45,222)

(74,539)
241,605
33,174
(45,222)

—

91,910

—

(52,566)

(108,336) 239,886 1,087,908

(74,539)

176,991

956,358

Annual Report 2022 Transat A.T. inc. | 91

Transat A.T. inc.
Notes to Consolidated Financial Statements

Maturity analysis

Principal and interest payments on long-term debt and lease liabilities as at October 31, 2022 are detailed as follows.
Interest on long-term debt only includes interest payable as at October 31, 2022. Lease liabilities denominated in U.S.
dollars were translated at the USD/CAD closing rate of 1.3641 as at October 31, 2022:

Year ending October 31

Long-term debt obligations
Fleet

Real estate and other
Lease liabilities
Total

2023
$
—
187,173

2024
$

196,883
168,155

2025
$
—
171,292

2026
$

284,757
151,442

3,993

3,319

5,788

5,357

191,166
171,474
191,166 368,357

177,080
156,799
177,080 441,556

2028
and up
$

2027
$
—
136,467

Total
$
182,520 664,160
497,990 1,312,519
59,458
141,893 533,565 1,371,977
716,085 2,036,137
141,893

35,575

5,426

Note 9 provides the information required for right-of-use assets and depreciation. Note 24 details the information
required with respect to leases of aircraft that will be delivered in the coming years.

Note 15

Liability related to warrants

In the context of the initial financing arrangement related to the unsecured facility – LEEFF [Note 14], on April 29, 2021, the
Corporation issued a total of 13,000,000 warrants for the purchase of an equivalent number of shares of the Corporation
(subject to certain limitations described below), with customary adjustment provisions, at an exercise price of $4.50 per
share, exercisable over a 10-year period, representing 18.75% of the total commitment available under the unsecured
debt – LEEFF.

On July 29, 2022, as part of the amendments to the financing package related to the LEEFF unsecured financing, the
Corporation issued an additional 4,687,500 warrants to purchase an equivalent number of shares of the Corporation
(subject to certain limitations described below), with customary adjustment provisions, at an exercise price of $3.20 per
share over a 10-year period, representing 18.75% of the additional commitment available under the LEEFF
unsecured financing.

Warrants are to vest in proportion to the drawings that will be made. Under the terms of the LEEFF unsecured financing
agreement, if the loan was repaid prior to December 31, 2023 (previously April 29, 2022), 50% of the vested warrants would
be forfeited.

As at October 31, 2022, a total of 13,000,000 warrants [7,333,333 warrants as at October 31, 2021] had vested following
drawdowns on the unsecured debt – LEEFF and no warrants had been exercised.

Under the limitations set out above, if the 17,687,500 warrants issued are exercised:

•

a maximum of 9,503,036 warrants could be exercised through the issuance of shares;

8,184,464 warrants would be payable in cash on the basis of the difference between the market price of
Transat's shares and the exercise price.

Moreover, the parties may, by mutual agreement, exercise the 9,503,036 warrants for a settlement in cash. To the extent
that Transat shares are listed on a public market, the Corporation could also choose to settle the exercise of these
9,503,036 warrants on a net share basis, that is, by issuing shares based on the difference between Transat’s share market
price and the exercise price of warrants.

Annual Report 2022 Transat A.T. inc. | 92

Transat A.T. inc.
Notes to Consolidated Financial Statements

Due to the existence of settlement mechanisms on a net cash or share basis, the warrants are recorded as derivative
financial instruments in the Corporation’s liabilities. As at the issuance date, using the Black-Scholes model, the fair value
of the 13,000,000 warrants issued on April 29, 2021 was estimated at $41,491 and recorded as a liability. In its model, the
Corporation used a risk-free interest rate of 1.66%, expected volatility of 55.8% and a contractual term of 10 years. The fair
value of the 4,687,500 warrants issued on July 29, 2022 was estimated at $9,792 and recorded as a liability. In its model,
the Corporation used a risk-free interest rate of 2.69%, expected volatility of 53.3% and a contractual term of 10 years.

The initial fair value of the warrants was also recorded under other assets as deferred financing costs related to the
unsecured debt – LEEFF. When the LEEFF unsecured financing is drawn, the deferred financing costs recorded as an asset
are applied against the initial carrying amount of the liabilities recorded, pro rata to the amounts drawn. The resulting
discount will form part of the determination of the effective rate of each drawdown in conjunction with the expected cash
flows to repay the drawdowns.

The liability related to warrants is remeasured at the end of each period at fair value through profit or loss. It is classified in
Level 3 of the fair value hierarchy.

At each reporting date, the fair value of the liability related to warrants is determined using the Black-Scholes model, which
uses significant inputs that are not based on observable market data, hence the classification in Level 3.

The change in the liability related to warrants for the nine-month period ended October 31 is detailed as follows:

Opening balance

Issuance

Revaluation of liability related to warrants

Closing balance

Current liability

Non-current liability

Closing balance

2022

36,557

9,792

(21,989)

24,360

16,799

7,561

24,360

2021

—

41,491

(4,934)

36,557

20,622

15,935

36,557

To remeasure the liability related to warrants, classified as Level 3, the Corporation used a Black-Scholes valuation model.
As at October 31, 2022, the primary unobservable input used in the model is expected volatility, which is estimated at
52.7%. A 5.0% increase in the expected volatility used in the pricing model would result in a total increase of $2,100 in the
liability related to the warrants as at October 31, 2022.

Note 16

Provision for return conditions

The provision for return conditions relates to contractual obligations to return leased aircraft and engines at the end of the
leases under predetermined maintenance conditions. The change in the provision for return conditions for the year ended
October 31, 2022 is detailed as follows:

Opening balance
Additional provisions
Changes in estimates
Utilization of provision
Unused amounts reversed
Accretion
Closing balance
Current provisions
Non-current provisions
Closing balance

2022
$

126,244
49,858
(15,276)
(6,163)
(2,864)
2,973
154,772
—
154,772
154,772

2021
$
143,598
28,574
(18,527)
—
(28,384)
983
126,244
3,065
123,179
126,244

Annual Report 2022 Transat A.T. inc. | 93

Transat A.T. inc.
Notes to Consolidated Financial Statements

Changes in estimates mainly include adjustments to the inflation rate to be applied to estimated current costs and to the
discount rate for the provision for return conditions. As at October 31, 2022, the unused amounts reversed correspond to
the reversals of the provision for return conditions for three aircraft, including one aircraft whose lease was terminated
and two aircraft that were returned early in 2021.

As at October 31, 2021, the unused amounts recovered included $7,521 related to future repairs to aircraft that will not be
made, $6,610 related to the leases that matured during the year and $14,253 related to reversals of provisions for return
conditions for aircraft whose leases were terminated.

Note 17

Employee future benefits

The Corporation offers defined benefit pension arrangements to certain senior executives and defined contribution plans
to certain employees.

Defined benefit arrangements and post-employment benefits

The defined benefit pension arrangements offered to certain senior executives provide for payment of benefits based on
the number of years of eligible service provided and the average eligible earnings for the five years in which the
participant’s eligible earnings were the highest. These arrangements are not funded; however, to secure its obligations
related to defined benefit pension arrangements, the Corporation has issued a $31,273 letter of credit to the trustee
[Note 5]. The Corporation uses an actuarial estimate to measure its obligations as at October 31 each year.

The following table provides a reconciliation of changes in the defined benefit obligation as at October 31, 2022 and 2021:

Present value of obligations, beginning of year
Current service cost
Cost of plan amendments
Financial costs
Benefits paid
Experience losses
Actuarial gain on obligation
Present value of obligations, end of year

2022
$

27,120
1,108
(1,579)
848
(1,120)
286
(5,890)
20,773

The following table provides the components of retirement benefit expense for the years ended October 31:

Current service cost
Cost of plan amendments
Interest cost
Total retirement benefit expense

2022
$

1,108
(1,579)
848
377

2021
$
49,862
1,360
3,295
1,099
(29,094)
2,350
(1,752)
27,120

2021
$
1,360
3,295
1,099
5,754

The following table indicates projected payments under defined benefit pension plan arrangements as at October 31, 2022:

1 year and less
1 to 5 years
5 to 10 years
10 to 15 years
15 to 20 years

$
1,183
5,515
7,060
7,585
6,688
28,031

The weighted average duration of the defined benefit obligation related to pension arrangements was 12.3 years as at
October 31, 2022.

Annual Report 2022 Transat A.T. inc. | 94

Transat A.T. inc.
Notes to Consolidated Financial Statements

The significant actuarial assumptions used to determine the Corporation’s retirement benefit obligation and expense were
as follows:

Retirement benefit obligation
Discount rate
Rate of increase in eligible earnings

Retirement benefit expense
Discount rate
Rate of increase in eligible earnings

2022
%

5.25
2.75

3.25
2.75

2021
%

3.25
2.75

2.75
2.75

A 0.25 percentage point increase in the actuarial assumptions below would have the following impacts, all other actuarial
assumptions remaining the same:

Increase (decrease)
Discount rate
Rate of increase in eligible earnings

Retirement benefit expense
for the year ended
October 31, 2022
$
(32)
22

Retirement benefit
obligation as at
October 31, 2022
$
(594)
51

The funded status of the benefits and the amounts recorded in the statement of financial position under Employee future
benefits were as follows:

Plan assets at fair value
Accrued benefit obligation
Retirement benefit deficit

2022
$
—
20,773
20,773

2021
$
—
27,120
27,120

Changes in the cumulative amount of net actuarial losses recognized in other comprehensive income (loss) and presented
as a separate component of retained earnings were as follows:

Gains (losses)
October 31, 2020
Actuarial losses
October 31, 2021
Actuarial gains
October 31, 2022

Defined contribution pension plans

$
(15,254)
(597)
(15,851)
5,603
(10,248)

The Corporation offers defined contribution pension plans to certain employees with contributions based on a percentage
of salary.

Contributions to defined contribution pension plans, which correspond to the cost recognized, amounted to $12,584 for
the year ended October 31, 2022 [$6,114 for the year ended October 31, 2021].

Annual Report 2022 Transat A.T. inc. | 95

Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 18

Equity

Authorized share capital

Class A Variable Voting Shares

An unlimited number of participating Class A Variable Voting Shares (“Class A Shares”), which may be owned or controlled
only by non-Canadians as defined by the Canada Transportation Act (“CTA”), carry one vote per share at any meeting of
shareholders subject to an automatic reduction of the voting rights attached thereto in the event that [i] any non-
Canadian, individually or in affiliation with another person, holds more than 25% of the votes cast, [ii] any non-Canadian
authorized to provide an air service in any jurisdiction (in aggregate) holds more than 25% of the votes cast, or [iii] the
votes that would be cast by holders of Class A Shares would be more than 49%. If any of the above-mentioned applicable
limitations are exceeded, the votes that should be attributed to holders of Class A Shares will be attributed as follows:

•

first, if applicable, there will be a reduction in the voting rights of any non-Canadian individual
(including a non-Canadian authorized to provide an air service) whose votes total more than 25% of
the votes cast, so that such non-Canadian holder may never hold more than 25% (or such other
percentage as may be prescribed by an act or regulation of Canada and approved or adopted by the
directors of the Corporation) of the total votes cast at a meeting;

next, if applicable, and once the pro rata distribution as described above is made, a further pro rata
reduction will be made in the voting rights of all non-Canadian holders of Class A Shares authorized to
provide an air service, so that such non-Canadian holders may never hold votes totalling more than
25% (or such other percentage as may be prescribed by an act or regulation of Canada and approved
or adopted by the directors of the Corporation) of the total votes cast, all classes combined, at
a meeting;

last, if applicable, and once the two pro rata allocations described above have been made, a
proportional reduction will be made in the voting rights of all holders of Class A Shares, so that all
non-Canadian holders of Class A Shares may never hold votes totalling more than 49% (or such other
percentage as may be prescribed by an act or regulation of Canada and approved or adopted by the
directors of the Corporation) of the total votes cast, all classes combined, at a meeting.

Each issued and outstanding Class A Share shall be automatically converted into one Class B Voting Share without any
further action on the part of the Corporation or of the holder if [i] the Class A Share is or becomes owned or controlled by
a Canadian as defined by the CTA; or [ii] the provisions contained in the CTA relating to foreign ownership restrictions are
repealed and not replaced with other similar provisions.

Class B Voting Shares

An unlimited number of participating Class B Voting Shares [“Class B Shares”], which may only be owned and controlled by
Canadians within the meaning of the CTA, and entitling such Canadians to one vote per Class B Share at any meeting of the
shareholders of the Corporation. Each issued and outstanding Class B Share shall be converted into one Class A Share
automatically without any further action on the part of the Corporation or the holder if the Class B Share is or becomes
owned or controlled by a non-Canadian as defined by the CTA.

Preferred shares

An unlimited number of preferred shares, non-voting, issuable in series, each series bearing the number of shares,
designation, rights, privileges, restrictions and conditions as determined by the Board of Directors.

Annual Report 2022 Transat A.T. inc. | 96

Transat A.T. inc.
Notes to Consolidated Financial Statements

Issued and outstanding share capital

The changes affecting the Class A and Class B shares were as follows:

Balance as at October 31, 2020
Balance as at October 31, 2021
Issued from treasury
Balance as at October 31, 2022

Number of shares

37,747,090
37,747,090
265,054
38,012,144

$
221,012
221,012
912
221,924

As at October 31, 2022, the number of Class A Shares and Class B Shares stood at 1,428,479 and 36,583,665, respectively
[1,694,125 and 36,052,965 as at October 31, 2021].

Stock option plan

Under the stock option plan, the Corporation may grant up to a maximum of 1,406,508 additional Class A Shares or
Class B Shares to eligible persons at a share price equal to the weighted average price of the shares during the five trading
days prior to the option grant date. The option exercise period and the vesting conditions, if any, are determined at each
grant. The options granted before October 31, 2013, are exercisable over a ten-year period, whereas those granted after
that date are exercisable over a seven-year period. Under the plan, in the event of a change of control, all outstanding
stock options vest.

The following tables summarize all outstanding options:

Beginning of year
Granted
Cancelled
Expired
End of year
Options exercisable, end of year

2022

2021

Number of
options
1,108,262
150,000
(672,898)
(104,517)
480,847
180,847

Weighted
average price
($)
7.55
4.18
7.77
7.86
6.13
9.01

Number of
options
1,738,570
150,000
(128,953)
(651,355)
1,108,262
958,262

Weighted
average price
($)
10.13
4.61
10.96
13.07
7.55
8.01

Range of exercise price
$
4.18 to 4.61
6.01 to 10.94

Outstanding options

Options exercisable

Number of
options
outstanding as
at October 31,
2022

Weighted
average
remaining life

300,000
180,847
480,847

6.3
1.1
4.3

Number of
options
exercisable as
at October 31,
2022

—
180,847
180,847

Weighted
average price
$
4.40
9.01
6.13

Weighted
average price
$
—
9.01
9.01

Annual Report 2022 Transat A.T. inc. | 97

Transat A.T. inc.
Notes to Consolidated Financial Statements

Compensation expense related to stock option plan

During the year ended October 31, 2022, the Corporation granted 150,000 stock options [150,000 in 2021] to its key
executives and employees. The average fair value of each option granted is estimated on the date of grant using the Black-
Scholes option pricing model. The assumptions used and the weighted average fair value of the options on the date of grant
were as follows:

Risk-free interest rate
Expected life
Expected volatility
Dividend yield
Weighted average fair value at date of grant

2022
3.09 %
4 years
64.7 %
0.0 %
$2.15

2021
0.96 %
4 years
67.0 %
0.0 %
$2.34

During the year ended October 31, 2022, the Corporation recorded a compensation expense of $144 [nil compensation
expense in 2021] for its stock option plan.

Performance share unit plan

Performance share units [“PSUs”] are awarded in connection with the performance share unit plan for senior executives.
Under this plan, each eligible senior executive receives a portion of his or her compensation in the form of PSUs. PSUs
consist of a number equal to a percentage of the participant’s basic salary, divided by the fair market value of Class B
Shares as at the award date. Once vested, PSUs entitle participants to receive an equivalent number of shares or a cash
payment, at the option of the Corporation; 100% of the PSUs vest in mid-January three years following their award, subject
to the achievement of the performance criteria established at the time of the award. The remaining 50% of PSUs awarded
vest in mid-January three years following their award, provided the plan member is still an employee of the Corporation.
Under the plan, in the event of a change of control, all outstanding PSUs vest.

During the years ended October 31, 2022 and 2021, the Corporation did not grant any PSUs to its key executives and
employees. As at October 31, 2022 and 2021, no PSUs were awarded. During the year ended October 31, 2022, the
Corporation did not recognize any compensation expense [compensation expense reversal of $1,843 in 2021, which was
recorded in full as a cash-settled transaction] for its PSU plan.

Share purchase plan

A share purchase plan is available to eligible employees of the Corporation and its subsidiaries. Under the plan, as at
October 31, 2022, the Corporation was authorized to issue up to 805,736 shares. The plan allows each eligible employee to
purchase shares up to an overall limit of 10% of his or her annual salary in effect at the time of enrolment. The purchase
price of the shares under the plan is equal to the weighted average price of the shares during the five trading days prior to
the issue of the shares, less 10%.

During the year, the Corporation issued 265,054 shares [nil shares in 2021] under the share purchase plan.

Stock ownership incentive and capital accumulation plan

Subject to participation in the Corporation's share purchase plan offered to all eligible employees, the Corporation awards
annually to each eligible officer a number of shares, the aggregate purchase price of which is equal to an amount of 30% or
60% of the maximum percentage of salary contributed, which may not exceed 5%. Shares so awarded by the Corporation
will vest to the eligible employee, subject to the retention during the first six months of the vesting period of all the shares
purchased under the Corporation’s share purchase plan.

The shares awarded under this plan are bought by the Corporation in the market and deposited in the participants’
accounts as shares are purchased by the employee under the share purchase plan.

During the year ended October 31, 2022, the Corporation recognized compensation expense of $127 [no compensation
expense in 2021] for its stock ownership incentive and capital accumulation plan.

Annual Report 2022 Transat A.T. inc. | 98

Transat A.T. inc.
Notes to Consolidated Financial Statements

Permanent stock ownership incentive plan

Subject to participation in the Corporation's share purchase plan offered to all eligible employees, the Corporation awards
annually to each eligible senior executive a number of shares, the aggregate purchase price of which is equal to the
maximum percentage of salary contributed, which may not exceed 10%. Shares so awarded by the Corporation will vest
gradually to the eligible senior executive, subject to the senior executive’s retaining, during the vesting period, all the
shares purchased under the Corporation’s share purchase plan. The shares awarded under this plan are bought by the
Corporation in the market and deposited in the participants’ account as shares are purchased by the participant under the
share purchase plan.

During the year ended October 31, 2022, the Corporation recognized compensation expense of $184 [no compensation
expense in 2021] for its permanent stock ownership incentive plan.

Deferred share unit plan

Deferred share units [“DSUs”] are awarded in connection with the independent director deferred share unit plan. Under
this plan, each independent director receives a portion of his or her compensation in the form of DSUs. The value of a DSU
is determined based on the average closing share price for the five trading days prior to the award of the DSUs. The DSUs
are repurchased by the Corporation when a director ceases to be a plan participant. For the purpose of repurchasing
DSUs, the value of a DSU is determined based on the average closing share price for the five trading days prior to the
repurchase of the DSUs.

As at October 31, 2022, the number of DSUs awarded amounted to 360,439 [302,203 as at October 31, 2021]. During the
year ended October 31, 2022, the Corporation recorded a compensation expense reversal of $94 [compensation expense
of $171 in 2021] for its deferred share unit plan.

Restricted share unit plan

Restricted share units [“RSUs”] are awarded annually to eligible employees under the new restricted share unit plan. Under
this plan, each eligible employee receives a portion of his or her compensation in the form of RSUs. The value of an RSU is
determined based on the weighted average closing share price for the five trading days prior to the award of the RSUs. The
rights related to RSUs are acquired over a period of three years. When acquired, the RSUs are immediately repurchased by
the Corporation, subject to certain conditions and certain provisions relating to the Corporation’s financial performance.
For the purpose of repurchasing RSUs, the value of an RSU is determined based on the weighted average closing share
price for the five trading days prior to the repurchase of the RSUs. Under the plan, in the event of a change of control, all
outstanding RSUs vest.

As at October 31, 2022 and 2021, there were no RSUs awarded. During the year ended October 31, 2022, the Corporation
did not record compensation expense [compensation expense reversal of $4,687 in 2021] for its restricted share unit plan.

Warrants

No warrants were exercised during the year ended October 31, 2022 and 2021. Accordingly, the Corporation issued no
shares related to the exercise of warrants [Note 15].

Annual Report 2022 Transat A.T. inc. | 99

Transat A.T. inc.
Notes to Consolidated Financial Statements

Loss per share

Basic and diluted loss per share was calculated as follows:

(in thousands of dollars, except per share data)

NUMERATOR

Net loss attributable to shareholders used in
computing basic loss per share
Effect of deemed conversion of warrants
Less anti-dilutive impact
Net loss attributable to shareholders
used in computing diluted loss per share

DENOMINATOR
Adjusted weighted average number of outstanding shares

Effect of potential dilutive securities

Stock options
Warrants
Less anti-dilutive impact

Adjusted weighted average number of outstanding shares
used in computing diluted loss per share
Loss per share
Basic
Diluted

2022
$

2021
$

(445,324)
(21,989)
21,989

(389,559)
(4,934)
4,934

(445,324)

(389,559)

37,838

37,747

—
—

—

18
1,807

(1,825)

37,838

37,747

(11.77)
(11.77)

(10.32)
(10.32)

For the year ended October 31, 2022, the 480,847 outstanding stock options and the 9,503,036 vested warrants that can
be exercised through the issuance of shares were excluded from the calculation since their exercise price exceeded the
average share price for the period [1,108,262 stock options and 9,436,772 warrants for the year ended October 31, 2021].

Note 19

Additional disclosure on revenue and expenses

Breakdown of revenue from contracts with customers

Revenue from contracts with customers is broken down as follows:

Customers

Americas
Transatlantic

Other
Total revenues

Contract balances

Contract balances with customers are detailed as follows:

Trade accounts receivable [Note 6]
Other receivables [Note 6]
Contract costs, included in Prepaid expenses
Customer deposits and deferred revenues

Annual Report 2022 Transat A.T. inc. | 100

2022
$

870,660
752,419
18,959
1,642,038

2021
$

88,611
26,383
9,824
124,818

2022
$

9,497
196,894
11,973
602,509

2021
$
9,775
77,733
5,543
292,158

Transat A.T. inc.
Notes to Consolidated Financial Statements

Salaries and employee benefits

Salaries and other employee benefits
Long-term employee benefits [Note 17]
Share-based payment expense

2022
$

288,368
377
144
288,889

2021
$
117,016
5,754
—
122,770

From March 15, 2020 to May 7, 2022, the Corporation took advantage of wage subsidies for businesses affected by
COVID-19 for its Canadian workforce. These subsidies allowed the Corporation, among other things, and until
August 28, 2021, to offer temporarily laid off employees a portion of their salary equivalent to the amount of the grant
received, without any work required. The Corporation determined it met the employer eligibility criteria and claimed the
CEWS for the period from March 15, 2020 to October 23, 2021 as well as the THRP and HHBRP subsidies from
October 24, 2021 to May 7, 2022.

During the year ended October 31, 2022, the Corporation made use of the THRP and the HHBRP, an amount of $24,403 was
recorded under these programs. During the year ended October 31, 2021, the Corporation made use of the CEWS: amounts
of $25,758 and $80,901, respectively, were recognized in connection with active employees and inactive employees, which
corresponds to the salaries paid to them.

Depreciation and amortization

Property, plant and equipment
Intangible assets subject to amortization

Note 20

Special items

Special items
Severance
Impairment of assets
Impairment of contract balances and other assets
Impairment of the fleet (including right-of-use assets) [Note 9]

Special items related to the transaction with Air Canada

Termination payment
Professional fees
Reversal of compensation expense

2022
$

146,347
7,082
153,429

2021
$
150,590
9,175
159,765

2022
$

847
783
—
—
1,630

—
—
—
—
1,630

2021
$

6,739
—
24,333
9,117
40,189

(12,500)
6,106
(6,223)
(12,617)
27,572

Special items generally include restructuring charges and other significant unusual items, including impairment losses.

Special items

As a result of the global COVID-19 pandemic since the beginning of 2020, the Corporation's operations have been
significantly disrupted. As a result, the Corporation had to make significant capacity reductions, primarily in 2021, and
recognize impairment charges in this respect as well as other charges. These charges and impairment losses are included in
Special items.

Annual Report 2022 Transat A.T. inc. | 101

Transat A.T. inc.
Notes to Consolidated Financial Statements

As at October 31, 2022, special items included severance costs of $847 in respect of estimated employee termination
benefits and an asset impairment charge of $783 for the impairment of rotable Boeing 737 spare parts.

The change in the provision for employee termination benefits for the year ended October 31 was as follows:

Opening balance
Additional provisions
Utilization of provision
Closing balance

2022
$

5,220
847
(4,052)
2,015

2021
$
—
6,739
(1,519)
5,220

As at October 31, 2021, special items included the impairment of contract balances of $21,917 related to commissions,
global distribution system fees and credit card fees that will not be refunded to the Corporation as part of the traveller
refunds. In addition, the Corporation recorded an impairment charge of $2,416 related to deposits associated with an
impaired aircraft.

During the year ended October 31, 2021, it was determined that a leased Airbus A330 will not be used until it is returned to
the lessor. An impairment charge totalling $9,117 has been recorded to this effect.

As a result of the COVID-19 pandemic, the Corporation has undertaken to reduce its workforce through permanent layoffs.
Severance costs of $6,739 have been accrued in 2021, of which $5,220 was included in Trade and other payables as at
October 31, 2021. The provision includes the estimated costs of notices and severance benefits provided for in the
Corporation's collective agreements and applicable laws, the amount of which could be adjusted based on various factors
such as the relevant notice period and the number of employees being laid off and the period for which they remain
laid off.

Special items related to the Air Canada transaction

During the year ended October 31, 2021, the agreed upon amount of $12,500 in termination fees for the arrangement
agreement settled by Air Canada, $6,106 in professional fees as well as $6,223 in reversals of compensation expense were
recorded in connection with the terminated transaction with Air Canada. The compensation expenses were mainly related
to the stock-based compensation plans that include a change of control clause and to adjustments related to stock-based
compensation plan provisions. Compensation expenses recorded as special items resulted from Air Canada’s offer, which
made it likely that the change of control criteria included in some of the Corporation’s stock-based compensation plans
would be met, and also change the vesting period. Following the termination of the arrangement agreement with
Air Canada, the Corporation recorded compensation expense reversals to reduce or even cancel certain provisions related
to stock-based compensation plans, for which the performance criteria threshold was not met.

Note 21

Gain on asset disposals

The gain on disposal of assets relates to asset disposals and lease terminations.

During the year ended October 31, 2022, the $3,934 gain on asset disposals was mainly due to the early return of an
Airbus A330 to the lessor. This lease termination led to the recognition of a $4,085 gain, which resulted from the reversal
of lease liabilities of $3,976 and other assets and liabilities totalling $109. The carrying amount of the right-of-use asset for
this aircraft lease was fully impaired during the year ended October 31, 2021.

During the year ended October 31, 2021, due to the significant reduction in capacity related to the COVID-19 pandemic, the
Corporation early returned five leased aircraft to the lessors: four Airbus A330s and one Boeing 737-800. The termination
of these aircraft leases gave rise to a gain of $14,580 resulting from the reversal of lease liabilities of $19,992, property,
plant and equipment of $9,274 and the provision for return conditions of $3,862. The carrying amount of right-of-use
assets for four of these terminated aircraft leases were fully impaired during the year ended October 31, 2020. Moreover,
during the year ended October 31, 2021, the Corporation recognized a gain on real estate lease termination of $2,613 that
stemmed from the reversal of $22,066 in lease liabilities and $19,453 in property plant and equipment.

Annual Report 2022 Transat A.T. inc. | 102

Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 22

Income Taxes

The major components of the income tax expense for the years ended October 31 were:

Consolidated statements of loss

Current

Current income taxes
Adjustment to taxes (recoverable) payable for prior years

Deferred

Relating to temporary differences
Adjustment to deferred taxes for prior years
Recognition of previously unrecognized temporary difference

Income tax expense (recovery)

2022
$

1,078
(4,252)
(3,174)

1,195
114
(2,284)
(975)
(4,149)

2021
$

(172)
120
(52)

1,837
(19)
(1,743)
75
23

The reconciliation of income taxes, computed at the Canadian statutory rates, to income tax expense was as follows for the
years ended October 31:

Income taxes at the statutory rate
Increase (decrease) resulting from:

Effect of differences in Canadian and foreign tax rates
Non-deductible non-taxable items
Unrecognized losses for the current year
Recognition of previously unrecognized temporary
difference
Adjustments for prior years
Effect of tax rate changes
Other

2022

%
26.5

0.3
—
(27.2)

0.5
0.9
—
(0.1)
0.9

$
(119,110)

(1,258)
(107)
122,061

(2,284)
(4,138)
—
687
(4,149)

2021

26.5

(103,194)

—
(1.0)
(25.9)

0.4
—
0.1
(0.1)
—

34
3,845
100,745

(1,743)
101
(143)
378
23

The applicable statutory income tax rate was 26.5% for the year ended October 31, 2022 [26.5% for the year ended
October 31, 2021].

Deferred taxes reflect the net tax impact of temporary differences between the value of assets and liabilities for
accounting and tax purposes. The main components and changes in temporary differences in deferred tax assets and
liabilities for fiscal 2022 and 2021 were as follows:

Non-capital losses carried forward
Excess of tax value over net carrying value of:

Property, plant and equipment and software
Intangible assets, excluding software

Lease liabilities
Derivative financial instruments
Other financial assets and other assets
Provisions
Deferred tax

2022
Recognized in
other
comprehensive
income
$
—

Recognized
in net
income
$
527

Balance,
beginning of
year
$

5,009

Exchange
differences
$
—

Balance, end
of year
$
5,536

(229,762)
111
227,832
—
(3,836)
33
(613)

(7,516)
(29)
14,426
(177)
(6,503)
247
975

—
—
—
—
—
—
—

(53)
—
—
—
—
—
(53)

(237,331)
82
242,258
(177)
(10,339)
280
309

Annual Report 2022 Transat A.T. inc. | 103

Transat A.T. inc.
Notes to Consolidated Financial Statements

Non-capital losses carried forward
Excess of tax value over net carrying value of:

Property, plant and equipment and software
Intangible assets, excluding software

Lease liabilities
Derivative financial instruments
Other financial assets and other assets
Provisions
Deferred tax

The net deferred tax assets are detailed below:

Deferred tax assets
Deferred tax liabilities
Net deferred tax assets

2021
Recognized in
other
comprehensive
income
$
—

Recognized
in net
income
$
(270)

Balance,
beginning of
year
$

5,279

Exchange
differences
$
—

Balance, end
of year
$
5,009

(209,414)
—
208,686
(68)
(5,349)
192
(674)

(20,409)
111
19,146
(7)
1,513
(159)
(75)

—
—
—
75
—
—
75

61
—
—
—
—
—
61

(229,762)
111
227,832
—
(3,836)
33
(613)

2022

2021

$
953
(644)
309

$
—
(613)
(613)

Non-capital losses recorded in various jurisdictions expire as follows:

Year of expiry
2023 - 2027
2028 - 2032
2033 - 2037
2038 - 2042
With no expiry

Unrecognized Recognized
$
—
672
—
18,744
2,898
22,314

4,426
—
3,416
1,045,761
777
1,054,380

As at October 31, 2022, non-capital losses carried forward and other unrecognized temporary differences were as follows:

Non-capital losses carried forward
Capital losses
Excess of tax value over net carrying value of:
Property, plant and equipment and software
Intangible assets, excluding software

Lease liabilities
Derivative financial instruments
Other financial assets and other assets
Provisions
Employee benefits
Deferred donations

Canada

Federal
$

Québec
$

1,041,836
2,629

1,047,158
2,629

14,318
2,953
174,400
239
10,315
34,077
20,773
971
1,302,511

13,531
2,953
174,400
239
10,315
34,077
20,773
1,438
1,307,513

Mexico
$

2,356
—

28,145
—
—
—
—
—
—
—
30,501

Other
$

10,188
—

Total
$
1,054,380
2,629

52
—
38
—
—
—
—
—

42,515
2,953
174,438
239
10,315
34,077
20,773
971
10,278 1,343,290

Annual Report 2022 Transat A.T. inc. | 104

Transat A.T. inc.
Notes to Consolidated Financial Statements

The Corporation recognized a deferred tax liability of $4,700 on retained earnings of one of its foreign subsidiaries. The
Corporation recognized no other deferred tax liability on retained earnings of its foreign subsidiaries and its joint venture
as these earnings are considered to be indefinitely reinvested. However, if these earnings are distributed in the form of
dividends or otherwise, the Corporation may be subject to corporate income tax or withholding tax in Canada
and/or abroad.

In previous fiscal years, the tax authorities had questioned the deductibility of tax losses the Corporation reported on its
ABCP (Asset-Backed Commercial Paper) investments. In relation to this situation, in 2015, the Corporation paid a total of
$15,100 to the tax authorities and objected to the notices of assessment received. During the year ended October 31, 2022,
the Corporation and the tax authorities came to an agreement on the tax treatment of the deductibility of ABCP-related tax
losses. As a result, under this settlement agreement, in addition to recovering the $15,100 paid in 2015, the Corporation
recorded an additional income tax recovery of $5,347 and interest of $2,129. As at October 31, 2022, the income tax
receivable balance included an amount of $4,884 [$15,100 as at October 31, 2021] related to this settlement agreement
while the accounts receivable balance included an amount of $1,862 related to accrued interest receivable.

Note 23

Related party transactions and balances

The consolidated financial statements include those of the Corporation and those of its subsidiaries. The main subsidiaries
and joint venture of the Corporation are listed below:

Air Transat A.T. inc.
Transat Tours Canada inc.
Transat Distribution Canada inc.
11061987 Florida Inc.
Transat Holidays USA Inc.
The Airline Seat Company Ltd.
Air Consultants France S.A.S.
Caribbean Transportation Inc.
CTI Logistics Inc.
Sun Excursions Caribbean Inc.
Propiedades Profesionales Dominicanas Carhel S.R.L.
Servicios y Transportes Punta Cana S.R.L.
TTDR Travel Company S.A.S.
Turissimo Carribe Excusiones Dominican Republic C por A
Turissimo Jamaica Ltd.
Laminama S.A. de C.V.
Promociones Residencial Morelos S.A. de C.V.
Promotora Turística Regional S.A. de C.V.
Trafictours de Mexico S.A. de C.V.
Desarrollo Transimar S.A. de C.V.

Country of
incorporation

Canada
Canada
Canada
United States
United States
United Kingdom
France
Barbados
Barbados
Barbados
Dominican Republic
Dominican Republic
Dominican Republic
Dominican Republic
Jamaica
Mexico
Mexico
Mexico
Mexico
Mexico

Interest (%)

2021

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0

2022

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0

On May 31, 2021, the Corporation, which held 70% of the shares of Trafictours, acquired the 30% interest held by the
minority shareholder following a mutual agreement between the two parties.

Compensation of key senior executives

The annual compensation and related compensation costs of directors and key senior executives, namely the President and
Chief Executive Officer and the Senior Vice Presidents of the Corporation were as follows:

Salaries and other employee benefits
Long-term employee benefits

2022
$

5,627
(471)

2021
$
5,876
4,655

Annual Report 2022 Transat A.T. inc. | 105

Transat A.T. inc.
Notes to Consolidated Financial Statements

Note 24

Commitments and contingencies

Leases and other commitments

As at October 31, 2022, the Corporation was party to agreements to lease seven Airbus A321LRs for delivery up to 2024,
three Airbus A321XLRs to be delivered in 2025 and 2026 and one Airbus A321ceo for delivery in 2023. The Corporation also
has leases with a term of less than 12 months and/or for low value assets, as well as purchase obligations under various
contracts with suppliers, particularly in connection with information technology service contracts, undertaken in the
normal course of business. The following table sets out the minimum payments due under aircraft leases to be delivered
over the next few years and under leases with a term of less than 12 months and/or for low value assets, as well as
purchase obligations:

Year ending October 31

Leases (aircraft and other)
Purchase obligations

Litigation

2023
$

7,822
9,385
17,207

2024
$

46,548
3,139
49,687

2025
$

58,206
4,782
62,988

2026
$

75,677
32
75,709

2027
$

80,840
14
80,854

2028
and up
$

Total
$
976,510
17,352
707,417 993,862

707,417
—

As a result of the COVID-19 pandemic, the Corporation has been the subject of a number of applications for authorization
to institute class actions in connection with the reimbursement of customer deposits for airline tickets and packages that
had to be cancelled. While some of these applications have not yet been definitively settled, the Corporation has refunded
almost all of the customers, particularly since April 2021, using the unsecured credit facility related to travel credits.
Consequently, applications for authorization to institute class actions that have not yet been settled may become moot. In
any event, the Corporation will continue to defend itself vigorously in this respect. If the Corporation had to pay an amount
related to class actions, the unfavourable effect of the settlement would be recognized in the consolidated statement of
income (loss) and could have an unfavourable effect on cash.

Other

Note 25

Guarantees

In the normal course of business, the Corporation has entered into agreements containing clauses meeting the definition
of a guarantee. These agreements provide compensation and guarantees to counterparties in transactions such as
operating leases, irrevocable letters of credit and collateral security contracts.

These agreements may require the Corporation to compensate the counterparties for costs and losses incurred as a result
of various events, including breaches of prior representations or warranties, loss of or damages to property, claims that
may arise while providing services and environmental liabilities.

Annual Report 2022 Transat A.T. inc. | 106

Transat A.T. inc.
Notes to Consolidated Financial Statements

Notes 5, 14, 17 and 24 to the consolidated financial statements provide information about some of these agreements. The
following constitutes additional disclosure.

Leases

The Corporation’s subsidiaries have general indemnity clauses in many of their airport and other real estate leases whereby
they, as lessee, indemnify the lessor against liabilities related to the use of the leased property. The nature of the
agreements varies based on the contracts and therefore prevents the Corporation from estimating the total potential
amount its subsidiaries would have to pay to lessors. Historically, the Corporation’s subsidiaries have not made any
significant payments under such agreements and have liability insurance coverage in such circumstances.

Collateral security contracts

The Corporation has entered into collateral security contracts with certain suppliers. Under these contracts, the
Corporation guarantees the payment of certain services rendered that it undertook to pay. These contracts typically cover
a one-year period and are renewable.

The Corporation has entered into collateral security contracts whereby it guarantees a prescribed amount to its
customers, at the request of regulatory agencies, for the performance of the obligations included in mandates by its
customers during the term of the licences granted to the Corporation for its travel agent and wholesaler operations in the
Province of Québec. These agreements typically cover a one-year period and are renewable annually. As at
October 31, 2022, the total amount of these guarantees unsecured by deposits amounted to $469. Historically, the
Corporation has not made any significant payments under such agreements. As at October 31, 2022, no amounts had been
accrued with respect to the above-mentioned agreements.

Note 26

Segment disclosures

The Corporation has determined that it conducts its activities in a single industry segment, namely holiday travel. With
respect to geographic areas, the Corporation’s operations are primarily in the Americas. Revenues and non-current assets
outside the Americas are not material. Therefore, the consolidated statements of loss and consolidated statements of
financial position include all the required information.

Annual Report 2022 Transat A.T. inc. | 107

2022 Best Leisure Airline
in North America

Information

transat.com

For additional
information, write to
the Chief Financial Officer.

Ce rapport annuel
est disponible en français.

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Transat A.T. inc.

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transat.com
info@transat.com