The two companies have agreed on revised terms that would see Air Canada pay $5 a share for the parent company of Air Transat, compared to the $18 per share originally pledged in its takeover bid.
That brings the total price of the takeover to $190 million, down from $720 million previously.
Air Canada says in a news release that the pandemic has had a devastating effect on the aviation industry and the value of airlines and their assets, but it still wants to proceed with the acquisition.
The deal could be concluded in early 2021 if it is approved by Transat AT shareholders and regulators in Canada and the European Union.
The European Commission’s antitrust body, which is investigating the proposed merger, has not indicated whether it would give the green light.