MONTREAL - Air Canada says it will spend more to buy Transat A.T. Inc., upping its total offer by $200 million and winning the support of the tour company's largest shareholder.

The new deal sees Air Canada spending $18 per share, rather than $13, bringing the total offer to roughly $720 million, up from a previously announced bid worth $520 million.

Air Canada says it now has the backing of Letko Brosseau and Associates Inc., Transat's largest shareholder, which holds just over 19 per cent of outstanding shares.

The investor previously said it would not support the deal if the purchase price remained at $13 per share.

The initial bid was announced in June, and will go to the shareholders for a vote on Aug. 23.

The Air Canada deal also needs to secure approval from regulators, including Transport Canada and the Competition Bureau.

The move comes as Transat has been facing off against rival bidder, the Montreal developer Group Mach at a securities tribunal hearing over Mach's move to block the tour operator's sale to Air Canada.

Transat called on authorities to bar the real estate company from scooping up a plurality of Transat shares in a bid to derail the pending acquisition by Canada's biggest airline.

Group Mach had offered $14 per share - an eight per cent premium over Air Canada's $13-per-share purchase agreement.

Transat spurned Group Mach's effort earlier this summer. The group has since been trying to secure at least 6.9 million, or 19.5 per cent, of the company's Class B shares at a cost of about $97 million.

Its chief executive Vincent Chiara has said he aims to then vote against Air Canada's offer, which needs at least two-thirds support from shareholders.

Companies in this story: (TSX:TRZ, TSX:AC)