Transat has agreed to a 30-day period of exclusive negotiations with Air Canada regarding a possible deal, which would value the company at $13 per share.
The company sells tour packages, hotels and air travel under the Transat and Air Transat brands.
Transat said that after being courted by several interested parties, the board had chosen to finalise negotiations on an exclusive basis with Air Canada.
Air Transat operates flights from Gatwick to Toronto, Montreal, Vancouver and Calgary.
Transat announced earlier this month that it was in talks with several potential buyers.