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Flair Airlines flap should prompt Ottawa to relax foreign ownership rules

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Thu Apr 21, 2022 - Toronto Star
by Rita Trichur

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'No Canadian cares if Americans, or other foreigners for that matter, control airlines that service destinations within Canada. We just want to pay the lowest possible price for a ticket.'

The fate of Flair Airlines is caught up in stifling and outmoded federal airline regulations, and Canadians should be outraged at the prospect of losing yet another discount carrier.

At issue is whether Edmonton-based Flair is actually controlled by foreigners, in contravention of federal law, despite the airline’s claim of being 58 per cent Canadian owned. Specifically, the Canadian Transportation Agency suspects U.S. investment firm 777 Partners is actually calling the shots at Flair, even though it only owns a 25-per-cent stake.

It seems three of Flair’s five directors are – gasp – U.S. citizens who have connections to 777 Partners. What’s more, Flair apparently leases a number of planes from the Miami-based investment firm and owes it a whole whack of money.

Oh my swirls! An American private equity firm is investing in our airline industry and providing us with a lower-cost choice for air travel to Canadian, U.S. and Mexican destinations. Predictably, rival airlines are kicking up a fuss. But good luck trying to find a Canadian who thinks this is an actual problem.

This regulatory fiasco involving Flair is the latest example of how Canada’s outdated laws and regressive attitude toward foreign investment doom discount airlines, limit competition and harm ordinary Canadians who are fed up with overpriced air fares.

The blame for this mess lies squarely with Ottawa. Instead of opening up Canadian skies to real competition from foreign-controlled airlines when it had the chance, the Trudeau government opted to merely tinker with our foreign investment rules.

Back in 2018, the government raised the foreign investment limit for airlines to 49 per cent from 25 per cent. But it also ensured that international investors had no path to gaining control of a Canadian carrier.

Under federal law, no single foreign investor is allowed to own more than a 25 per cent stake in a domestic airline. Moreover, the law prohibits foreigners from effectively controlling a domestic airline in other ways (such as exerting undue influence over its decision making or by running its daily operations). In the CTA’s regulatory parlance, such scenarios are known as “control in fact.”

Therein lies the rub with the Flair case.

The CTA is giving Flair until May 3 to straighten up and fly right, or risk losing its operating licence. Flair, meanwhile, is asking Transport Canada for an 18-month exemption to address the regulator’s concerns.

Obviously, Ottawa should grant an exemption. It’s a reasonable request. Jobs are on the line and customers could be stranded by an abrupt shutdown. Moreover, Flair needs enough time to shuffle its board, tidy up its debt and resolve any other lingering concerns.

But this farcical flap over who controls Flair should also prompt Canadians to question why our country maintains such antiquated laws in this day and age.

It’s clear our government’s aversion to foreign investors makes no sense. So, if Ottawa is serious about increasing competition in the airline sector, it must relax the remaining foreign ownership restrictions for airlines that fly domestic routes.

No Canadian cares if Americans, or other foreigners for that matter, control airlines that service destinations within Canada. We just want to pay the lowest possible price for a ticket.

Australia and New Zealand have a 49-per-cent foreign-ownership limit for domestic airlines that fly internationally, but foreign investors are allowed to own up to 100 per cent of carriers that only operate on domestic routes.

The Competition Bureau has previously advocated replicating that model in Canada for domestic air service. And, of course, the 2008 Competition Policy Review Panel argued there’s “no evidence that foreign-controlled airlines would be any more or less inclined than Canadian firms in servicing Canadian routes.”

So why do our legislators still look askance at deep-pocketed foreign investors?

Canada should pursue a variation of the Australian and New Zealand policies – one that would allow smaller airlines such as Flair that fly within Canada, and to U.S. and international destinations, to be 100-per-cent foreign owned and controlled.

Really, the only airline that should be majority Canadian-owned is Air Canada. That’s still a point of patriotic pride for some – even if our flag carrier showed Canadians little loyalty during the COVID-19 pandemic.

Remember Canada 3000, Royal Airlines and Jetsgo? How many money discount airlines need to fail before Ottawa pursues policies that create real competition?

Canadians shouldn’t have to pay through the nose for air travel. We’ve suffered long enough. And after being stuck at home for the past two years, now is the time to demand change.

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I totally disagree with this article.  
 

However, debate is good.  Shall Air Canada, WestJet et all open their doors to foreign money?  
I mean, 777 partners… don’t give your money to Flair!  Give it to AC or WJ and let’s make some real money!  But let’s go, let’s open the doors 🙂

 

I recommend giving Flair a little more time to find some Canadian $ and avoid shutdown but disagree to scrap the rules all other airlines in Canada have been following. 
 

I also believe that those (government officials) who approved Flair on the regulation side dropped the ball, so this isn’t just Flair management.  Hence, give Flair an extension. 

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17 hours ago, Airband said:

The Competition Bureau has previously advocated replicating that model in Canada for domestic air service. And, of course, the 2008 Competition Policy Review Panel argued there’s “no evidence that foreign-controlled airlines would be any more or less inclined than Canadian firms in servicing Canadian routes.”

That's not exactly what was said - from the executive summary of the report being cited there there were 3 statements re Air Service

Air Transport
The Panel believes that more foreign participation in the air transport sector is likely both inevitable, provided that “Open Skies” treaties can be negotiated between Canada and other nations, and desirable in terms of increased competitive intensity, which will benefit the travelling public.


Unilateral removal of foreign ownership restrictions on Canada’s international air carriers is not recommended, given that international air travel is governed by bilateral treaties.
 

Accordingly, Panel recommendations in the air transport sector focus on allowing greater foreign ownership on a reciprocal basis with other countries
and the completion of “Open Skies” negotiations with the European Union.
 

 

 

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Canadian Transportation Agency will issue a final public determination on June 1

May 4, 2022

Important Notice from the CTA on the Flair determination

Flair has submitted its response to the preliminary determination issued by the Agency on March 3, 2022. The Agency is in the process of reviewing it.

The Panel will consider all evidence and if it determines at the end of the process that Flair is not Canadian, Flair’s licences would be suspended.

On June 1st 2022, the Agency will issue a final public determination with reasons and conclusions.

The Agency does not comment on its determinations as they speak for themselves.

Please consult the reference material below for additional information. 

Reference material

News item – 2022-03-03 – The Canadian Transportation Agency issues preliminary determination on whether Flair is Canadian

Canada Transportation Act, SC 1996, c 10.

Background

The Agency is responsible for ensuring all air carriers licensed to provide domestic air services meet the Canadian ownership requirements set out in the Act. These requirements state that air service licensees must be owned and controlled “in fact” by Canadians. The Agency uses business and other information to determine whether a licence holder or applicant is “in fact” Canadian.

For more information, consult the CTA’s Guide to Canadian Ownership and Control in Fact for Air Transportation and frequently asked questions on air licencing.

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WestJet (Swoop) cries Fowl.

Does Flair play fair? Experts weigh in on airline’s route ‘exclusivity’ deals

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By Craig Lord  Global News
Posted May 21, 2022 5:00 am
 Updated May 20, 2022 1:47 pm

Flair Airlines says its cheap airfare and deals with regional airports are improving competition in the Canadian air industry, but as the Edmonton-based carrier seeks extra time to meet its licence requirements to keep flying, a rival airline is calling the company’s exclusive deals into question.

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In looking at Flair’s deals at the Waterloo International Airport (YKF), where it has exclusivity on some routes, some experts are torn on whether such arrangements are unfair or can actually increase choice for travellers seeking more convenient and affordable flights.

Flair is currently the subject of a licence review from the Canadian Transportation Agency, which found in a preliminary review released in March that it might not meet the Canadian ownership standards to fly in the country. A formal decision will be delivered on June 1, the watchdog says.

he ultra-low-cost carrier has outlined steps it’s taken to fix the CTA’s concerns since the initial ruling but has also asked Canada’s transportation minister, Omar Alghabra, for an 18-month extension to meet the standards and refinance debt tied to an American investor.

Global News has reviewed a redacted version of that submission, in which Flair champions its role in adding competitive, lower-cost fares to the Canadian air industry as a primary reason it should be allowed to keep flying while it addresses the CTA’s issues.

But low-cost rival Swoop, owned by WestJet, has cried foul over Flair’s agreements at the Waterloo airport boxing it out of routes to the southwestern Ontario city.

The airline said in a statement to Global News that it reached out to the airport authority last month to add service connecting Waterloo to Edmonton and Halifax starting this summer, but was denied.

“Unfortunately, our proposal was denied as Flair Airlines has a monopoly through an exclusivity agreement with the Region of Kitchener-Waterloo and the airport authority,” said Swoop president Bob Cummings in a statement.

“These types of agreements are not common in Canada because they prevent choice and competition for travellers. It is never in the public interest to allow monopolies to develop and we are disappointed that travellers do not have the option to choose Swoop when planning their next trip to or from the Kitchener-Waterloo region.”

 

Flair CEO Stephen Jones confirmed in a statement to Global News that the airline has exclusive rights to certain routes out of Waterloo and defended the arrangement as allowing it the freedom to build up service at the airport without the threat of other airlines crowding Flair out.

“Here’s the truth: every airline in Canada was offered a fantastic opportunity to fly from Waterloo on an exclusive basis, through a transparent RFP (request for proposals) process. Not a single one of our competitors bothered to respond,” Jones said in his statement.

“That’s how much they care about Waterloo. We do. Flair was the only one willing to take the risk and begin flying, and has developed a successful network and a great relationship with YKF.”

Exclusivity was Waterloo's idea

While Swoop’s criticisms about competition are levied largely at Flair, the Waterloo airport is the one behind the exclusivity arrangement, a program it launched roughly five years ago.

Airport director Chris Wood confirmed to Global News that Swoop’s request to add service to those routes was denied because they are locked up in exclusivity arrangements with Flair.

Wood also confirmed the airport has exclusivity deals with other airlines, though he did not provide specific names.

Wood says that when Waterloo introduced the program, it opened the gates to all airlines in Canada to make proposals for exclusive routes through the airport. Neither WestJet nor Swoop took Waterloo up on those offers, he says, though Swoop itself only began operations in the summer of 2018.

Cummings told Global News that the airlines “proudly declined to participate” in the program on “principle,” asserting that exclusivity is never right for consumers or the public interest.

“Having multiple carriers serving a market or route is how healthy competition works. It is in the best interest of the consumer to have multiple carriers, more choice, and lower fares. Flair and YKF’s multi-year exclusivity agreement confers an unfair advantage to one carrier to the detriment of consumers in the region,” he said in a statement.

 

But Wood says the program has “proven quite successful” since it began. Offering exclusivity gives airlines a chance to test out a route without the fear that a competitor will come in and undercut their prices, bullying them off the route, he says.

“This was something that was very attractive to certain carriers. Basically, it allows them to build a route without the threat of predatory behaviour that we have seen in this country before,” Wood says.

Flair, in particular, has been responsible for significant growth at the airport over the past few years.

Before Flair started flying from the airport, Waterloo saw roughly 100,000 passengers pass through in a year. It’s expecting 700,000 travellers in 2022 and hopes to hit one million next year.

“Most” of that traffic is coming through Flair, Wood says. The airport has plans to introduce another burgeoning carrier, Pivot Airlines, to its roster in the near future.

Is exclusivity anti-competitive?

Experts say measures that reduce competition on routes and artificially block other airlines from adding service are not illegal but can be unfair.

“Exclusivity, by its very nature, means keeping the competition out. So while (Flair is) talking about bringing lower fares to Canadians, especially to people of Waterloo … that’s anti-competitive, in my view,” says John Gradek, professor of aviation leadership at McGill University.

The only other example of exclusivity he knows of in Canada is Porter Airlines at Billy Bishop Airport in Toronto, but Gradek says the difference there is the airline owns the building itself.

Frederic Dimanche, director of the Ted Rogers School of Hospitality and Tourism Management, says he is torn on the concept.

He notes that it’s not unusual for regional airports to offer “special deals” or cheaper landing fees in order to attract low-cost carriers to their markets, but he has never heard of an exclusivity arrangement in Canada.

While he says the idea of exclusivity “goes against” the kind of competitive atmosphere Canadians and regulators would like to see in the airline industry, he notes that proving out new routes takes a considerable amount of time, research and risk.

Airports want airlines to succeed in building up their roster of destinations, and therefore it could be a “prudent approach” to allow exclusivity and let a route become established in the market before opening it up to competitors, he says.

“They don’t want any other airline to come in and cannibalize the potential success of a route,” he says.

In his statement, Jones accused Swoop of similar behaviour, alleging that many of the low-cost airline’s routes “mimic” those of Flair and suggesting they’d leave those markets if Flair were run out of town.

“This is exactly the kind of behaviour that YKF wanted to prevent by providing a time-limited exclusivity on specific markets. It allows an entrepreneurial carrier time to establish a market without WestJet or its puppet, Swoop, dumping capacity and copying the innovator, and then disappearing again when their dirty work is done,” he said.

Citing WestJet’s 15-year presence in Waterloo, Cummings shot back at the claims the airlines were not committed to the region and said Swoop had always planned to expand to the airport as part of its efforts to ramp up in the Ontario market post-pandemic.

“We are not the carriers at risk of leaving or being shut down,” he said.

Dimanche says that he would be surprised if any airport let that exclusivity reign for long once a route has proven successful. Letting airlines have a long-standing monopoly on a route often leads to higher prices than when they’re competing with another carrier for passengers, he notes.

 

Cost of flights are going up amid strong demand for travel – Apr 14, 2022

Wood confirmed that the exclusivity deals it has with airlines are “time-limited” but did not say how long agreements tend to last.

From Waterloo’s perspective, letting Flair come in and run a route to Vancouver, for example, gives Ontario residents more choice when it comes to flying out west. Before Flair, Waterloo residents could fly to Calgary and transfer to get out west or drive to Toronto’s Pearson International Airport for the flight.

Now, they’ve got a bit more choice in how they make their trip, Wood argues.

“We’ve increased competition from what we had before because there was none,” he says. “Pearson is everybody’s local airport, and we’re trying to change that.”

Flair likely to fly over the summer, experts say

If the transport minister and CTA are interested in increasing competition in the Canadian airspace, they likely will keep Flair in the air for at least a while longer, experts say.

Gradek says that Alghabra likely won’t grant Flair the full 18 months it requested to find Canadian financing and meet the ownership requirements, but he could see the airline getting another three or four months.

“I don’t think there’s an imminent shutdown of Flair. They’re going to give them some time and probably allow Flair to go through the summer,” he says.

Dimanche agrees, and says the airline is likely to get a bit of “leeway” in the months ahead as it works towards fixing the ownership concerns.

“I think overall, it’s going to be good for the competitive environment in Canada, and that’s something that the federal agencies should be looking forward to,” he says.

Wood says Waterloo has been hurrying through a $35-million facelift for the airport including a new departures building to accommodate the anticipated volume from Flair.

Construction will fully wrap up just a day before Flair launches its expanded summer travel schedule out of the airport on June 7 — assuming its licence is in place.

Wood says he’s “very confident” that Flair has “addressed the concerns” raised by the CTA and that it will still be flying this summer.

But if Flair is grounded, he’s also convinced that the market to fly into and out of Waterloo “has now been proven.”

“We now have the facilities. We now have the room. So potentially, there are other carriers out there that could step in and provide some service” if Flair bows out, Wood says.

 will lose license on May 3: CEO

There is ‘zero chance’ Flair Airlines will lose license on May 3: CEO – Apr 21, 2022

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I think the exclusivity is good as at least a temporary measure. We all know the Big Two want to start their service, kill Flair and then after a while say "Gee, I guess there is no market here. Too bad Flair doesn't exist anymore". We know your game AC and WJ. It reminds me of AC abandoning YTZ until Porter came along. Then all of a sudden they were interested again but it was too late.

Flair just won the CTA judgement. "To quote an earlier article...."Aviation observer and McGill professor Karl Moore said this week he wouldn’t be surprised if the regulator was prepared to show some flexibility at a time when the travel industry is still recovering from the devastating impacts of the COVID-19 pandemic.

 

“Really you have two dominant players and most Canadians would realize that it’s not a lot of competition compared to the U.S. or Europe or Asia,” Moore said.

“CTA and Canadians want them to solve the problem because they want more competition.”

 

In other words, AC and WJ are screwing over pax. It is about time someone started offering lower prices. The dominant players should try cutting their costs to cover instead of charging very high prices.

 

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The official Ruling:

Quote

Determination No. A-2022-63

June 1, 2022
 

DETERMINATION by the Canadian Transportation Agency (Agency) as to whether Flair Airlines Ltd. (Flair) is Canadian, as defined in the Canada Transportation Act, SC 1996, c 10 (CTA).

 
Case number: 
21-16434
 

BACKGROUND

[1] The CTA requires that air carriers holding certain licences issued by the Canadian Transportation Agency (Agency) be Canadian, as defined in subsection 55(1) of the CTA. This is a requirement that must be complied with at all times.

[2] Flair holds licences authorizing domestic, scheduled international, and non-scheduled international air services (large aircraft) to which subsection 55(1) applies.

[3] On March 3, 2022, the Agency issued a preliminary determination (Preliminary Determination) finding that the influence of 777 Partners LLC (777), a non‑Canadian, over Flair was dominant and that 777 may have control in fact of Flair and consequently Flair may not be Canadian, as defined in subsection 55(1) of the CTA.

[4] The Agency found in its Preliminary Determination that 777 may have control in fact of Flair on the basis of the following: it had assumed the majority of risks and was entitled to the majority of benefits in respect of Flair’s operations; it controlled the Board of Directors (Board); it held rights that exceeded those granted to the other shareholders; it had played an active role in the management of Flair’s business; it was in a position to select whom it would bring in as a new shareholder; and, finally, Flair was dependent on 777 for its financing and leasing of aircraft. After considering all of these together, the Agency found on a preliminary basis that 777 may control in fact Flair.

[5] The Agency provided Flair with the opportunity to show cause, no later than May 3, 2022, why the Agency should not find that Flair is not Canadian and, therefore, cancel Flair’s domestic, scheduled international, and non-scheduled international licences.

[6] On May 3, 2022, Flair filed its response to the Agency’s Preliminary Determination, including amendments to its Unanimous Shareholder Agreement (USA) and a Promissory Note, to address concerns raised by the Agency in its Preliminary Determination. Flair, with the concurrence of the Agency, subsequently filed additional information, including executed versions of the amended USA and Promissory Note.

[7] The USA defines the relationship between the individual shareholders and Flair, including with respect to the corporate governance of Flair, and the assignment of rights among the shareholders. The Promissory Note governs the debt arrangement between Flair and 777.

SUMMARY

[8] The Agency finds, after considering all of the facts, that the changes implemented since the Agency’s Preliminary Determination, including to the USA and Promissory Note, have addressed the concerns raised by the Agency in its Preliminary Determination.

[9] Accordingly, the Agency finds that, as Flair meets the incorporation and voting interest requirements and that Canadians control in fact Flair, Flair is Canadian, as defined in subsection 55(1) of the CTA.

THE LAW AND GUIDANCE MATERIAL

[10] Pursuant to subparagraphs 61(a)(i), 69(1)(a)(i) and 73(1)(a)(i) of the CTA, Flair must be Canadian to provide domestic, scheduled international, or non-scheduled international air services, respectively.

[11] Pursuant to subsection 63(1), 72(1) and paragraph 75(1)(a) of the CTA, the Agency shall suspend or cancel the domestic, scheduled international, or non-scheduled international licence, respectively, where the Agency determines that the licensee is no longer Canadian.

[12] Pursuant to subsection 55(1) of the CTA, Canadian means:

(a) a Canadian citizen or a permanent resident as defined in subsection 2(1) of the Immigration and Refugee Protection Act,

(b) a government in Canada or an agent or mandatary of such a government, or

(c) a corporation or entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least 51% of the voting interests are owned and controlled by Canadians and where

(i) no more than 25% of the voting interests are owned directly or indirectly by any single non-Canadian, either individually or in affiliation with another person, and

(ii) no more than 25% of the voting interests are owned directly or indirectly by one or more non-Canadians authorized to provide an air service in any jurisdiction, either individually or in affiliation with another person.

[13] Canadian status determinations are based on the Agency’s application of the definition of “Canadian” found in the CTA to information that an applicant has provided about matters such as its corporate structure, governance, service contracts, debt, and equity. This application of the statutory definition to information submitted is informed by the considerations laid out in the Guide to Canadian Ownership and Control in Fact for Air Transportation (Guide).

OWNERSHIP AND DEBT INTEREST

[14] The voting interests in Flair are owned and controlled 58.3 percent by Canadians and 41.7 percent by non-Canadians.

[15] The majority of Flair’s funding is provided through debt arrangements. In addition to its equity investment, 777 has also provided approximately 70 percent of Flair’s debt financing. The balance of the debt financing is held by a number of non-Canadian lenders.

[16] Flair and each of its shareholders are party to a USA that defines the relationship between the individual shareholders and Flair, including with respect to the corporate governance of Flair and the assignment of rights among the shareholders.

ANALYSIS

[17] Three requirements must be met for an air carrier to be considered Canadian: (1) the incorporation or formation requirement, (2) the voting interest requirement, and (3) the control-in-fact requirement.

[18] The first requirement is met if the corporation or entity is incorporated or formed under the laws of Canada or one of its ten provinces.

[19] The second requirement is satisfied if at least 51 percent of the voting interests in the corporation or entity are owned and controlled by Canadians, with no single non‑Canadian or group of non-Canadian air service providers directly or indirectly owning and controlling more than 25 percent of the voting interests, either individually or in affiliation with another person.

[20] The third requirement typically entails the most analysis. Control in fact is the power, whether exercised or not, to control the strategic decision-making activities of an enterprise and to manage and run its day-to-day operations. The influence needs to be dominant or determining to be considered, “control in fact”. The analysis to determine control in fact is done after considering all of the facts together, taking into account many factors recognizing that each case is unique.

[21] Where the ownership of the licence holder resides with one or more entities, the definition of Canadian is also applied to each of those entities. If, in turn, they are owned by other entities, the Agency must determine who controls the company up to the top of the ownership chain, applying the definition of Canadian at each level of the corporate ownership structure.

Incorporation and voting interest requirements

[22] Flair is incorporated under the laws of the Province of British Columbia. Flair’s voting interests are owned and controlled 58.3 percent by Canadians with no single non‑Canadian or group of non-Canadian air service providers directly or indirectly owning more than 25 percent of the voting interests, either individually or in affiliation with another person.

[23] The Agency finds that Flair meets the incorporation and voting interest requirements to be Canadian.

Control-in-fact requirement

[24] The Guide explains the factors the Agency considers in assessing control in fact. The factors fall into four categories: i) corporate governance; ii) shareholder rights; iii) risks and rewards; and, iv) business affairs and activities.

[25] The Agency considers and weighs all facts together to make a determination. As well, control does not need to be exercised for a person to have control in fact. When the individual has the ability to control, whether they use it or not, they are considered to have control in fact.

[26] The Agency’s assessment of the control-in-fact requirement follows.

(i) CORPORATE GOVERNANCE

[27] These factors pertain to whether or not non-Canadians are able to influence decision‑making by influencing the Board or officers of the company, and whether quorum provisions for shareholder and Board meetings could allow non‑Canadians to control decision-making.

(a) Shareholder meetings

[28] A quorum indicates the minimum number of voting shareholders that must be present at a meeting for the meeting to be considered valid. A corporation’s quorum provisions must require that no less than half of the shareholders present at a meeting be Canadian.

[29] The Agency noted in its Preliminary Determination that, in accordance with the provisions of the USA, it was possible for a quorum to be established with Canadian shareholders controlling less than 50 percent of the votes. Further, the USA provided that if a quorum is not present at the beginning of any shareholders’ meeting, the meeting would be adjourned until 7 days later, at which point, only 777 must be present to form a quorum. The Agency’s concern was that 777 could have had the means to control the proceedings of a shareholders’ meeting.

[30] Flair has amended its quorum provisions to require that no less than half of the voting rights to be exercised at any shareholder or adjourned shareholder meeting must be held by Canadians to constitute a quorum. The requirement for 777 to be present to form a quorum has been removed, significantly lessening 777’s potential to control the proceedings.

[31] The Agency finds that its concerns related to the quorum requirements for shareholders’ meetings have been addressed.

(b)  Board of Directors

[32] The Board is elected by the shareholders to govern and manage the affairs of the corporation. For control in fact to reside with Canadians, (i) Canadian shareholders must have the right to appoint no less than half of the Board, and (ii) no less than half of the members of the Board must be Canadian.

[33] The Agency expects a corporation’s quorum provisions for Board meetings to require that no less than half of the directors present be Canadian and that no less than half of the directors present to have been appointed by Canadian shareholders. In the case of tie-break votes, the deciding vote must be cast by a Canadian appointed by Canadian shareholders.

[34] The same director and quorum requirements generally apply to Board committees.

[35] The Agency noted in its Preliminary Determination that neither of these requirements were met, noting that the Board, at the time, had five sitting members, three of whom were non-Canadian directors appointed by 777, thus giving 777 the potential to control the management of the company.

[36] Flair responded that the USA has been amended to require that no less than half of the Board will at all times be comprised of Canadians who have been designated or appointed by Canadians. The USA provides for nine directors with seven of the directors to be designated or appointed by Canadians. Further, amendments have been made to the quorum provision for directors’ meetings to ensure that no less than half of the directors in attendance are Canadian and have been designated or appointed by Canadian shareholders. In the case of a tie-break vote, the deciding vote will be cast by a Canadian Chair of the Board designated or appointed by Canadian shareholders. The same requirements have been applied to committees of the Board.

[37] Flair has also confirmed that one of the 777-appointed directors has resigned from the Board resulting in there presently being four sitting members, two of whom are non‑Canadians. In the case of a tie vote, the tie-breaking vote would be cast by one of the Canadian directors.

[38] The Agency notes the changes related to Flair’s Board, including composition and quorum requirements, and finds that its concerns regarding 777’s power to control the Board, and thereby to manage the affairs of the company, have now been addressed.

(c) Officers

[39] Officers of a corporation serve at the pleasure of the Board. They are entrusted with the day-to-day responsibility of running the corporation. Officers do not need to be Canadian for the corporation to be considered Canadian by the Agency. However, they should be at arm’s length from non-Canadian shareholders and the directors appointed by them.

[40] The Agency noted in its Preliminary Determination that 777 controlled the Board at the time, and was consequently in a position to appoint the officers of Flair. The Agency further noted that, for a period of time, persons associated with 777 were filling in as the acting Chief Financial Officer and acting Chief Information Officer of Flair and that these appointments demonstrated the active role that 777 appears to have taken in the management of Flair’s business.

[41] Flair in its response states that these individuals never formally took on roles within Flair or held any authority over the airline. Their roles were advisory only, and were always meant to be temporary, purely to ensure continuity of Flair’s operations until qualified candidates could be identified. As soon as qualified candidates were identified and hired, the individuals associated with 777 ceased their advisory roles. The search for qualified candidates was completed in October 2020, and the roles were filled on a full‑time basis by independent Canadians. The individuals associated with 777 have not acted in their temporary advisory capacities since then.

[42] The Agency is satisfied that Flair’s officers are at arm’s length from any non-Canadian shareholders and any directors appointed by them and that going forward any officers will be appointed by Flair’s Board, which is itself controlled by Canadians.

[43] Therefore, 777 does not have the means to control the company through the Board’s appointment of the officers of the company.

(ii) SHAREHOLDER RIGHTS

[44] The Agency considers several factors when assessing whether shareholders have the power to exert influence over a company’s decisions, including veto and security rights.

(a) Veto rights

[45] Veto rights allow a shareholder to reject a resolution despite the resolution having majority assent of the voting shareholders. The Agency noted in its Preliminary Determination that, pursuant to the USA, 777 had a number of veto rights that other shareholders did not have. The Agency also noted that 777’s veto rights over Flair’s sale, purchase, or lease of any aircraft enabled 777 to control key strategic and operational decisions that are dependent on the timing of aircraft acquisitions, on fleet size and on aircraft type.

[46] Flair responded that the USA has been amended to remove these veto rights. A copy of the amended USA has been provided to the Agency.

[47] The Agency finds that its concerns related to veto rights held by non-Canadian shareholders have been addressed and, therefore, 777 does not have the means to control the company’s decisions on these matters.

(b)  Security rights

[48] In addition to voting rights, other rights and privileges can be attached to securities that could give non-Canadians the power to control Flair’s strategic decision-making activities and to manage and run its day-to-day operations.

[49] The Agency noted in its Preliminary Determination that 777 holds a Promissory Note, as a result of debt it has issued to Flair, that includes rights allowing 777 to convert a portion of the debt for shares in Flair, but only as long as they do not exceed the 25% voting interest limitations placed on non-Canadian investors. Alternatively, 777 can transfer its rights to assignees who can convert the debt into a voting interest in Flair, as it did in March 2021, and thus is in a position to influence the composition of Flair’s ownership group. Through these debt conversion rights, 777 is able to dilute the voting interests of existing shareholders while avoiding dilution of its own shares, thus creating the potential to increase its influence relative to other shareholders.

[50] Flair in its response points out that there are now new provisions in place to limit the overall voting interests of non-Canadians consistent with the definition of Canadian, as defined in subsection 55(1) of the CTA. Flair further states that while 777 has assigned certain of its rights under the Promissory Note to third parties, this has actually increased the number of Canadian shareholders, and that all of the third parties are independent and at arm’s length from 777.

[51] The Agency notes that any concerns it may have over the debt conversion rights are mitigated by the debt conversion rights providing for a relatively small remaining voting interest to be assigned and by the fact that rights that have been assigned so far have been assigned to arm’s-length third parties and, accordingly, these do not trigger a concern regarding non-Canadian control.

(iii) RISKS AND REWARDS

(a) Risks and benefits

[52] The Agency generally expects that the parties that assume the majority of the risks and are entitled to the majority of benefits related to an air carrier’s operation are also the parties with the ability to exercise control in fact.

[53] The Agency noted in its Preliminary Determination that a Canadian investor and 777 each hold the two largest equity interests in Flair. 777 also holds a Promissory Note issued by Flair. The Agency noted that, on this basis, 777 can be considered to have assumed the majority of investment risk in the business. Likewise, based on 777’s equity interest in Flair and the interest income it is entitled to on the Promissory Note, 777 can be considered to be entitled to the majority of benefits. 777, as the party that has assumed the majority of risks and is entitled to the majority of benefits, would consequently be expected to be in a position to hold control.

[54] Flair argues that the above-noted factors are not determinative of control in fact. Flair states that the Agency has consistently held that it will consider whether the non‑Canadian has the motivation, inclination and intention, and ability to exercise control in fact over the Canadian carrier and that 777 has no motivation, inclination, or intention to control Flair. Flair further argues that 777 provided additional funding to Flair throughout the COVID-19 pandemic when it required additional financial support and, at the same time, to protect its own investment in the company and not to control the affairs of Flair. Flair further puts forward that the Agency has previously held that, in determining intent, it will take into account the nature of the business of the non‑Canadian investor, for instance, whether the non-Canadian lender is a foreign air carrier. In this case, Flair states that while 777 has some investments in aviation, it is not a foreign air carrier, and aviation is not its sole business.

[55] The Agency does not find Flair’s arguments convincing on this matter. Irrespective of the reasons for 777’s investment in Flair, it has assumed the majority of risks and is entitled to the majority of benefits, as a result of its significant investment in the equity and debt of the company. 777 is a sophisticated investor with expertise in the aviation sector and the Agency is not convinced that 777 does not have the motivation or intent to control in fact Flair. Indeed, 777’s involvement so far has not, from the Agency’s perspective, been akin to a passive investor. However, the Agency notes that while 777 could have the intent to influence the strategic direction of Flair, it also requires the means to do so in order to be able to control the company. The matter of means is addressed below.

(b)  Rights held by shareholders

[56] When a non-Canadian investor is the sole holder of a right or of a disproportionate number of rights, it can indicate that control in fact resides with non-Canadians.

[57] The Agency noted in its Preliminary Determination that the rights that 777 holds pursuant to the USA, namely the rights to appoint directors and its veto rights, greatly exceeded those of the Canadian shareholders. The disparity between 777’s rights and those of other shareholders, when compared to their respective equity interests, indicates that control would appear to reside with 777.

[58] Flair in its response argues that the disparity in the rights held by Canadian shareholders, with similar ownership interests to that of 777, namely to appoint directors, has been addressed by the reduction in the number of directors that 777 can appoint and by providing similar rights to other shareholders. Flair further states that 777’s veto rights under the USA referred to in the Preliminary Determination have been removed. Flair also indicates that certain rights that only 777 had in respect of the quorum provisions for Board meetings have also been removed.

[59] The Agency finds that its concerns regarding 777’s rights as a shareholder and, therefore, its power to control the company have been addressed.

(iv) BUSINESS AFFAIRS AND ACTIVITIES

(a) Debt and guarantees

[60] In situations where the monetary size of the debt held by non-Canadians is significant compared to the other sources of financing or if there is a dependency upon a guarantee from a non-Canadian, non-Canadians can be in a position to indirectly exercise control over the company.

[61] The Agency stated in its Preliminary Determination that Flair’s dependence on 777 for financing, along with 777’s ability and apparent willingness to exert its control over Flair, are strong indicators that Flair may be controlled in fact by 777. The majority of the debt is held by 777 via a Promissory Note. Further, the specific interest rate charged on the Promissory Note is an indicator that Flair is viewed as high risk by investors, casting doubt on whether it could secure replacement or additional financing elsewhere in the marketplace. The relatively short time periods between maturity dates with the continual requirement to extend the financing on the Promissory Note could provide 777 with the means to exert control over Flair. Further, 777 demonstrated that it is able to use its financing position as leverage when, in October 2020, it required Flair, as a condition to advancing additional monies on the Promissory Note, to agree to 777 receiving a three-year business plan for Flair that was acceptable to 777 and to certain changes to the company’s officer and Board composition.

[62] Flair in its response argues that the Agency has previously stated that the financing of aircraft has an international aspect to it and that an attempt to impose a Canadian financing requirement on air carriers would result in severe and unacceptable restrictions. Flair further argues that the Agency has specifically held on prior occasions that some degree of influence—even substantial influence—over the affairs of the carrier is acceptable and that control in fact concerns do not arise when the lender and borrower are operating on an arm’s length basis. Influence has to be dominant or determining to result in control in fact.

[63] The Agency acknowledges that financing from international sources does not necessarily create control in fact concerns. The Agency notes that any such consideration is to be made based on the facts of each situation. The Agency notes that influence has to be dominant or determining to result in control in fact.

[64] Flair in its response states that it is cash self-sufficient and has not accessed funds from 777 since mid-March. Flair has filed information with the Agency to confirm its cash position, including cash flow forecasts. Flair believes it will be able to generate sufficient cash reserves during the summer travel season to remain self-sufficient throughout the slower winter season. In the event that there is a further downturn in the aviation market and that Flair requires further financing during the winter season, Flair believes it will be able to access financing from Canadian sources. Should Flair have to resort to non-Canadians for further financing, Flair undertakes to submit the terms of any such financing to the Agency prior to proceeding with the transaction. Flair states that it is in discussions with the investment arm of a Canadian bank and private equity firms to explore financing alternatives to strengthen the airline’s financial position. Flair also states that it intends to list its shares on public equity markets through an initial public offering (IPO) with the funds to be used to repay the debt held by 777 and to build cash reserves.

[65] The Agency notes that Flair’s future plans to limit its dependence on 777, such as by obtaining funds through an IPO, are uncertain future events that do not address present-day concerns that Flair may be controlled in fact by non-Canadians. However, the information provided by Flair demonstrating that it is presently cash flow self‑sufficient mitigates concerns that Flair will continue to be dependent on 777 for new additional funding in connection with its future operational activities. It does not, however, address the concerns about Flair’s dependence on 777 in respect of the existing outstanding debt.

[66] The Agency notes that the risk remains that should there be a downturn in the aviation sector in general, or in Flair’s business in particular, it could require Flair to seek additional financing, at which point Flair may need to turn to 777 if it cannot secure the funding through other sources. The Agency, however, recognizes that it is not the case at the moment given that Flair is cash flow self-sufficient and forecasts, based on its bookings, that it will continue to be so. Flair is also in the process of negotiating an operating line of credit, which demonstrates some capacity to access financing other than solely through 777.

[67] Flair, in its response, indicated that it has recently expanded its credit facility with certain non-Canadian lenders and used the proceeds to pay down a portion of the debt held by 777. Flair has also noted that 777 has extended the maturity date for the Promissory Note to March 17, 2026, and has agreed to modify events of default in the Promissory Note so that it would be unable to call the Promissory Note other than in limited circumstances, such as in the case of insolvency, bankruptcy or winding up of the company. Flair argues that these actions are further indicators that 777 has no intent to leverage its financial position to exert control over Flair and that collectively, with all of the other changes, the ability of 777 to exert influence over Flair using the Promissory Note as leverage is removed.

[68] The Agency finds that extending the Promissory Note’s maturity date to 2026, while at the same time amending the Promissory Note to limit 777’s ability to call the loan, provides for the debt funding to continue to be available until at least 2026 and, as such, considerably mitigates 777’s ability to exert influence over Flair. Consequently, the Agency finds that its concerns regarding Flair’s financial dependence on 777 have been sufficiently addressed.

(b)  Lease of assets

[69] Control in fact may be indicated when an air carrier is dependent on a party to lease assets that cannot be acquired otherwise.

[70] The Agency noted in its Preliminary Determination that Flair has 12 aircraft (since increased to 14) under operating leases which are either leased from affiliates of 777 or are guaranteed by 777 or its affiliates, and that 777 had a veto over all of Flair’s aircraft lease decisions and, as such, Flair depends on 777 for the provision of aircraft, which is a strong indicator of control in fact.

[71] Flair in its response argues that the Agency has previously held that aircraft leases, even on favourable terms, do not give rise to control in fact issues, particularly if the air carrier remains responsible for the operating costs and if the leasing arrangements are consistent with market conditions and/or actual business needs of the air carrier. Flair states that it is responsible for the costs associated with the leased aircraft, the leasing of the aircraft is consistent with its business needs, and that the leases employ industry-standard arm’s length terms, including with respect to rent, and do not give rise to any element of control over Flair to lessors and guarantors. Flair states that 777’s veto rights over Flair’s leasing decisions have all been eliminated from the USA.

[72] Subsequent to filing its response on May 3, 2022, Flair informed the Agency that it has agreed to purchase one Boeing MAX 8 aircraft from 777. Flair has also been assigned the direct purchase rights previously held by 777 to acquire from Boeing five new MAX 8 aircraft. Flair has agreed to a sale and leaseback finance arrangement with independent aircraft lessors to fund the direct lease of the existing aircraft that is being acquired from 777 and for four of the new aircraft to be acquired from Boeing. These leases are not subject to any guarantee or financial assistance from 777. The first of these aircraft is to be delivered in June 2022. Flair has filed with the Agency term sheets reflecting these arrangements.

[73] The Agency recognizes that aircraft leases with non-Canadians, including non-Canadian shareholders of the company, do not necessarily give rise to significant control in fact issues, but also notes that such a determination must be considered after taking into account the relevant facts of each situation. In the present case, the Agency’s concerns are not tied to the specific terms and conditions of the lease arrangements with 777, but rather on Flair’s dependence on 777 for its aircraft given its financial position and, particularly, in light of 777’s veto rights. With the elimination of 777’s veto rights, the remaining issue is whether Flair remains dependent on 777 for the lease of its aircraft. The Agency notes that the lease agreements provide for an average remaining lease term of 9 years and do not provide 777 with the ability to take back the aircraft before the end of the lease term except in the event of default. Further, Flair has demonstrated that it can lease new aircraft without having to rely on a guarantee being provided by 777.

[74] Consequently, the Agency finds that its concerns related to Flair’s dependence on 777 for its aircraft have been addressed.

(c) Financial strength and business activity

[75] The comparative financial strength, business activity and relevant expertise of individual shareholders can indicate which shareholders exercise influence and control in fact over an air carrier.

[76] The Agency noted in its Preliminary Determination that 777’s senior management team has expertise in the airline industry overseeing an aviation portfolio while 777 has the means to fund Flair’s operations, something Canadian shareholders, either individually or as a group, have not been able to accomplish. 777’s unique position of financial strength among shareholders enables it to exert significant influence, and its expertise in the aviation sector puts it in a position to assume more than a passive role in the strategic and operational decisions of Flair.

[77] Flair in its response argues that the Agency has previously held that a larger and financially stronger company would not necessarily gain control of a smaller and financially weaker company, as long as the relationship between the two companies is determined by agreements in place or where it lacks the means through which to exercise control in a dominant and determinative way. Flair states that the changes that have been made to corporate governance, veto rights, and to the terms of the Promissory Note, along with Flair having become cash flow self-sufficient, have removed the means through which control could be exercised.

[78] The Agency notes that a relationship with a larger and financially stronger company is not automatically considered as being determinative of control, but is nonetheless a factor that is to be taken into account, along with all of the other information before the Agency in rendering its determination.

DETERMINATION

[79] The Agency finds that the amendments to the USA, the Promissory Note, and to the overall corporate governance structure have served to significantly reduce or remove the means through which control can be exercised. Canadians are now in a position to control shareholder and Board meeting business, and 777’s rights are consistent with the rights that are held by Canadian shareholders who have a similar economic interest to 777.

[80] Flair continues, however, to be financially dependent on 777 for the ongoing funding of its operations, including the leasing of its aircraft. While Flair has communicated an intent to diversify its funding sources, no such changes have yet occurred.

[81] While Flair continues to be financially dependent on 777 for the majority of the existing debt, Flair has demonstrated that it is now in a position to generate positive cash flow from operations to the point of being cash self-sufficient, which alleviates concerns it would continue to be dependent on 777 for additional new financing. Further, the extension of the Promissory Note’s maturity date to 2026 while, at the same time, limiting 777’s ability to call the loan, provides for the necessary debt funding to remain in place while significantly restricting 777’s ability to use it as a means to exert control over Flair.

[82] Flair now has the ability to acquire aircraft from suppliers of its choosing, as 777 can no longer unilaterally veto aircraft acquisition decisions. In respect of Flair’s current fleet, the length of the leases and the lease terms and conditions provide for the aircraft to remain available, thereby limiting the ability of 777 to exert its influence. Further, Flair has demonstrated that it can lease new aircraft without having to rely on a guarantee being provided by 777.

[83] The Agency, after considering all of the facts together, finds that 777 is not in a position to exercise control in fact over Flair. Moreover, with the changes to the corporate governance structure, Flair is controlled in fact by Canadians.

[84] In light of the foregoing, the Agency finds that Flair is Canadian, as defined in subsection 55(1) of the CTA.

 

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  • 3 weeks later...

Flair Airlines shakes off regulator's scrutiny — now can it survive the market?

Discount upstart faces steep challenge in airspace dominated by two giants

Author of the article:
Meghan Potkins
Publishing date:air Airlines Ltd.'s future looked anything but assured in April when it became clear that an investigation by the Canadian Transportation Agency (CTA) had raised serious questions about the airline's relationship with its American backer, private-equity firm 777 Partners Ltd. PHOTO BY FLAIR AIRLINES

Flair Airlines Ltd. is clearly relishing this moment. The upstart carrier prevailed in a recent ruling by Canada’s aviation regulator that deemed the company sufficiently Canadian to continue flying domestically. Flair responded with a flash seat sale, discounting fares by 50 per cent, and let loose a blast of triumphant tweets: “We’re here… still,” the company cheekily wrote. “Blue skies ahead.”

 

Article content

 

It wasn’t obvious a few months ago that Flair would still be flying this summer.

 

The discount carrier’s future looked anything but assured in April when it became clear that an investigation by the Canadian Transportation Agency (CTA) had raised serious questions about the airline’s relationship with its American backer, private-equity firm 777 Partners Ltd. The CTA first suggested in March that Flair could be in violation of Canadian foreign ownership rules, and, as a result, faced the potential loss of its operating licence.

 

In the intervening weeks, Flair scrambled to overhaul its shareholder agreement, stripping 777 of unique veto rights and pledging to boost the number of Canadian directors on its board. The Edmonton-based airline also amended a loan agreement with 777 in a bid to decrease the American investor’s ability to exert control over Flair.

 

“Though we never doubted it, it’s still amazing for us to stand here today and say that Flair is Canadian,” chief executive Stephen Jones told reporters at a press conference staged at an Edmonton airport hangar. “The question has been answered. It’s done.”

 

As a result, the upstart carrier is set to continue its aggressive expansion in Canada’s duopolistic market, using the ultra-low-cost carrier model perfected by the likes of Ryanair Holdings PLC and Wizz Air Hungary Ltd. in Europe and Spirit Airlines Inc. in the United States. The company is emerging from the pandemic with 14 aircraft, plans to add five more to its fleet by July, and have 30 by mid-2023.

 

But to understand how close Flair came to being grounded by the CTA, it’s worth looking at the risky partnership it struck with its American backers when Canadian capital to support the scrappy airline failed to materialize. The partnership rescued the company from the brink of financial ruin, but put it squarely in the crosshairs of the Canadian regulator.

‘They made Flair beg for every penny’

 

There used to be a wall at WestJet Airlines Ltd.’s corporate headquarters in Calgary that displayed the names of airlines that had failed or gone bankrupt in Canada over the years, a stark reminder that the airline business is tough for an upstart carrier, as WestJet once was, and a reminder to its employees never to take success for granted.

 

“It’s just a market where it’s hard to make money,” said Karl Moore, an associate professor at the Desautels Faculty of Management at McGill University in Montreal. “Particularly against strong competitors like Air Canada or WestJet that can, to some degree, sit on you a bit by running multiple routes and doing things like that.”

 

Industry experts point to the significant stumbling blocks for new carriers such as Canada’s vast geography and a regulatory environment that has protected Canadian control of the domestic sector while blocking the kind of competition that could drive down fares.

In recent years, Air Canada and WestJet have controlled roughly 85 per cent of domestic seat capacity. The lack of competition has meant fares to some U.S., Caribbean and European destinations are sometimes cheaper than flights within Canada.

 

Into this duopolistic environment emerged Flair Airlines in 2017 with big ambitions to take on the major carriers.

 

The company launched in 2005 in Kelowna, B.C., as an operator of charter and cargo flights, but armed with a modest investment from its original Canadian backers, the carrier made a huge bet it could expand and capture market share with cheap fares and no-frills service to airports in secondary markets. Flair Airlines launched in 2017 with big ambitions to take on the major carriers. PHOTO BY LARRY WONG/POSTMEDIA

But by 2018, Flair was in dire financial straits and at risk of joining the scrapheap of defunct Canadian commercial airlines if a financial lifeline couldn’t be secured. Flair reached out to 777, and the Miami-based firm came on as an investor, eventually taking a 25-per-cent stake in the airline — the maximum allowed for any single non-Canadian entity.

 

Emails viewed by the Financial Post show just how dire the situation was in the spring and summer of 2018 as the Miami-based investment fund was coming to grips with the full extent of the airline’s problems.

The airline was losing money every month and underperforming on key metrics.

Senior members of 777’s investment team wrote to former Flair chief executive Jim Scott and former chief financial officer Jim Young in July 2018, questioning how the company was managing while sustaining monthly financial losses of between $2 million and $4.8 million: “How has Flair been funding this loss since last time 777 wired funds to Flair on June 1st?” one 777 executive asked in an email.

The emails suggest 777 helped keep Flair solvent during that period and provided performance targets and strategy. At least one 777 employee also appeared to negotiate on behalf of the airline with airports and other companies.

In one email exchange about finding ways to make Flair profitable, a 777 employee said he planned to meet with Edmonton International Airport vice-president Myron Keehn to discuss fuel vendors. The same email also indicated the employee intended to join in discussions between Flair and partner airline Bradley Air Services Ltd. (operating as Canadian North), from which the discount carrier leased aircraft.

 

“We must not forget that we owe a huge debt for the support of 777 in taking on Flair and being our backer. Everyone in 777 is invested in making Flair a success,” Timothy O’Neil-Dunne, a former 777 principal who also served as chief commercial officer of Flair at the same time, said in a subsequent August 2018 email to staff.

 

“That is not about control — it is about a great amount of resources that they have available and we can use … Remember, they are as much of our team as anyone.”

 

One former senior employee at Flair, who did not want to be identified, said the airline frequently struggled to pay its bills and depended on cash from 777 to stay afloat.

 

“They made Flair beg for every penny that they got, but almost every month they had to shell out money to Flair,” the employee said. “Every single month just to make ends meet.”

 

Flair declined to comment on 777’s prior involvement in the company, suggesting only that the matter is now closed.

 

“Flair Airlines is firmly focused on a future where we will bring low fares to Canadians coast to coast,” Jones said in a statement. “I encourage those who are new to Flair to visit our website to see for themselves.”

Flair has also declined to publicly disclose just how much money the airline currently owes to 777, though previous reports suggest it sat at $129 million in late 2020, according to the Globe and Mail. In April, it reported it had succeeded in refinancing around $80 million of its debt from 777.

 

In its recent decision, the CTA said that Flair is now cash self-sufficient, but continues to be financially dependent on 777 for a number of aircraft leases and for about 70 per cent of its debt financing at a high rate of interest.

 

The American private-equity firm has a large portfolio of investments, including aviation software and startup airline Bonza Aviation Pty Ltd. in Australia, but 777 is not chiefly known for its work with airlines.

Instead, 777 has become known for a high-profile string of investments in professional sports teams, including storied soccer teams such as Sevilla Fútbol Club in Spain and Genoa Cricket and Football Club in Italy. It also recently took a controlling stake in Club de Regatas Vasco da Gama, a second-tier team in Brazil.

 

But 777 has its origins in a business called SuttonPark Capital LLC, a wholesale purchaser of structured settlements and issuer of asset-backed securities. Similar to companies such as J.G. Wentworth Co., SuttonPark and its subsidiaries offer lump sum cash to people to buy future payments from annuities, legal settlements — typically the result of a personal injury or medical malpractice — or lottery payouts.

SuttonPark was also named in a 2020 U.S. lawsuit alleging the company used unlawful and predatory practices to get a vulnerable young woman to sell her annuity from an insurance settlement. The lawsuit, which is still in progress, alleges the company had violated the Racketeer Influenced and Corrupt Organizations (RICO) Act in the United States by using kidnapping and drugs to get the brain-damaged woman to sell a $1-million annuity for $274,000. None of the allegations have been proven in court.

 

SuttonPark is still owned by 777, which did not respond to requests for comment about the lawsuit. But it did respond with a statement about its involvement with Flair.

 

“777 Partners has been an investor of Flair Airlines for years, contributing to its transformation and growth as Canada’s leading ultra-low-cost carrier,” the company said in an email.

“777 Partners continues to believe that the presence of a dynamic and competitive ultra-low-cost carrier is absolutely essential to the Canadian aviation sector. Flair’s mission of providing affordable air travel that connects travellers to the people and experiences they love continues to bring much needed change to the Canadian aviation market.”

 

Flair distances itself

To hold onto its Canadian licence, and to address the CTA’s concerns about who is controlling the company, Flair has distanced itself from its U.S. backers.

The airline reconstituted its board of directors to ensure Canadians would be in control going forward and stripped 777 of some of its unique shareholder rights, including the right to veto the sale, purchase or lease of aircraft. The Canadian regulator had previously suggested that Flair’s dependence on 777 for the provision of aircraft was a strong indicator of “control in fact.”

Flair is still in the process of seating seven new Canadian directors, and will have a total of nine directors including two from 777. Earlier this year, the airline’s board had three directors from 777, including the Miami investment firm’s founders, Steve Pasko and Josh Wander, and 777 principal Juan Arciniegas, alongside just two Canadian directors: former Flair chief operations officer Bill Hardy and Toronto lawyer Muneeza Sheikh. Under Canadian law, at least 51 per cent of a company’s voting interests must be owned and controlled by Canadians.

Jones told reporters earlier this month that Flair and 777 had made “significant concessions” to dispel doubts about the airline’s Canadian ownership. The company is also forecasting a sunnier financial outlook, according to the CTA decision, with plans to expand its fleet and offer new flights from Lethbridge, Alta., Hamilton and London, Ont., to destinations including Puerto Vallarta and Tucson, Ariz., later this year.

There are clear signs that the travel industry is picking up again after more than two years of COVID-19 disruptions. There has been an upswing in demand for air travel and new entrants in the sector such as Calgary-based Lynx Air, which launched this spring. But airlines say they’re also contending with high fuel prices and fears that a recession on the horizon could curb appetite for travel.

 

“I’m surprised they survived this long. I think the only thing that enabled them to survive this long is in the past few years, given the liquidity in financial markets worldwide, they were able to tap into some investors that were willing to put money into their company,” he said.

“Can any of these startups find something exclusive? Find some markets where they’re going to face limited competition? Highly unlikely, but that’s what they have to search for.”

Still, there may be a path for an ultra-low-cost carrier, according to Moore at Desautels, if it can fill a niche in the Canadian marketplace with routes linking underserved second-tier airports in places such as Abbotsford, B.C., and Hamilton, Ont.

“I think there’s room for an ultra-low-cost carrier, there’s demand there,” he said. “There’s something that’s missing in the marketplace. I think Canadians will respond well.”

The former Flair employee who spoke to the Financial Post on the condition of anonymity said most employees believe strongly in the airline’s original mission despite the volatility that has characterized the company’s dealings.

“At its core, we believed that there was a market for and also a benefit to introducing those low fares,” the employee said. “It was tough to compete against WestJet and Air Canada, but we did it and we soldiered on. Was it pretty the way we did it though? No, not at all.”

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https://www.airlineratings.com/news/passenger-news/airlineratings-com-names-top-ten-low-cost-airlines-2022/

AIRLINERATINGS.COM NAMES ITS TOP TEN LOW COST AIRLINES FOR 2022

by AirlineRatings.com Editors July 14, 2022
flair

The high public interest in affordable travel has prompted AirlineRatings.com, the world’s only safety, product, and COVID rating website, to identify the top ten low-cost airlines for 2022 from the almost 400 airlines it rates.

Best Low-Cost Airlines – Top 10

The AirlineRatings top 10 LCCs for 2022 are, in alphabetical order: Allegiant Air, AirAsia, EasyJet, Jetstar, Flair, Fly Dubai, Ryanair, Scoot, Southwest and VietJet Air.

Airlineratings.com Editor-in-Chief Geoffrey Thomas said that “each of these airlines has a good safety record and has made a big difference in their respective markets.”

“From Southwest Airlines which started the low-cost revolution in the 1970s to Flair which redefines the low-cost product, each airline has made a huge contribution to affordable travel.”

Best Low Cost Airlines

“In Europe, it’s Easyjet and Ryanair, in Asia/Pacific AirAsia, Jetstar and Scoot, while in the Americas one can add Flair, Frontier and Spirit, to Southwest. All are standouts.”

scoot-3.jpg

All the airlines chosen have either good safety and incident records or have completed the International Air Transport Association Operational Safety Audit (IOSA).

AirAsia

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