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Flair Airlines could be grounded in Canada over foreign control concerns

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WATCH: Flair Airlines' future is up in the air after a federal watchdog found the company might not have enough Canadian control to operate in the country's skies – Apr 12, 2022

Editor’s note: A previous version of this story misattributed a Competition Bureau investigation over undercutting. The probe is against WestJet and its low-cost carrier Swoop.

Ultra low-cost carrier Flair Airlines could lose its right to fly in Canada over concerns that too much of its operations are controlled by a U.S.-based partner, according to a preliminary review from the country’s transportation watchdog obtained by Global News.

The decision, for which Flair is seeking an exemption, could see the airline’s operating licence suspended on May 3, leaving Canadian air travellers with summer travel plans stranded at the gate.

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Airline analyst on the growing pains Flair Airlines is going through as an ultra-low-cost carrier – Feb 20, 2019

Some air industry observers are watching the proceedings skeptically, wondering about the lack of transparency around the review, while others say the airline has long been playing too loose with Canadian ownership requirements.

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“If you’re buying a ticket for travel beyond May 3rd… buy insurance and make sure you’re ready for some turbulence along the way,” says John Gradek, a professor with McGill University’s aviation management program who’s following the case.

Why is Flair’s licence in jeopardy?

Flair Airlines is based in Edmonton, Alta., but operates routes connecting many smaller markets in Canada to other North American destinations.

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Though it technically began operations in 2005, it was in 2018 that Flair formally joined the emerging crop of ultra low-cost carriers (ULCC) in Canada including WestJet’s Swoop and Lynx Air. Flair offers a no-frills travel experience but appeals to consumers with eye-grabbing deals such as $69 flights from Toronto to Vancouver.

Flair currently operates a fleet of 13 Boeing 737 aircraft, but has stated plans to scale up to 50 aircraft by 2025. The airline has even received federal support to do so, having gotten $11 million in grants through the Regional Air Transportation Initiative to help expand its operations.

Read more: Flair Airlines to expand fleet by 30 aircraft by mid-2023

But despite its long-term ambitions, the Canadian Transportation Agency (CTA) — the federal watchdog that oversees the airline industry — launched a review in late 2021 based on concerns that Flair does not meet Canadian ownership requirements under the Canada Transportation Act.

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The review is largely tied to a major partner in Flair’s operations, Miami-based 777 Partners, which invested in the airline in 2018. The U.S. company also owns the fleet of planes Flair leases for its operations and has members on the airline’s board of directors.

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The agency came out with a short statement announcing its preliminary decision on March 3, 2022. Its findings said then that Flair indeed “may not be controlled in fact by Canadians.”

It then gave Flair 60 days to respond to its ruling before the decision is finalized.

Global News obtained a redacted copy of the CTA’s preliminary decision, which included the basis for its findings.

The CTA wrote that Flair’s non-Canadian ownership does not exceed the 49 per cent allowed under the Act. Additionally, 777 Partner’s overall ownership stake of Flair does not exceed the 25 per cent allowed by a single non-Canadian entity.

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However, the CTA found that 777 influence over the company’s day-to-day or strategic operations likely constitutes “control in fact” — another key factor determining whether a firm is Canadian enough to qualify for a licence.

Since 777 has more than half of the seats on Flair’s board, and the airline is effectively financially dependent on its Miami-based investors for the leasing of its jets, the CTA found that 777 has more sway in the company’s operations than the balance of its Canadian shareholders.

Read more: Canadian airlines adding flights, capacity in bid to recover COVID-19 losses

“After considering all of the facts together, the agency finds that 777’s influence over Flair is dominant and that 777, therefore, may have control in fact of Flair,” the decision reads.

Since the CTA’s ruling is redacted, it leaves out information about who, specifically, the shareholders and board members of Flair are, as well as entire points contained in final analysis.

Global News reached out to 777 Partners for comment but did not receive a response before publishing.

The CTA confirmed in a statement to Global News that if Flair Airlines fails to remedy the watchdog’s concerns, it could have its licence suspended.

“Should Flair’s licences be suspended, Flair would be precluded from operating any flights,” the statement read.

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The CTA said it has not yet received a response from Flair Airlines regarding its concerns.

In an emailed statement to Global News, the airline’s CEO, Stephen Jones, said Flair is working “very cooperatively” with the CTA and he “expects that the majority of the issues raised will be resolved in the very short term.”

Flair says it’s Canadian — but asks for time to meet regulations

In the meantime, Flair has sought relief elsewhere — through Canada’s Minister of Transportation, Omar Alghabra.

The company is requesting an 18-month exemption to the rules for Canadian control until it can make certain changes to address the CTA concerns, according to a letter sent from Flair to the minister obtained by Global News.

Flair cites the COVID-19 pandemic as a significant drag over the past two years, which caused it to lean more heavily on 777 Partners as a source of financing.

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The company says it is actively looking for more Canadian sources of investment, which could skew control north of the border again, but says the May 3 deadline is too soon for it to secure such deals. Flair does claim the “majority” of the other issues identified by the CTA can be resolved by that deadline.

Flair also argues that denying its exemption would amount to grounding the airline, which serves airports in many secondary markets such as Abbotsford, B.C., Waterloo, Ont., and Deer Lake, Nfld.

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Such a move would ultimately cost jobs, reduce competition in the market and cause economic damage to the country, Flair claims, as well as leaving thousands of Canadian air passengers with summer travel plans stranded.

“This clearly runs against public interest,” the letter reads.

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Flair says in the letter it will be responsible for 1,000 “direct jobs” by mid-2022, if it remains a going concern, with thousands more jobs sustained as a result of its operations.

Gradek says Flair’s apparent strategy of “enamouring” itself with the Canadian public and smaller airports has been “very dangerous.” He argues the company has been building up “political clout” while “flaunting the regulations when it comes to Canadian ownership.”

“This was a willful act by Flair to attempt to circumvent or bust through the regulations. They knew exactly what the regulations are,” he tells Global News.

“They’re trying to basically play this out in the game of public opinion.”

Read more: Flair Airlines to train staff on human trafficking signs as part of #NotInMyCity program

While Transport Canada confirmed to Global News it received the letter asking for an exemption, it said it was still in the midst of collecting feedback from industry stakeholders on the proposal and would not comment on whether it would grant Flair’s request.

“Such consultations are designed to support the rigour of the Minister’s assessment of the request, as well as transparency and accountability. It would be premature to speak in terms of conditions associated with any potential exemption,” the ministry’s senior communications adviser, Hicham Ayoun, said in an emailed statement to Global News.

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Why is this coming up now?

The CTA’s preliminary ruling does not say why it launched a review of Flair’s ownership and the agency declined to provide specifics when asked by Global News.

Gábor Lukács, president of the Air Passenger Rights consumer protection group, says he is concerned about the lack of transparency surrounding the investigation.

The CTA’s preliminary decisions are normally released publicly with the full analysis document. The short statement posted on its website on March 3 and the redacted copy reviewed by Global News do not present a full picture of a scenario that the agency is now soliciting industry feedback on.

Read more: Did a federal agency try to use privacy laws to hide a complaint about an airline?

“What the government has done is put out this innuendo that something might be wrong with Flair without allowing the public, the experts, the media, to form meaningful opinions on whether that has any legs,” he says.

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“Perhaps it does. Perhaps it doesn’t. But right now, this is causing harm to Flair’s reputation.”

That’s not to say Lukács is a big fan of Flair’s standard operations — he tells Global News he’s fielded numerous complaints about instances of Flair cancelling flights and failing to promptly rebook passengers on other airlines.

In fact, he says he would rather see the CTA go after those glaring violations of air passenger rights than foreign ownership concerns, which, in the short term, do not have a great bearing on consumers.

Lukács says singling out Flair, whose complaint years ago prompted a Competition Bureau investigation of WestJet and Swoop over allegations of undercutting and boxing the airline out of routes, reeks of unfair targeting.

“Why are they making such a … dog-and-pony show over one airline for a requirement that, in the short run, strikes me as marginal, posing no risk to consumers, when the practice of cancelling flights and then not rebooking people properly and immediately does affect consumers?” he says.

“Now that would be something important to focus attention on, against all our airlines, Flair, WestJet, Sunwing, Air Canada, Air Transat, all of them.”

Gradek says that if the CTA ultimately decides Flair does not meet the licensing requirements, the airline could appeal the call, maintaining its right to fly until a secondary ruling is made. If that fails, exact penalties and rectification is up to the watchdog.

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“It’s complicated. It all depends how forceful the CTA wants to be with Flair,” Gradek says.

The CTA says that if Flair does lose its licence, it would have to meet its obligations under the “contract of carriage” — the agreement struck between air carrier and passenger.

According to Lukács, case law has shown passengers would have a right to claim refunds against an airline if the company did go out of business before their trip. “But the question is whether there is any money left to refund,” he notes.

More practically, anyone who bought airfare via credit card can get a refund via a chargeback, which puts the onus on the card issuer to recoup their payments.

But Jones said in his statement that the company is anticipating continuing to grow its operations this summer, with a fleet of 20 aircraft expected to take to the skies by mid-June.

“Flair is here for the long term and is committed to finally bring sustainable, affordable airfares to all Canadians, and to every destination we serve now and in the future,” he said.

“Customers can absolutely book with confidence, and we look forward to welcoming them aboard this summer.”

— with files from Global News’ Ross Lord

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