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Flair Airlines says it will keep operating in Canada. Here’s how

Click to play video: 'Edmonton-based Flair Airlines CEO claims licence safe as airline overhauls board, refinances debt' Edmonton-based Flair Airlines CEO claims licence safe as airline overhauls board, refinances debt
Flair Airlines CEO Stephen Jones shared how the ultra low-cost carrier is working to comply with Canadian ownership rules and avoid being grounded. As Chris Chacon explains, on Thursday Jones outlined the steps Flair is taking to overhaul its board and pay down debt to reduce foreign influence – Apr 21, 2022

The CEO of Flair Airlines downplayed concerns Thursday that the ultra low-cost carrier could lose its licence to fly in Canada.

Stephen Jones outlined steps the airline is taking to overhaul its board and refinance its debt to reduce foreign influence on the company.

Flair is in the midst of a licence review from the Canadian Transportation Agency (CTA), which said in a preliminary finding last month that the Edmonton-based airline might not meet Canadian ownership requirements to fly in the country.

The air industry watchdog said Flair’s Miami-based business partner, 777 Partners, might have “control in fact” over the airline, which would violate rules under the Canada Transportation Act.

Read more: Flair Airlines could be grounded in Canada over foreign control concerns

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Flair has until May 3 to respond to the CTA’s concerns, or it risks having its licence suspended.

Jones told reporters Thursday the company will meet that deadline to formally respond and added there is “zero chance” the company loses its licence on that day.

May 3 is not a “drop dead date,” Jones said, but is rather a point at which the CTA is expecting a formal response. It will then consider Flair’s points and the changes made to date and determine whether the issues flagged in its preliminary review still stand or need further attention.

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

Jones called the CTA’s basis for “control in fact” — rather than hard metrics such as shareholder interest — a “subjective test” that does not have a clear point of transgression.

“It’s not like we could see this line and we consciously walked over it. The control-in-fact test is the sum total of all of the relationships that an airline might have with a non-Canadian. And that’s a judgment call,” he said.

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“We are responding to the concerns that the CTA have made. We’ve dealt with most of them already.”

What has Flair done to address the CTA's concerns?

Jones said the company has already overhauled its board of directors to address concerns that 777 Partners had majority control.

Flair expanded its board to nine seats up from five and will have seven Canadian members. Only two director positions are now set aside for 777 Partners, down from three previously.

The company also altered parts of its shareholders agreement to enshrine Canadian control of the board and other governance powers at the airline.

Flair shareholders voted earlier this week to approve these governance changes, which are effective immediately, Jones said.

Click to play video: 'Flair Airlines has amended shareholders agreement to address Canadian ownership rules: CEO' Flair Airlines has amended shareholders agreement to address Canadian ownership rules: CEO
Flair Airlines has amended shareholders agreement to address Canadian ownership rules: CEO – Apr 21, 2022

He added that 777 Partners “wholeheartedly supported the changes” made to the agreement. The firm declined Global News’ request for comment on Thursday.

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While a redacted version of the CTA’s preliminary decision filing, obtained by Global News, observed that Flair “depends on 777 for the provision of aircraft,” Jones disputed that the leases were an issue of control.

He said Flair only leases six of its 14 jets from 777 Partners, with the remainder coming from separate U.S. or Irish-based firms. Jones said these leases were “arms-length” and at market rates.

Flair turned to its U.S. partner for a ‘lifeline’ during COVID

The other outstanding concerns are related to Flair’s finances and will take longer to resolve, Jones said.

When the COVID-19 pandemic set in, the company was strapped for cash, like most other airliners that found themselves suddenly grounded during the public health crisis, he explained.

Flair benefited from the federal government’s Canada Emergency Wage Subsidy and received $11 million in grants through the Regional Air Transportation Initiative.

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But when the feds eventually came to the aid of Canadian airlines, Jones said Flair was not approved to access the funds.  The largest relief program, for example, was accessible only to companies that made $300-million in annual revenue — a bar Jones claimed Flair now meets, but didn’t at the time.

“We applied for all available programs. And in the end, we didn’t qualify,” he said.

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Instead, Jones said the company turned to its existing shareholder, 777 Partners, for a “lifeline” to stay afloat.

The company now finds itself needing to reduce its debt load tied to the foreign partner to meet CTA’s concerns.

Flair has refinanced some $80 million of its debt from 777 already, Jones said. He did not disclose how much remains of the loan Flair received from its U.S. partner, but did say “it’s a significant amount.”

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Jones said Flair is in a better financial position today and is no longer reliant on 777 for day-to-day cash flow, so can pay down some debt on its own. He even floated the possibility of taking the company public in the near future to tap new funding sources.

“We would like to bring the company to the market. It depends on our performance in the end, the conditions in the market at the time, but we would hope that’s sooner rather than later,” he said.

Flair seeking more time to refinance its debt

But in the meantime, the company will need more time to deal with its debt, Jones said.

Flair sent a letter earlier this month to the Minister of Transport requesting an 18-month exemption to the ownership rules in order to give the company more time to execute on its refinancing strategy.

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“We’re removing all of the corporate governance issues. We’re cash self-sufficient, the leases are at arm’s length. So the only thing that will remain is the fact that we are in debt to a shareholder who provided it to enable us to survive COVID. And all we’re really asking for is time to refinance that debt,” Jones said.

But groups representing Canada’s major airlines released a joint statement this week calling on the minister to reject Flair’s request for an exemption.

Read more: Expect to pay more to fly amid skyrocketing fuel prices, analyst warns

The statement came from the National Airlines Council of Canada, which represents large carriers such as Air Canada, Air Transat and WestJet, and the Air Transport Association of Canada, another group representing airlines of all sizes in the country.

The industry groups said allowing Flair an exemption would allow the company to operate “outside the bounds of existing Canadian law,” calling the control-in-fact requirements under the Act “an important principle to uphold.”

“Domestic control and ownership is not just a ‘nice to have’, it is a necessary underpinning of the system, and should be defended. It ensures that there is fundamental fairness and protects against one diluted or foreign owned business causing harm to the competitiveness of the whole industry,” the statement read.

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Global News asked Jones on Thursday whether the move to request an exemption is an effort to politicize Flair’s licence issue, putting the airline’s fate into the court of public opinion and taking it out of the hands of an independent, quasi-judicial body.

“No, absolutely not,” he said.

“The intention is for us to just be running our business and delivering affordable fares. The process by design is a political process, and so it’s not a path that we’ve chosen where there are other paths available. It’s a path that sits in the regulations and so we’ve applied for that exemption.”

The CTA declined Global News’ request for comment on Thursday, claiming the issue is before an agency panel.

A spokesperson for Transport Canada told Global News the ministry is considering Flair’s exemption request and will provide a recommendation to Minister Omar Alghabra “in due course.”

“The minister will then make the final decision on the exemption request. There is no legislated timing associated with these steps,” the statement said.

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