Lynx Air says it hoped purchase by Flair would ease debt woes
Bid to secure buyer seen as `Hail Mary' play
Before its shutdown this week, Lynx Air hoped to pay off some of its debt to a top investor through a purchase by rival discount carrier Flair Airlines.
According to documents filed with the Alberta Court of King's Bench, proceeds from a tentative deal with Flair would have gone toward Lynx's $124.3-million debt to Indigo Partners, the U.S. private equity firm run by Bill Franke that owns one-quarter of Lynx.
The 1,275-page filing refers to Flair dozens of times, including to a planned “transaction” and a non-binding agreement signed on Jan. 11.
Flair confirmed Tuesday it had been in talks with Lynx about “potential business opportunities.”
“As part of our standard business practice, we continuously evaluate market opportunities,” chief executive Stephen Jones said in an emailed statement.
“Flair's interest in the potential acquisition aligns with our commitment to enhancing services for Canadians through the ULCC (ultra-low-cost carrier) model, focusing on improved connectivity and affordability.”
Lynx did respond to requests for comment.
When it filed for creditor protection on Thursday, Lynx also owed $25.6 million in unpaid taxes to the federal government and $47.8 million to various trade creditors, according to court documents.
Lynx owes a further $4.1 million to the Toronto and Montreal airports and $4.5 million to Delta Air Lines for aircraft maintenance and warehousing.
In an affidavit from its interim chief financial officer, Lynx said its inability to pay up meant that Delta would stop servicing its planes, leaving them stranded, and that Toronto's Pearson airport would be able to seize its aircraft, effectively shutting down the carrier in a “chaotic and haphazard” fashion.
“Lynx obviously went to Flair as an 11th-hour Hail Mary,” said Robert Kokonis, president of consulting firm Airtrav Inc.
The filings state the Calgary-based company has $600 million in liabilities and $429 million in assets — the vast majority of them leases for nine Boeing 737 Max 8 jets.
Judge John Gill granted Lynx protection under the Companies' Creditors Arrangement Act last week, which allows firms to restructure their financial affairs and pay off lenders, typically for pennies on the dollar.
“The corporate entity that we know today as Lynx will not exist coming out of CCAA, based on what they've publicly stated,” said Duncan Dee, Air Canada's former chief commercial officer.
“What it appears they're doing is liquidating their assets.”
The 21-month global grounding of the Max 8 along with COVID -19 travel restrictions and jet fuel price hikes delayed Lynx's inaugural flight by more than two years to April 2022 and hampered ticket sales to the point it could no longer pay its creditors, the ultra-lowcost carrier (ULCC) said in a brief to the court.
“Unlike legacy airlines or a low-cost-carrier who can recoup lost revenue by increasing base fairs, a ULCC cannot deviate from the established base fare without abandoning the ULCC model altogether,” the filing states.
Dee questioned whether Flair had the capacity to purchase Lynx given its own financial troubles or, if it did, the desire to follow through due to Lynx's cash-flow woes.
“You're not talking about an airline in Flair that is cash-rich in any way, shape or form,” Dee said.
“In most airline merger transactions there tends to be a strong party and a weaker party, and they come together to form a stronger party ... Based on what we know now about Lynx and what we have seen publicly reported about Flair, you're talking about a merger of weaklings.”
Based in Edmonton, Flair owed the federal government $67.2 million in unpaid taxes as of November, court documents show.
Last March, Flair saw four of its planes repossessed in the middle of the night after aircraft leasing manager Airborne Capital claimed that the company regularly missed rent payments that amounted to millions of dollars over the preceding five months.
In response, Flair launched a $50-million court action against Airborne and three other leasing firms, arguing that ongoing demands for payment from the four companies were “baseless.”
Flair has touted its achievements in recent months, claiming gains in passenger numbers, the top flight completion rate in the country at 98 per cent and an on-time performance of 69 per cent — weak globally, but solid compared with its Canadian competitors.
Based on what we know now about Lynx and what we have seen publicly reported about Flair, you're talking about a merger of weaklings.