FLAIR CEO FIRES BACK AT CRITICS
‘HERE TO STAY’
• Flair Airlines Ltd. had ambitions to emerge from the chaos of the pandemic with an expanded fleet and more destinations, betting the allure of ultralow fares to more places would allow it to disrupt Canada’s airline duopoly.
Instead, the Edmonton-based discount carrier is scrambling to make big changes or face the possibility of losing its licence after May 3, casting a pall over some of its highest-yet seat-sale figures for April and May.
The closely held company is facing a preliminary investigation by the Canadian Transportation Agency (CTA), which found evidence that Flair does not meet the requirements for Canadian ownership of a domestic airline. A request by the company for a temporary exemption from the ownership rules prompted a furious backlash from the aviation sector this week, and now Flair’s CEO, Stephen Jones, is firing back at the company’s critics.
“These guys have been ripping off the Canadian public for decades,” Jones said in a virtual news conference on Thursday. “So don’t be surprised that they get defensive when a company that’s genuinely efficient in providing low-cost airfares comes into the market that’s a threat to their existence.”
Flair’s critics have said the company’s request for a temporary exemption amounts to an admission of guilt.
Under the federal Transportation Act, at least 51 per cent of a domestic airline’s voting shares must be Canadian, and no more than 25 per cent of voting interests can be held by a single non-canadian company or person.
At issue is Miami-based 777 Partners LLC, which has a 25-per-cent stake in Flair, but, importantly, Flair also leases its planes from 777 Partners, and the firm controls Flair’s board of directors.
In its preliminary determination released last month, the CTA said that while the majority of shareholder voting rights are owned by Canadians, there is “no evidence” that Flair is controlled by Canadians.
“Flair is financially dependent on 777 for its financing and for the leasing of its aircraft,” CTA wrote. “777 has control of the board ... and has played an active role in the management of Flair’s business, including having assigned its staff to key positions within Flair.”
The agency added: “After considering all of the facts together, (the CTA) finds that 777’s influence over Flair may be dominant and that it, therefore, could be considered to have control in fact of Flair.”
Flair — which has until May 3 to answer the agency’s preliminary findings or potentially have its licence suspended — has asked for an 18-month exemption to address the issue.
“You wouldn’t do that if you didn’t have something in there,” said Karl Moore, associate professor with the Desautels Faculty of Management at Mcgill University and a longtime airline observer. “It’s about control in (fact). They’re being run to some degree out of Florida, rather than from Canada,” Moore said. “You’ve got to have a majority ownership and control in Canada and that’s the issue that they’ve been caught on.”
At the company’s press conference, Jones said he didn’t agree that any rules had been broken but said the company was nonetheless taking steps to address the CTA’S concerns.
Jones announced that the company had already ratified a new shareholders’ agreement that will see the airline’s board of directors reconstituted and increased from five directors to nine, of which only two will be non-canadian. The changes will also include a reduction in the number of directors 777 Partners is permitted to appoint from three to two, and a removal of the firm’s previously held veto rights, Jones said.
Flair said it would also address CTA’S concerns about financing and the long-term debt the airline owes 777 Partners. During the brutal early months of COVID-19, Jones said, 777 Partners had provided the company with a financial lifeline that protected thousands of jobs and ensured the airline’s continued operation.
“It’s a priority for us to repay the debt,” said Jones, who declined to specify the dollar amount, but added that it was smaller than some of the pandemic financial supports Flair’s competitors received from the government. “Flair has already successfully refinanced nearly $80 million of its debt to 777 Partners, but the refinancing of the balance of our debt will take some time, however, and it is for this reason alone that we have sought a time-bound 18-month exemption from the Ministry of Transport.”
Flair, which launched in 2005 as a charter operator before transitioning to scheduled service in 2017, was aggressively pursing market share even before the COVID-19 pandemic created opportunities for upstarts as large incumbents like Air Canada, Westjet and Sunwing were forced to take on more debt and scale back their networks to survive the crisis.
“They’ve tried to find a niche for themselves over the last few years,” said John Gradek, a professor with Mcgill University’s aviation management program.
“I think what happened is 777 Partners saw an opportunity to use up some of their airplanes that they had bought ... airplanes were available fairly reasonably priced because of all the parked airplanes that were around in 2020 ... so that’s where the genesis of Flair as an ultra low-cost carrier showed up.”
This week it also became apparent that Flair’s request for temporary accommodation would be vigorously opposed by much of Canada’s aviation sector.
On April 20, two aviation industry groups representing Canada’s major airlines, as well as smaller ones and freight carriers and industry suppliers, issued a joint statement calling on the federal government to reject Flair’s request for a temporary exemption from the Canadian ownership requirement.
In their statement this week, the National Airlines Council of Canada and the Air Transport Association of Canada argued that allowing the extension would set a “dangerous precedent” and would allow Flair to continue operating outside the bounds of existing Canadian
law. But Flair’s chief executive dismissed the speculation Thursday that the airline won’t be operating following the CTA’S final determination.
“The first thing I want to make clear is that Flair Airlines is here to stay,” he said. “Canadians can continue to book incredibly affordable airfares with confidence.”
THEY’RE BEING RUN TO SOME DEGREE OUT OF FLORIDA.