Flair Airlines is expanding rapidly, but internal discord and regulatory scrutiny raise questions about its ambitious growth

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FLARE has announced plans to lease and fly 13 Boeing 737 MAX passenger jets.HO/The Canadian Press

It’s early 2021, and almost a year into the pandemic, the skies around Canada’s airports are mostly calm. Porter and Sunwing have been shut down, Air Canada, WestJet Airlines and Air Transat are operating a small number of daily flights, canceling orders for new planes and losing millions of dollars every day as the world Air travel has come to a halt in most parts of the state.

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It’s a different picture at Flair Airlines, a smaller discount carrier based in Edmonton. On 27 January, Flair announced plans to lease and fly 13 Boeing 737 MAX passenger jets. The larger fleet will fly on new routes to eight Canadian cities – 18 by summer. “With this order, Flair is well on its way to achieving its ‘F50’ ambition of growing to 50 aircraft within five years,” Flair said, adding that there were just three 737s at the time, two of which were essentially pandemic-hit. Were.

The new planes will be leased from 777 Partners, a Miami-based private equity company that owns 25 percent of Flair and is a major creditor for the airline, which bills itself as a low-cost alternative to its larger rivals. does.

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It was a bold move, as the global airline industry was in crisis and largely frozen. Canadian Airlines was seeking billions in aid from Ottawa to cover fares and other costs as thousands of aviation workers stayed home or worked for wages above government subsidies. FLARE unveiled another step in its expansion last month, with plans for Mexico and other vacation destinations, and added Hollywood Burbank to its growing list of American destinations.

But as Flair plans its rapid expansion, a finance official warned the airline’s top executive that the plan was too risky.

By the end of 2020, Flair’s vice president of finance, Jocelyn Harris, said she advised chief executive Stephen Jones that the airline could not afford to expand, given that it had shut down almost entirely and could not pay its bills. could do

“I just don’t understand it,” Ms. Harris said of plans to lease the planes from 777 Partners. “In the fall we were completely bankrupt, and they were going to sign these contracts for these planes.”

Ms Harris, who has filed a wrongful dismissal and harassment lawsuit against Flair, alleged in court filings and interviews that 777 Partners was targeting Flair. She said she had warned officials that the controls imposed by the US-based company were a potential violation of Canadian laws. A foreign investor cannot hold more than 25 percent of a Canadian airline’s shares, nor is he allowed to take charge of the company’s decision-making, known by the regulator as “actually controlling.”

Ms Harris’ allegations come amid a difficult time for the airline industry, which is facing new travel restrictions due to the Omicron version. Flair is also facing a lawsuit from its largest Canadian investor, Prescott Strategic Investments, which is partly owned by Flair’s former CEO Jim Scott.

has learned that the Canadian Transportation Agency, the airline industry regulator, is investigating Flair’s financial arrangements with 777 Partners, founded in 2015 by Steven Pascoe and Joshua Craig Wander.

“Flair Required to Comply Canada Transport ActThe CTA said in a statement to The Granthshala, “Canada’s need to own and control the need to keep its licences.” “In assessing the controls actually needed, the CTA considers a number of factors, including any effects arising from leasing property from non-Canadians. However, when leasing property from non-Canadians There is no specific restriction.

“CTA staff are aware of the arrangement between Flair and its US investor, and are currently looking into the situation,” said the regulator, a quasi-judicial body with the power to impose fines, impose sanctions or suspend operating licenses.

The CTA said Flair’s investigation has not yet been referred to a panel.

Flair CEO Jones said in a statement that his airline is “58 percent owned and controlled by Canadians, which is well above the minimum standard established under federal regulation.”

Flair’s attorney, Mike Wagner, declined to comment on the lawsuit filed by Prescott, citing a publication ban and sealing order on the file Flair sought.

The Justice Ward branch of the BC Supreme Court issued a publication ban on the trial on July 12 and sealed the file. In an e-mail, Mr Wagner said the publication ban prevented him from saying why he sought the publication ban. Mr Scott and Prescott’s lawyer Steve Warnet declined to comment. Prescott also named 777 partners in the suit. The investor declined to comment.

Ms Harris, who left the airline on December 31, 2020, alleged that she was fired in retaliation for her complaint about harassment by Juan Arciniegas, a 777 Partners executive working in the Edmonton office. She also alleged that she was allowed to “raise concerns regarding the increased control of 777 Partners, contrary to the Canadian Transportation Act”, according to her statement of claim, which has not been proven in court.

“Flair is vigorously opposing these baseless allegations through all appropriate legal channels,” Mr Jones said.

777 Partners spokesman Michael Robinson said Harris’ claims of “verbal harassment and bullying” are “without merit and will be vigorously defended when attempts are made to incorporate the company.”

Mr Robinson said the CTA investigation is a regular part of the regulator’s “regular ownership stake review”, and added that “777 Partners continues to assist Flair in any CTA negotiations with the airline, and will continue to do so.” Will stay.”

In 2019, 777 Partners bought a 25 percent stake in Flair for an undisclosed amount. Flair said in a statement announcing the investment that 777 Partners’ “financial strength” will help it grow and compete with Canada’s two major airlines.

Private Equity Investor does not disclose financial data. It made headlines in September by buying Italy’s oldest professional football team, the Genoa Cricket and Football Club, for US$175 million. Its other investments include North Carolina-based insurance underwriter Synchrono Group Inc. Its aviation stakes include Air Black Box, a technology platform that allows a handful of Asian airlines to cross-sell seats; World Ticket seat-sale software; and Bonza Aviation, an Australian low-cost airline scheduled to launch in 2022 with two or three Boeing 737s. The investor has also purchased the rights to use the name World Airways Inc., the US carrier that stopped flying in 2014.

“Our senior management team is made up of industry veterans with backgrounds in private equity, venture capital, investment banking, financial technology, insurance, actuarial science, asset management, structured-credit, risk analysis, complex commercial litigation and computer science,” said the company. called website. “We partner directly with our management teams and portfolio companies to create long-term value for all stakeholders.”

In 2004, Mr. Wander, the co-founder of 777 Partners, was convicted of cocaine trafficking in a Florida court, with charges no match. According to Florida court records, he received 16 years of probation. According to a news report in the smuggling case, the then 22-year-old admitted that a package containing 31 grams of cocaine was meant for him and a friend. He reportedly avoided a prison sentence of up to 26 years with his plea.

Representatives for Flair and 777 Partners did not address questions about Mr. Wanderer’s criminal record or give an interview with him.

“The company will not comment on any legacy issues regarding Mr. Wander’s distant past,” Mr. Robinson said.

Flair’s chief of staff, Jamina Kotak, said in an e-mail that the airline is “delighted to associate with Mr. Wander and 777 Partners. We could not have imagined a more supportive director, shareholder and lender.”

The 737s that 777 Partners will lease to Flair are among 24 aircraft that the private equity company is buying from Boeing. The deal includes an option to buy another 60 aircraft. Ms Kotak said Flair is flying nine 737 MAX aircraft this month, five of which are leased from 777 partners and four from an unrelated company.

Ms Harris said Flair owed 777 Partners about $129 million at the end of 2020. This loan came with 18-percent interest. Airline executives and Mr. Wander held talks with government lenders Export Development Canada and the Business Development Bank of Canada for emergency financing, but they were turned down, Ms. Harris said.

Flair declined to answer questions about his financial picture. “As a private company, FLARE does not typically publicly disclose or discuss its confidential financial information, including loan, financing, lending and aircraft lease details,” Ms Kotak said. “Flair has benefited from an enormous amount of support from its vendors during the COVID pandemic. Many sellers agreed to defer payment. ,

In order to be granted an air operating license to fly from one point to another in Canada, an airline must be majority owned by Canadians. Foreign ownership is limited to 49 percent or 25 percent for a single individual or entity. Also, the airline really should be controlled by Canadians.

According to the CTA’s website, “control in law is generally shown by owning enough shares to carry the right of majority vote. Control is actually beyond control in law as it may have any direct or indirect effect.” Includes the ability to control

“Though the term is not defined [Transportation] Act, the agency actually assumes control: the power, whether exercised or not, to control the strategic decision-making activities of an enterprise and to carry out its day-to-day management and running…

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