June 6, 2022 By Amanda Stephenson, The Canadian Press
Flair Airlines celebrated a major win Wednesday as a federal regulator ruled the upstart carrier is Canadian.
The decision by the Canadian Transportation Agency means that Edmonton-based Flair can keep its operating licence, bringing an end to Flair’s months-long battle to clarify its ownership and governance structure or lose its right to fly in this country. It also renders irrelevant Flair’s earlier request for an 18-month extension in order to comply with the rules.
“The decision that is coming out today is very clear, it’s black and white,” said Flair Airlines chief executive Stephen Jones at a news conference held in Edmonton just minutes after the regulatory determination was made public. “Flair is Canadian — there’s no halfway road, there’s no conditions.”
Flair Airlines launched in 2004 as a charter airline and began offering regularly scheduled service in 2018. In the past year and a half, the airline has been in aggressive growth mode, stating publicly that it wants to expand its fleet to 50 aircraft within the next five years as it seeks a larger customer base of travellers seeking low-cost, no-frills travel options.
But Flair has come under scrutiny from the CTA, which has been investigating to determine if it complies with rules around foreign ownership of Canadian airlines.
Legislation allows no more than 49 per cent ownership of a Canadian airline by foreign entities, and the Canada Transportation Act also states no one foreign player can own more than a quarter of a carrier, or exert effective control over it.
That put Flair’s relationship with Miami-based investor 777 Partners under the microscope. In a preliminary determination in March, the CTA found Flair may not be “controlled in fact” by Canadians and said 777 Partners holds a “dominant”’ influence over the Edmonton-based carrier.
Flair was given until May 3 to address the issues and prove its Canadian-ness.
In its determination Wednesday, the regulator stated Flair has in fact done just that, by rejigging the composition of its board so that at least half of the directors will be Canadians. In addition, 777 Partners will no longer hold any unique shareholder rights.
The CTA said Flair has also demonstrated it can generate positive cash flow from its operations, alleviating concerns it would be financially dependent on 777 going forward. The airline is also refinancing the debt it owes to 777 to ensure debt funding will be available until at least 2026, which the CTA said considerably mitigates “777’s ability to exert influence over Flair.”
Flair currently leases six of its 14 aircraft from 777 and the rest from U.S.- and Ireland-based companies. Jones said Wednesday the airline has informed the CTA that going forward, a portion of its leases will be stand-alone with no links whatsoever to 777.
“We’ve gone through line by line and addressed (the CTA’s concerns),” Jones said. “Ourselves and 777 Partners have made significant concessions and changed things to make sure our position is without doubt — we are a Canadian airline.”
In March, two airline associations representing Air Canada, WestJet and 30-odd other carriers called on Transport Minister Omar Alghabra to reject Flair’s exemption request and warned that a green light would set a “troubling precedent.”
Following Wednesday’s ruling, one of those associations — the National Airlines Council of Canada — said it was still reviewing the decision, but plans to continue to call for air carriers to “take seriously” their responsibility to abide by foreign ownership rules.
“By failing to comply with basic and fundamental Canadian ownership and control requirements, Flair knowingly placed considerable uncertainty on the shoulders of travelers and threatened consumer confidence in the sector at a time when the travel industry is working hard to provide a strong and sustainable future for air travel for Canadians,” said Suzanne Acton-Gervais, interim president and CEO of the NACC.
John McKenna — president and CEO of the Air Transport Association of Canada — said he questions how an investor, even a minority one, that holds the majority of an airline’s debt wouldn’t exert strong influence over the company’s decision making.
“While we may not agree with some of the premises put forward in this determination, it is the government’s prerogative to render (such) decisions and we accept that.” McKenna said in an email.
Jones suggested Wednesday that opposition is a “natural reaction” to the competitive threat he believes Flair poses to the industry.
“There’s been such a cosy duopoly here for so long, that whenever you stir the pot, whenever you spoil the party … of course people are going to be upset,” he said.
This spring, Flair expanded from 12 Boeing 737 MAX aircraft to 14 and says it expects to have 30 aircraft by mid-next year. The airline now offers flights to 40 destinations in Canada, the U.S. and Mexico and employs approximately 800 people.