CEO says Flair has resolved foreign ownership issue — mostly — amid regulatory probe

·3 min read

Amid an ongoing regulatory probe of Flair Airlines, CEO Stephen Jones says the budget carrier has rejigged its governance structure to align with Canadian ownership rules — but that its "significant" debt to an American investor remains a concern.

Jones's news conference Thursday, held amid an industry backlash to his request to exempt the budget carrier from aviation ownership requirements, sought to reassure Canadians that Flair is "here to stay" — a phrase he uttered four times — as the federal transport regulator continues to probe whether the carrier is indeed Canadian and thus entitled to keep its operating licence.

In a preliminary determination last month, the Canadian Transport Agency found Flair may not be "controlled in fact" by Canadians — a violation of federal law — as Miami-based investor 777 Partners holds a "dominant" influence over the airline.

Flair has amended the unanimous shareholders agreement, which investors ratified last week, he said.

“The CTA has confirmed to Flair that these amendments address all of the corporate governance concerns,” Jones said.

The changes include increasing the board to nine members from five with at least seven Canadians, reducing 777 Partners’ right to appoint directors to two from three and nixing the veto rights that 777 held "but never exercised."

“The CTA has confirmed to Flair that these amendments address all of the corporate governance concerns,” Jones said.

However, he also acknowledged that debt owed to 777 remains a potential issue under the ownership regime, while insisting there was no violation.

"Flair has already successfully refinanced nearly Canadian $80 million of its debt to 777 Partners, but the refinancing of the balance of our debt will take some time, however. It is for this reason alone that we have sought a time-bound,18-month exemption from the (Department) of Transport," Jones said.

The route out of the red and into the black ultimately runs through an initial public offering, he said, stating he aims to see Flair listed eventually on the Toronto Stock Exchange.

The airline leases six of 14 aircraft from 777 and the rest from U.S.- and Ireland-based companies. While Jones said the federal regulator "has not raised issues with any" leases, the agency noted in its March 3 ruling that dependence on a third party to lease assets "that cannot be acquired otherwise" may be one indication of de facto control.

On Tuesday, 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."

“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 National Airlines Council of Canada and the Air Transport Association of Canada said in a joint statement.

Jones dismissed their arguments, saying the council represents the interests of legacy carriers, not passengers or healthy competition.

"We've clearly got them threatened. And so they're turning their so-called independent bodies into puppet mouthpieces, and people should see that for what it is," he said Thursday in a virtual interview.

The CEO, who has asked for an 18-month exemption to the rules, nonetheless says Flair conforms to legislation that allows no more than 49 per cent ownership of a Canadian airline by foreign entities.

The Canada Transportation Act also states no one foreign player can own more than a quarter of the carrier or exert effective control over it.

Jones has accused Air Canada and WestJet of having deployed anticompetitive practices.

In 2003, the Competition Tribunal ruled that Air Canada engaged in anti-competitive behaviour with WestJet, then a low-cost regional upstart.

Meanwhile, a Competition Bureau investigation continues into allegations of predatory pricing at WestJet and budget subsidiary Swoop, launched after Flair complained it was being crowded out from several smaller markets.

This report by The Canadian Press was first published April 21, 2022.

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Christopher Reynolds, The Canadian Press

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