Flair Airlines flight 801 arrives in Edmonton on April 23.Megan Albu/The Globe and Mail
Canada’s transportation regulator has allowed Flair Airlines to continue flying passengers after the Edmonton-based carrier agreed to make changes that loosen the grip of its U.S. investor and comply with the laws over foreign ownership of airlines.
The Canadian Transportation Agency’s ruling, released on Wednesday, ends a months-long investigation by the quasi-judicial body into Flair’s compliance with those laws.
At a news conference in Edmonton, Flair chief executive officer Stephen Jones said the airline made “significant concessions” to the regulator in order to keep its operating licence. He said it was a “fantastic day for team Flair.”
“We are thrilled to receive the decision that reinforces that Flair is Canadian,” Mr. Jones said. “The question has been answered.”
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The CTA’s preliminary finding on March 3 said Flair might not be a Canadian airline because its U.S. investor, 777 Partners of Miami, was a major lender, provider of leased aircraft and controlled the board of directors. This would have put Flair in violation of Canada’s control-in-fact rules, which prohibit foreign companies from calling the shots at airlines.
The CTA said in its final ruling on Wednesday that Flair will add Canadians to its board and remove 777 Partners’ veto rights over its decisions on the sale, purchase or lease of aircraft. Flair also amended a loan agreement with 777 Partners to ensure funding will be available until 2026, “thereby considerably mitigating 777′s ability to exert influence over Flair.”
“Flair has demonstrated it can generate positive cash flow from operations, alleviating concerns it would be dependent on 777 for additional new financing,” the CTA said.
The CTA found Flair continues to be dependent on 777 Partners for most of its debt and aircraft leases. But 777 Partners’ loss of the veto over leasing selection, and Flair’s assertion is it cash-flow positive restricts the U.S. investor’s influence, the CTA said.
“The agency finds, after considering all of the facts, that the changes implemented since the agency’s preliminary determination … have addressed the concerns raised by the agency,” the CTA said. “As Flair meets the incorporation and voting interest requirements and that Canadians control in fact Flair, Flair is Canadian.”
Foreigners can own up to 49 per cent of a Canadian airline, with no single entity holding more than 25 per cent. In Flair’s case, 777 Partners owns 25 per cent of the airline, but also transferred its rights to another party to covert debt to equity. This allowed it to influence who owns Flair, the CTA said.
Flair is 58 per cent owned by Canadians and 42 per cent by “non-Canadians,” the agency said. Flair’s new board will be comprised of seven Canadians and two principals from 777 Partners, Mr. Jones said.
Mr. Jones said he would like to see Canadian laws change to allow foreign airlines to fly domestic routes within Canada, as they do in Australia and New Zealand. “You could apply the same model here which would allow a strong and more vibrant domestic competition,” he said.
Flair flies a fleet of 14 leased Boeing 737s to several domestic, U.S. and Caribbean destinations, and bills itself as a low-cost airline.
Mr. Jones said Flair’s low-fare model would not change under the new board leadership, and plans to expand the fleet to 30 planes by next year are not changed. The fleet will number 19 by July, Mr. Jones said.
The CTA is an independent body whose rulings have the weight of a court. Its decisions can be appealed with leave to the Federal Court of Appeal.
John McKenna, head of the Air Transport Association of Canada, which represents airlines and aviation companies, said the CTA’s ruling did not provide enough details on Flair’s foreign ownership and its debt. He said the group is still looking at the ruling and had no official comment yet.
The CTA posted its decision at noon on Wednesday, but a draft of the ruling was visible on its website before 10 a.m. ET before disappearing. “The glitch happened as we were coding,” the CTA said. “It was fixed a few minutes after it was noticed.”
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