CTA launches formal probe into Flair

[elite]

Federal regulator launches formal probe into Flair Airlines’ compliance with Canadian ownership laws

ERIC ATKINSTRANSPORTATION REPORTER
PUBLISHED MARCH 1, 2022

Canada’s transportation regulator has launched a formal investigation into Flair Airlines’ compliance with laws that limit the control a foreign investor can have in a domestic carrier.

The Canadian Transportation Agency took the step after a review of Edmonton-based Flair’s ownership, which includes Miami-based 777 Partners. The U.S. investment firm owns 25 per cent of Flair, occupies three of its five board seats, and leases several planes to the airline.

The CTA said its probe came about as part of its monitoring of the industry. The federal regulator, which has the power to issue fines and suspend an airline’s operating licence, recently formed a panel to review the issue after a preliminary investigation.

“The CTA, as part of its ongoing regulatory activities, monitors airlines’ compliance with the Canadian ownership and control requirement,” the agency said in an e-mail. “Staff initiated a review of Flair’s ownership interest to assess its compliance with this requirement.”

Foreign investment in a Canadian airline cannot exceed 49 per cent, or 25 per cent by an individual. Additionally, foreigners cannot control the airline, something the CTA calls “control in fact.”

The CTA defines control in fact as “the power, whether exercised or not, to control the strategic decision-making activities of an enterprise and to manage and run its day-to-day operations. Those who may have the power to influence a company’s decisions can include minority owners, designated representatives, financial institutions, employees and others.”

“The mind of the organization has to be in Canada and controlled by Canadians,” said John Gradek, a former Air Canada executive who teaches aviation leadership at McGill University.

The formation of the CTA panel signals staff investigators found there is enough evidence to proceed with the new level of investigation, he said.

“They have finished their investigations and there are enough grounds for the CTA to convene a panel, to bring in witnesses and have depositions. It’s a fairly formal process.”

“Flair is completely compliant with all applicable airline regulations, including those dealing with Canadian control,” Stephen Jones, the airline’s chief executive officer, said in a statement. “Flair is a private company, and while we have always and will continue to co-ordinate with all regulators as necessary, our shareholdings and financial affairs are confidential.”

In November, Flair said it was 58-per-cent owned by Canadians. Three of Flair’s five directors are Americans who either own or are employed by 777 Partners, according to incorporation filings in British Columbia.

A spokesman for 777 Partners did not answer e-mailed questions.

The CTA describes itself as a “quasi-judicial body” but operates largely in secret, without public hearings. “In situations when the CTA identifies concerns about the Canadian status of the air carrier, the CTA typically issues a preliminary determination in which it provides the carrier a time period for it to respond to those concerns,” the CTA said in an e-mail. The CTA’s decisions may be appealed to the Transportation Appeal Tribunal of Canada.

An allegation that the airline is controlled by Americans was also made last fall in a wrongful dismissal lawsuit filed by the airline’s former finance director, Jocelyn Harris. That claim has not been tested in court.

Flair is embroiled in a legal battle with its largest Canadian investor, Prescott Strategic Investments, partly owned by Flair’s former CEO, Jim Scott. Flair sought and was granted a publication ban and sealing order on that lawsuit. Steve Warnett, a lawyer for Prescott, declined to comment, citing the court order.

Flair, which describes itself as “Canada’s everyday low fare airline,” flies 12 planes to destinations in Canada and abroad.

The airline announced plans in early 2021 to boost its fleet to 50 aircraft by 2025, leasing the first 13 of the Boeing 737 Max jets from 777 Partners, its biggest U.S investor. In December, Flair said it would add another 14 737 Max planes, leasing them from “a mix of lessors,” including 777 Partners.

https://www.theglobeandmail.com/busines ... ompliance/

[flyinhigh]

Interesting turn of events.

https://news.paxeditions.com/news/airli ... kF5fgRV0

[evilgravy]

interesting, yes. Surprising? no.

[Airbrake]

https://www.therecord.com/news/waterloo ... cence.html

WATERLOO REGION — The Canadian Transportation Agency has issued a preliminary ruling that could threaten Flair Airlines’ ability to continue flying.

If the decision is confirmed in a final ruling, the airline’s licence to operate could be cancelled or suspended.

It’s not clear how the ruling, if confirmed, will affect expansion plans at the Region of Waterloo International Airport, which were spurred primarily by the passenger growth generated by Flair.

The federal agency, which oversees the Canadian transportation system, issued a preliminary determination on March 3 “that Flair may not be controlled in fact by Canadians and may, therefore, not be ‘Canadian’, as defined in the Canada Transportation Act.”

To be licensed, a Canadian airline must be mostly owned and controlled by Canadians.

In an email statement, the Edmonton-based discount insists that it meets federal rules.

“Flair Airlines is a Canadian airline and is controlled by Canadians both in law and in fact,” says the statement from Stephen Jones, Flair’s president and CEO. “Flair Airlines, at all times, operates its business in compliance with the laws and regulations governing air transportation in Canada. Flair Airlines will fully co-operate with the Canadian Transportation Agency review and will respond to the Canadian Transportation Agency in a timely manner.”

People who have booked tickets with the airline need not worry, Jones said. “Flair is here for the long term and is committed to finally bring sustainable, affordable airfares to the people of the Kitchener-Waterloo region,” he said. “Customers can absolutely book with confidence, and we look forward to welcoming them aboard this summer.”

The Canadian Transportation Agency began a review late last year of the airline. It examined Flair’s relationship with a U.S. investor, to ensure this arrangement does not put U.S. investors in actual control of the airline. Miami-based 777 Partners owns 25 per cent of Flair, has three of its five board seats, and leases several planes to Flair, according to a Globe and Mail report.

Canadian transportation rules require a licensed airline be incorporated in Canada, that Canadians hold a majority of voting shares, and Canadians control the airline’s strategic decisions and manage and run its day-to-day operations.

To determine de facto control, the agency “may need to examine all operational, managerial and financial relationships” that an airline has with foreign entities, it says on its website.

Flair has 60 days to respond to the preliminary ruling, after which the agency will issue a final determination. “The panel assigned to the case will determine what the next steps will be based on Flair’s response,” the federal agency said in an email. “If the CTA determines at the end of the process that Flair is not Canadian, Flair’s licences would be suspended. “

Flair has had a huge impact on the Region of Waterloo airport since it began flying there in May 2021, and accounts for 80 per cent of the airport’s passenger traffic.

The airport struggled with passenger numbers for years — fewer than 80,000 people went through the airport in 2018 and 2019. Those numbers soared once Flair began flying out of the Breslau airport, with more than 200,000 passengers in 2021 and 782,000 passengers expected in 2022.

RELATED STORIES
WATERLOO REGION
Great interest in Waterloo Region over federal probe into finances of Flair Airlines
Dec. 07, 2021
Flair has brought 150 jobs to the region, and operates multiple flights every week.

The Region is spending $44 million over two years to double the airport terminal, mainly to accommodate the extra passengers Flair has brought.

The Region is monitoring the situation, and will respond when the agency issues a final ruling, said Rod Regier, the Region’s commissioner of planning and development.

“Regardless of the outcome of this process, Flair has demonstrated the viability of YKF and the interest of travellers in our market area to use YKF as a gateway to other destinations,” Regier said.

[airway]

"Flair has 60 days to respond to the preliminary ruling, after which the agency will issue a final determination. “The panel assigned to the case will determine what the next steps will be based on Flair’s response,” the federal agency said in an email. “If the CTA determines at the end of the process that Flair is not Canadian, Flair’s licences would be suspended."

So I would assume that Flair would have some time to rectify any concerns the CTA has (or appeal to a higher authority?) before their licences would be suspended.

[goingmissed]

Let's hope that Flair is able to get this sorted out in an expeditious manner.

[evilgravy]

my opinion:

This will go away, likely quietly. It's a bad look for the CTA to suspend Flair's AOC, thus eliminating (even for a short time) all of those jobs. It's also a bad look that they did not investigate this sooner - 777 has been involved with Flair for quite some time, and I believe held board spots the entire time.

[Oxi]

Phew glad this is getting looked into! How about the hockey bags of money in B.C. casinos money laundering saga or the Ponzi scheme Fortress Developments in Toronto. Canadian government federally and provincially both turn a blind eye.

[a380super]

Pooring the real estate market in big city like Toronto and Vancouver with money laundering is ok....but foreign investment above a certain limit in a Canadian airline is not...
Hmmm maybe its time to change the rules..

[co-joe]

Why does this story keep getting recycled as news? This has been going on for over a month, but a bunch of mainstream news agencies just decided to bring it back up again as news. Probably came with a bunch of Westjet ad revenue to those agencies.

[Realitychex]

More info has come to light according to a recent story in the Globe and Mail.

Flair wants the CTA to grant it exclusive dispensation for 18 months to operate with a competitive advantage unavailable to all others who scrupulously follow Canadian foreign ownership rules.

Hmm. What would happen if 60% of WestJet’s board were Delta Airlines appointees, financing came from Delta and most of the fleet was owned by Delta?

Anyone recall what happened to Greyhound Air in May 1996 when they tried the same sort of ownership / control stunt?

Unless Flair attracts a ton of Canadian investment money PDQ and 777 Partners influence is drastically curtailed, this is not going to end well for anyone connected to Flair.

The CTA knows that Flairs 13 tails / capacity can easily be replaced by incumbents, not to mention Lynx, within a few weeks. Long timers will recall that shutdowns / strikes cause chaos for about 2-3 days before things revert to the new normal. No big deal.

[Fanblade]

my opinion:

This will go away, likely quietly. It's a bad look for the CTA to suspend Flair's AOC, thus eliminating (even for a short time) all of those jobs. It's also a bad look that they did not investigate this sooner - 777 has been involved with Flair for quite some time, and I believe held board spots the entire time.

Turning a blind eye won’t be an option.

Either the rules change for everyone or Flair gets on side with the rules.

Even changing the rules is a stretch. It’s bad precedence to rewrite rules to get rule breakers on side. I very much doubt that is an option.

The only likely option is Flair getting onside with the rules and the CTA giving realistic time to make it happen. Plus fines.

[canadianpilot101]

I mean Jetlines did the exact same thing and nobody batted an eye, they literally got an exemption to go around foreign ownership rules to bring operations…

“ In June 2016 the airline announced that it had asked the Canadian government to relax its legal requirement for Canadian airlines to have no more than 25% foreign ownership, allowing Canada Jetlines to seek foreign investment up to the level of 49% ownership.[7] On November 3, 2016, Transport Minister Marc Garneau approved Jetlines' request for exemption from the current foreign ownership rules, which allowed the airline to access necessary capital in order to begin operations.[8] The airline has one ownership member from Europe and a board made up of industry members from Europe and the United States.”

https://lfpress.com/2016/11/03/canada-j ... ip-limit?r

[canadianpilot101]

my opinion:

This will go away, likely quietly. It's a bad look for the CTA to suspend Flair's AOC, thus eliminating (even for a short time) all of those jobs. It's also a bad look that they did not investigate this sooner - 777 has been involved with Flair for quite some time, and I believe held board spots the entire time.

Turning a blind eye won’t be an option.

Either the rules change for everyone or Flair gets on side with the rules.

Even changing the rules is a stretch. It’s bad precedence to rewrite rules to get rule breakers on side. I very much doubt that is an option.

The only likely option is Flair getting onside with the rules and the CTA giving realistic time to make it happen. Plus fines.

It was an option for Jetlines, and they got an exemption granted.

[SPR]

I mean Jetlines did the exact same thing and nobody batted an eye, they literally got an exemption to go around foreign ownership rules to bring operations…

“ In June 2016 the airline announced that it had asked the Canadian government to relax its legal requirement for Canadian airlines to have no more than 25% foreign ownership, allowing Canada Jetlines to seek foreign investment up to the level of 49% ownership.[7] On November 3, 2016, Transport Minister Marc Garneau approved Jetlines' request for exemption from the current foreign ownership rules, which allowed the airline to access necessary capital in order to begin operations.[8] The airline has one ownership member from Europe and a board made up of industry members from Europe and the United States.”

https://lfpress.com/2016/11/03/canada-j ... ip-limit?r

There are two huge differences here: Flair already has the allowance for 49% foreign ownership, and Jetlines applied for the exemption before changing their ownership structure. Flair is now asking for an exemption above and beyond what they already had, which means they're implicitly admitting that they're not in compliance, and haven't been for the last year-and-a-half or so since 777 got involved, meaning that they're asking to be allowed to break the rules for a full three years by the time they come up with a plan. If I had been flying with a lapsed medical for eighteen months, would it make any sense to grant me an exemption to keep flying for another eighteen months so that I can sort out my medical, or should I be grounded immediately because I've already been violating the regs?

[Fanblade]

my opinion:

This will go away, likely quietly. It's a bad look for the CTA to suspend Flair's AOC, thus eliminating (even for a short time) all of those jobs. It's also a bad look that they did not investigate this sooner - 777 has been involved with Flair for quite some time, and I believe held board spots the entire time.

Turning a blind eye won’t be an option.

Either the rules change for everyone or Flair gets on side with the rules.

Even changing the rules is a stretch. It’s bad precedence to rewrite rules to get rule breakers on side. I very much doubt that is an option.

The only likely option is Flair getting onside with the rules and the CTA giving realistic time to make it happen. Plus fines.

It was an option for Jetlines, and they got an exemption granted.

Apples and Oranges.

SPR covered most of it.

I will add that crossing the 49% foreign ownership line is a fundamental alteration of competition rules in Canada for airlines.

This isn’t like going from 25% to 49% at all.

The ramifications for AC and WJ would be immediate. They would become foreign acquisition targets over night. Their shareholders would applaud but I don’t think that is in the best interest of Canada.

Airlines are treated as part of infrastructure. Roads, railways. There becomes a concern over sovereignty. It’s not a no big deal issue to cross the 49% line.

It’s a very big deal.

Worse if the kind of press below starts to become widespread advanced bookings will fall off a cliff.

Flair needs to fix this PDQ.

https://www.theglobeandmail.com/busines ... nce-after/

[TheStig]

In a statement to The Globe, Stephen Jones, Flair’s chief executive officer, denied the carrier has violated the laws and said Flair will co-operate with the CTA. “Flair Airlines is a Canadian airline and is controlled by Canadians both in law and in fact,” Mr. Jones said.

If that was true, why is Flair looking for an 18 month exemption from the law which they claim they haven’t violated?

[GRK2]

Of course West Jet was first in line to protest. Just look how hard they're working to wreck their own staff! In the meantime they're sucking any life left in their own employees dry. Let's kill the whole industry to keep costs down and while we're at it, let's make sure no one wants to start a career either.

If you know how the CTA works internally you would know that the exemption and extension application is the CTA's advice to a company so that all required elements of proof can be impartially and legally investigated and corrected in time if needed. The process allows for other companies to file objections as well so it's expected that at least AC and WS would apply.

[co-joe]

In a statement to The Globe, Stephen Jones, Flair’s chief executive officer, denied the carrier has violated the laws and said Flair will co-operate with the CTA. “Flair Airlines is a Canadian airline and is controlled by Canadians both in law and in fact,” Mr. Jones said.

If that was true, why is Flair looking for an 18 month exemption from the law which they claim they haven’t violated?

It's not the 49% ownership rule that Flair is asking for time to work with, it's the control at the board level. They just need time to hire the right Canadians to the board to even up the voting power. Rushing such a move doesn't makes sense coming out of the covid losses all airlines have taken.

[evilgravy]

In a statement to The Globe, Stephen Jones, Flair’s chief executive officer, denied the carrier has violated the laws and said Flair will co-operate with the CTA. “Flair Airlines is a Canadian airline and is controlled by Canadians both in law and in fact,” Mr. Jones said.

If that was true, why is Flair looking for an 18 month exemption from the law which they claim they haven’t violated?

It's not the 49% ownership rule that Flair is asking for time to work with, it's the control at the board level. They just need time to hire the right Canadians to the board to even up the voting power. Rushing such a move doesn't makes sense coming out of the covid losses all airlines have taken.

regardless of the power at the board level, 777 clearly has a lot of power at the financial level. given that any one party can't own more than 25%, I would suspect that they'll need time to straighten that away as well... provided of course that any exemption is given.

Plus, if it were truly a 'hiring issue' for the board - why would SJ come out and deny any wrong doing back in December? He did that off the hop when this news first broke. Why not just say "yeah we had a tough time filling a board spot after our former CEO decided to sue us, so we filled it with a US person from the same investment company we get all our money from" ??

right...