YEGFlyer wrote:

Nah, the conservative view is to recognize the ULCC model and costs it drives as very competitive and the globally the most profitable model in the industry. Period. Anything else is noise/ maneuvering/ vested interests.

jimbo737 wrote:

If airlines in this situation can coast for months from the windfall earned in July and August, Greyhound Air wouldn’t have pulled the ‘chute in September.

airman99o wrote:

Regarding Skyservice. Back in March of 2010 we were put into receivership not long after Sunwing and Signature Vacations joined Forces. We lost about 40 % of our flying due to this. Not long after that announcement, Sunquest / Thomas Cook had called in a loan of about 8 million ( if memory serves ) the writing was on the wall and a few days later we all woke to the news we had shut down. Ten days later Jazz aviation and Thomas cook announced their partnership.... hmmm now that smells of something in
the works for a lot longer.... Now saying we kept Jets and Props separate? We had no props in our fleet. Skyservice Business Aviation and Air Ambulance was sold off a few years prior. So the Airline was a stand alone company.
If the Roots Air / Skyservice / Air Canada deal had to go through, rouge wouldn't exist today. As we would have been what they became 10 years or so earlier. Also it was proposed to take all the flying we were doing and make it all under the Sunwing banner. The other Tour operators balked at the idea and threatened to walk. Why piss off the company ( Sunquest ) that helped start the airline.... and another that was giving us a ton of flying, Conquest was barely a dot on the map at this time and disappeared shortly
What a great soap opera!! Who needs Days of our lives!! Ha

airman99o wrote:

Thanks for the history lesson. The jets and props reference I made is actually in relation to PD as they're operated under separate legal entities both owned by the parent company. I did not know that Skyservice Business Aviation and Air Ambulance was sold off and was not under a parent umbrella even though they continued to share the same name. Thanks for that tidbit.
No Probs. Skyservice was one stellar Blip on the Canadian Aviation industry. But as anyone that follows the industry and knows charter flying.... one you get to a certain maturity the tour operators dry up and find something cheaper. Air Transat is a different beast as they used to own everything under their namesake. Not so much now. Sunwing has followed the same state of business, although with their buyout by WestJet that will change.
The other Charters in this industry were slightly different. Canada 3000.... bit off more than they could chew, although Royal ( Mike the white ) was purchased WAY more that it was worth. And then to take Canjet a few months later.... wasn't the complete killer. The fact that Angus Kinnear said in a news conference that they didn't have enough money to last until Christmas that year was his biggest mistake. After he said that Killed the airline, as bookings Dropped like a Hot Rock.
Mike the White came back with Jetsgo and we all see what happened there. I feel Flair is very similar to what Jetsgo was doing. Live off tomorrow's dollars to survive today. As Jestgo took Money right up until the night before they clipped their wings.
As with any company, I soo feel for the front line employees. They will get it up the A#$× with sandpaper while the a=$×holes behind the office walls, walk away with Millions in their pockets.

jimbo737 wrote:

...

There are about 200 good days and about 165 not so good days a year for airlines in Canada.

It’s easy to make money those good 200 days a year. It’s exceedingly difficult to figure out how not to blow your brains out the other 165 days.

Therein lies the challenge for O&D ULCC’s; indeed all new entrants in Canada.

...
.

YEGFlyer wrote:

Sad to hear of Bill Hardy's passing.

New Flair board chair is former EVP at United.

https://www.newswire.ca/news-releases/j ... 88339.html

robsaw wrote:

jimbo737 wrote:

...

There are about 200 good days and about 165 not so good days a year for airlines in Canada.

It’s easy to make money those good 200 days a year. It’s exceedingly difficult to figure out how not to blow your brains out the other 165 days.

Therein lies the challenge for O&D ULCC’s; indeed all new entrants in Canada.

...
.

I'd tend to agree with that as a central truth to the airline biz in Canada; at least it was historically.

Venerable AC had a fairly lengthy record of losing money at least 1, often 2, and sometimes 3 quarters of each fiscal year (excluding the worst economic years where it was 4 quarters+ of straight losses). WestJet had a track record of better consistency of some quarterly profits but still significant variances better quarter vs worst quarter.

Just demonstrates that survival is essential on carrying FORWARD those best quarters and not merely paying back the losses of the previous losing quarter(s).

AWNP wrote:

YEGFlyer wrote:

Sad to hear of Bill Hardy's passing.

New Flair board chair is former EVP at United.

https://www.newswire.ca/news-releases/j ... 88339.html

She lasted 8 months at United, and from what I heard successful would not be a word to describe her time there.

jimbo737 wrote:

Having a fully allocated belf in the low 60% range with a 120 seat aircraft with a 335 mile asl didn’t hurt either.

jimbo737 wrote:

Sitting on the BoD of the first airline in Canada to suffer the ignominy of having aircraft seized by bailiffs in at least 25 years doesn’t speak much to the talent and experience of the group.

The finance committee of the BoD should have been all over this long before it occurred and instructed management on an appropriate course of action.

That, of course assumes that management made the BoD aware of the desperate financial problems that the airline was dealing with.

If management chose to keep the BoD in the dark, any self respecting BoD member would have / should have immediately resigned.

If the BoD was aware and acquiesced to actions that resulted in the seizure, that isn’t exactly a raging endorsement of the strength and quality of experience on the BoD either.

Any self respecting so called industry veteran would have have disassociated him / herself from this train wreck long ago.

Sitting on the BoD of Flair these days has about the same level of prestige these days as sitting on the BoD of Silicon Valley Bank.

sxf24 wrote:

all we know if that Flair’s still operating and must have a good relationship with its other lessors.

ET1EDM wrote:

Again the constant trashing of Flair and it's staff by the same YYC centric people. It is rather sad.

Acey wrote:

Only three are visible.

C-FFLA ferried YYZ-YLK yesterday morning
C-FLRS ferried YYZ-YLK yesterday morning
C-FLKD ferried YKF-YLK this morning

Fourth tail is C-FLKI which is still beached at YEG, not sure if it'll ferry tomorrow or stay out west collecting dust. We already know Airborne is actively trying to reposition the tails with new owners so moving them from YYZ where they're just wasting space is not indicative of anything aside from Pearson probably telling somebody to move them.

AirbusA322 wrote:

All this talk about how cash strapped this airline is, so I assume that 777 Partners have stopped injecting anymore cash. It’s like they have told Flair- no more cash, fight your own battles and make it work without our money tree. They would have thrown hundreds/millions at this experiment without a single return, fair enough, Flair needs to show it can become viable without ongoing cash injections.

Seems like they are not in the position to fund operations on its own accord. I don’t know what is next for Flair but it seems they are walking a tightrope.

Will this ever make money? And solid earnings not just breaking even. Seems questionable, and not sure what the exit plan is for 777, appears like the exit plan was stop throwing cash at it.

AirbusA322 wrote:

All this talk about how cash strapped this airline is, so I assume that 777 Partners have stopped injecting anymore cash. It’s like they have told Flair- no more cash, fight your own battles and make it work without our money tree. They would have thrown hundreds/millions at this experiment without a single return, fair enough, Flair needs to show it can become viable without ongoing cash injections.

Seems like they are not in the position to fund operations on its own accord. I don’t know what is next for Flair but it seems they are walking a tightrope.

Will this ever make money? And solid earnings not just breaking even. Seems questionable, and not sure what the exit plan is for 777, appears like the exit plan was stop throwing cash at it.

bennett123 wrote:

AirbusA322 wrote:

All this talk about how cash strapped this airline is, so I assume that 777 Partners have stopped injecting anymore cash. It’s like they have told Flair- no more cash, fight your own battles and make it work without our money tree. They would have thrown hundreds/millions at this experiment without a single return, fair enough, Flair needs to show it can become viable without ongoing cash injections.

Seems like they are not in the position to fund operations on its own accord. I don’t know what is next for Flair but it seems they are walking a tightrope.

Will this ever make money? And solid earnings not just breaking even. Seems questionable, and not sure what the exit plan is for 777, appears like the exit plan was stop throwing cash at it.

Are 777 Partners allowed to keep pumping in money?.

AirbusA322 wrote:

How come?

yhu wrote:

AirbusA322 wrote:

How come?

Long story short, 777 are a US company so they are limited in how much they can put into Flair. Put too much money in and Flair is no longer considered a Canadian company.

yyztpa2 wrote:

yhu wrote:

AirbusA322 wrote:

How come?

Long story short, 777 are a US company so they are limited in how much they can put into Flair. Put too much money in and Flair is no longer considered a Canadian company.

Canadian airlines are hampered by the inability to raise capital on the global market. Restricting to Canadian capital frequently puts start ups in competition for the same investors who are vested in the incumbents.

yhu wrote:

AirbusA322 wrote:

How come?

Long story short, 777 are a US company so they are limited in how much they can put into Flair. Put too much money in and Flair is no longer considered a Canadian company.

[4] The Agency found in its Preliminary Determination that 777 may have control in fact of Flair on the basis of the following: it had assumed the majority of risks and was entitled to the majority of benefits in respect of Flair’s operations; it controlled the Board of Directors (Board); it held rights that exceeded those granted to the other shareholders; it had played an active role in the management of Flair’s business; it was in a position to select whom it would bring in as a new shareholder; and, finally, Flair was dependent on 777 for its financing and leasing of aircraft. After considering all of these together, the Agency found on a preliminary basis that 777 may control in fact Flair.

[6] On May 3, 2022, Flair filed its response to the Agency’s Preliminary Determination, including amendments to its Unanimous Shareholder Agreement (USA) and a Promissory Note, to address concerns raised by the Agency in its Preliminary Determination. Flair, with the concurrence of the Agency, subsequently filed additional information, including executed versions of the amended USA and Promissory Note.

[7] The USA defines the relationship between the individual shareholders and Flair, including with respect to the corporate governance of Flair, and the assignment of rights among the shareholders. The Promissory Note governs the debt arrangement between Flair and 777.

SUMMARY
[8] The Agency finds, after considering all of the facts, that the changes implemented since the Agency’s Preliminary Determination, including to the USA and Promissory Note, have addressed the concerns raised by the Agency in its Preliminary Determination.

[15] The majority of Flair’s funding is provided through debt arrangements. In addition to its equity investment, 777 has also provided approximately 70 percent of Flair’s debt financing. The balance of the debt financing is held by a number of non-Canadian lenders.

[20] The third requirement typically entails the most analysis. Control in fact is 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. The influence needs to be dominant or determining to be considered, “control in fact”. The analysis to determine control in fact is done after considering all of the facts together, taking into account many factors recognizing that each case is unique.

[53] The Agency noted in its Preliminary Determination that a Canadian investor and 777 each hold the two largest equity interests in Flair. 777 also holds a Promissory Note issued by Flair. The Agency noted that, on this basis, 777 can be considered to have assumed the majority of investment risk in the business. Likewise, based on 777’s equity interest in Flair and the interest income it is entitled to on the Promissory Note, 777 can be considered to be entitled to the majority of benefits. 777, as the party that has assumed the majority of risks and is entitled to the majority of benefits, would consequently be expected to be in a position to hold control.

[54] Flair argues that the above-noted factors are not determinative of control in fact. Flair states that the Agency has consistently held that it will consider whether the non‑Canadian has the motivation, inclination and intention, and ability to exercise control in fact over the Canadian carrier and that 777 has no motivation, inclination, or intention to control Flair. Flair further argues that 777 provided additional funding to Flair throughout the COVID-19 pandemic when it required additional financial support and, at the same time, to protect its own investment in the company and not to control the affairs of Flair. Flair further puts forward that the Agency has previously held that, in determining intent, it will take into account the nature of the business of the non‑Canadian investor, for instance, whether the non-Canadian lender is a foreign air carrier. In this case, Flair states that while 777 has some investments in aviation, it is not a foreign air carrier, and aviation is not its sole business.

[55] The Agency does not find Flair’s arguments convincing on this matter. Irrespective of the reasons for 777’s investment in Flair, it has assumed the majority of risks and is entitled to the majority of benefits, as a result of its significant investment in the equity and debt of the company. 777 is a sophisticated investor with expertise in the aviation sector and the Agency is not convinced that 777 does not have the motivation or intent to control in fact Flair. Indeed, 777’s involvement so far has not, from the Agency’s perspective, been akin to a passive investor. However, the Agency notes that while 777 could have the intent to influence the strategic direction of Flair, it also requires the means to do so in order to be able to control the company.

[60] In situations where the monetary size of the debt held by non-Canadians is significant compared to the other sources of financing or if there is a dependency upon a guarantee from a non-Canadian, non-Canadians can be in a position to indirectly exercise control over the company.

[61] The Agency stated in its Preliminary Determination that Flair’s dependence on 777 for financing, along with 777’s ability and apparent willingness to exert its control over Flair, are strong indicators that Flair may be controlled in fact by 777. The majority of the debt is held by 777 via a Promissory Note. Further, the specific interest rate charged on the Promissory Note is an indicator that Flair is viewed as high risk by investors, casting doubt on whether it could secure replacement or additional financing elsewhere in the marketplace. The relatively short time periods between maturity dates with the continual requirement to extend the financing on the Promissory Note could provide 777 with the means to exert control over Flair. Further, 777 demonstrated that it is able to use its financing position as leverage when, in October 2020, it required Flair, as a condition to advancing additional monies on the Promissory Note, to agree to 777 receiving a three-year business plan for Flair that was acceptable to 777 and to certain changes to the company’s officer and Board composition.

[62] Flair in its response argues that the Agency has previously stated that the financing of aircraft has an international aspect to it and that an attempt to impose a Canadian financing requirement on air carriers would result in severe and unacceptable restrictions. Flair further argues that the Agency has specifically held on prior occasions that some degree of influence—even substantial influence—over the affairs of the carrier is acceptable and that control in fact concerns do not arise when the lender and borrower are operating on an arm’s length basis. Influence has to be dominant or determining to result in control in fact.

[63] The Agency acknowledges that financing from international sources does not necessarily create control in fact concerns. The Agency notes that any such consideration is to be made based on the facts of each situation. The Agency notes that influence has to be dominant or determining to result in control in fact.

[64] Flair in its response states that it is cash self-sufficient and has not accessed funds from 777 since mid-March. Flair has filed information with the Agency to confirm its cash position, including cash flow forecasts. Flair believes it will be able to generate sufficient cash reserves during the summer travel season to remain self-sufficient throughout the slower winter season. In the event that there is a further downturn in the aviation market and that Flair requires further financing during the winter season, Flair believes it will be able to access financing from Canadian sources. Should Flair have to resort to non-Canadians for further financing, Flair undertakes to submit the terms of any such financing to the Agency prior to proceeding with the transaction. Flair states that it is in discussions with the investment arm of a Canadian bank and private equity firms to explore financing alternatives to strengthen the airline’s financial position. Flair also states that it intends to list its shares on public equity markets through an initial public offering (IPO) with the funds to be used to repay the debt held by 777 and to build cash reserves.

[65] The Agency notes that Flair’s future plans to limit its dependence on 777, such as by obtaining funds through an IPO, are uncertain future events that do not address present-day concerns that Flair may be controlled in fact by non-Canadians. However, the information provided by Flair demonstrating that it is presently cash flow self‑sufficient mitigates concerns that Flair will continue to be dependent on 777 for new additional funding in connection with its future operational activities. It does not, however, address the concerns about Flair’s dependence on 777 in respect of the existing outstanding debt.

[66] The Agency notes that the risk remains that should there be a downturn in the aviation sector in general, or in Flair’s business in particular, it could require Flair to seek additional financing, at which point Flair may need to turn to 777 if it cannot secure the funding through other sources. The Agency, however, recognizes that it is not the case at the moment given that Flair is cash flow self-sufficient and forecasts, based on its bookings, that it will continue to be so. Flair is also in the process of negotiating an operating line of credit, which demonstrates some capacity to access financing other than solely through 777.

[67] Flair, in its response, indicated that it has recently expanded its credit facility with certain non-Canadian lenders and used the proceeds to pay down a portion of the debt held by 777. Flair has also noted that 777 has extended the maturity date for the Promissory Note to March 17, 2026, and has agreed to modify events of default in the Promissory Note so that it would be unable to call the Promissory Note other than in limited circumstances, such as in the case of insolvency, bankruptcy or winding up of the company. Flair argues that these actions are further indicators that 777 has no intent to leverage its financial position to exert control over Flair and that collectively, with all of the other changes, the ability of 777 to exert influence over Flair using the Promissory Note as leverage is removed.

[68] The Agency finds that extending the Promissory Note’s maturity date to 2026, while at the same time amending the Promissory Note to limit 777’s ability to call the loan, provides for the debt funding to continue to be available until at least 2026 and, as such, considerably mitigates 777’s ability to exert influence over Flair. Consequently, the Agency finds that its concerns regarding Flair’s financial dependence on 777 have been sufficiently addressed.

[70] The Agency noted in its Preliminary Determination that Flair has 12 aircraft (since increased to 14) under operating leases which are either leased from affiliates of 777 or are guaranteed by 777 or its affiliates, and that 777 had a veto over all of Flair’s aircraft lease decisions and, as such, Flair depends on 777 for the provision of aircraft, which is a strong indicator of control in fact.

[71] Flair in its response argues that the Agency has previously held that aircraft leases, even on favourable terms, do not give rise to control in fact issues, particularly if the air carrier remains responsible for the operating costs and if the leasing arrangements are consistent with market conditions and/or actual business needs of the air carrier. Flair states that it is responsible for the costs associated with the leased aircraft, the leasing of the aircraft is consistent with its business needs, and that the leases employ industry-standard arm’s length terms, including with respect to rent, and do not give rise to any element of control over Flair to lessors and guarantors. Flair states that 777’s veto rights over Flair’s leasing decisions have all been eliminated from the USA.

[72] Subsequent to filing its response on May 3, 2022, Flair informed the Agency that it has agreed to purchase one Boeing MAX 8 aircraft from 777. Flair has also been assigned the direct purchase rights previously held by 777 to acquire from Boeing five new MAX 8 aircraft. Flair has agreed to a sale and leaseback finance arrangement with independent aircraft lessors to fund the direct lease of the existing aircraft that is being acquired from 777 and for four of the new aircraft to be acquired from Boeing. These leases are not subject to any guarantee or financial assistance from 777. The first of these aircraft is to be delivered in June 2022. Flair has filed with the Agency term sheets reflecting these arrangements.

[73] The Agency recognizes that aircraft leases with non-Canadians, including non-Canadian shareholders of the company, do not necessarily give rise to significant control in fact issues, but also notes that such a determination must be considered after taking into account the relevant facts of each situation. In the present case, the Agency’s concerns are not tied to the specific terms and conditions of the lease arrangements with 777, but rather on Flair’s dependence on 777 for its aircraft given its financial position and, particularly, in light of 777’s veto rights. With the elimination of 777’s veto rights, the remaining issue is whether Flair remains dependent on 777 for the lease of its aircraft. The Agency notes that the lease agreements provide for an average remaining lease term of 9 years and do not provide 777 with the ability to take back the aircraft before the end of the lease term except in the event of default. Further, Flair has demonstrated that it can lease new aircraft without having to rely on a guarantee being provided by 777.

[74] Consequently, the Agency finds that its concerns related to Flair’s dependence on 777 for its aircraft have been addressed.

[79] The Agency finds that the amendments to the USA, the Promissory Note, and to the overall corporate governance structure have served to significantly reduce or remove the means through which control can be exercised. Canadians are now in a position to control shareholder and Board meeting business, and 777’s rights are consistent with the rights that are held by Canadian shareholders who have a similar economic interest to 777.

[80] Flair continues, however, to be financially dependent on 777 for the ongoing funding of its operations, including the leasing of its aircraft. While Flair has communicated an intent to diversify its funding sources, no such changes have yet occurred.

[81] While Flair continues to be financially dependent on 777 for the majority of the existing debt, Flair has demonstrated that it is now in a position to generate positive cash flow from operations to the point of being cash self-sufficient, which alleviates concerns it would continue to be dependent on 777 for additional new financing. Further, the extension of the Promissory Note’s maturity date to 2026 while, at the same time, limiting 777’s ability to call the loan, provides for the necessary debt funding to remain in place while significantly restricting 777’s ability to use it as a means to exert control over Flair.

aklak wrote:

https://otc-cta.gc.ca/eng/ruling/a-2022-63

[4] The Agency found in its Preliminary Determination that 777 may have control in fact of Flair on the basis of the following: it had assumed the majority of risks and was entitled to the majority of benefits in respect of Flair’s operations; it controlled the Board of Directors (Board); it held rights that exceeded those granted to the other shareholders; it had played an active role in the management of Flair’s business; it was in a position to select whom it would bring in as a new shareholder; and, finally, Flair was dependent on 777 for its financing and leasing of aircraft. After considering all of these together, the Agency found on a preliminary basis that 777 may control in fact Flair.

[6] On May 3, 2022, Flair filed its response to the Agency’s Preliminary Determination, including amendments to its Unanimous Shareholder Agreement (USA) and a Promissory Note, to address concerns raised by the Agency in its Preliminary Determination. Flair, with the concurrence of the Agency, subsequently filed additional information, including executed versions of the amended USA and Promissory Note.

[7] The USA defines the relationship between the individual shareholders and Flair, including with respect to the corporate governance of Flair, and the assignment of rights among the shareholders. The Promissory Note governs the debt arrangement between Flair and 777.

SUMMARY
[8] The Agency finds, after considering all of the facts, that the changes implemented since the Agency’s Preliminary Determination, including to the USA and Promissory Note, have addressed the concerns raised by the Agency in its Preliminary Determination.

[15] The majority of Flair’s funding is provided through debt arrangements. In addition to its equity investment, 777 has also provided approximately 70 percent of Flair’s debt financing. The balance of the debt financing is held by a number of non-Canadian lenders.

[20] The third requirement typically entails the most analysis. Control in fact is 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. The influence needs to be dominant or determining to be considered, “control in fact”. The analysis to determine control in fact is done after considering all of the facts together, taking into account many factors recognizing that each case is unique.

[53] The Agency noted in its Preliminary Determination that a Canadian investor and 777 each hold the two largest equity interests in Flair. 777 also holds a Promissory Note issued by Flair. The Agency noted that, on this basis, 777 can be considered to have assumed the majority of investment risk in the business. Likewise, based on 777’s equity interest in Flair and the interest income it is entitled to on the Promissory Note, 777 can be considered to be entitled to the majority of benefits. 777, as the party that has assumed the majority of risks and is entitled to the majority of benefits, would consequently be expected to be in a position to hold control.

[54] Flair argues that the above-noted factors are not determinative of control in fact. Flair states that the Agency has consistently held that it will consider whether the non‑Canadian has the motivation, inclination and intention, and ability to exercise control in fact over the Canadian carrier and that 777 has no motivation, inclination, or intention to control Flair. Flair further argues that 777 provided additional funding to Flair throughout the COVID-19 pandemic when it required additional financial support and, at the same time, to protect its own investment in the company and not to control the affairs of Flair. Flair further puts forward that the Agency has previously held that, in determining intent, it will take into account the nature of the business of the non‑Canadian investor, for instance, whether the non-Canadian lender is a foreign air carrier. In this case, Flair states that while 777 has some investments in aviation, it is not a foreign air carrier, and aviation is not its sole business.

[55] The Agency does not find Flair’s arguments convincing on this matter. Irrespective of the reasons for 777’s investment in Flair, it has assumed the majority of risks and is entitled to the majority of benefits, as a result of its significant investment in the equity and debt of the company. 777 is a sophisticated investor with expertise in the aviation sector and the Agency is not convinced that 777 does not have the motivation or intent to control in fact Flair. Indeed, 777’s involvement so far has not, from the Agency’s perspective, been akin to a passive investor. However, the Agency notes that while 777 could have the intent to influence the strategic direction of Flair, it also requires the means to do so in order to be able to control the company.

[60] In situations where the monetary size of the debt held by non-Canadians is significant compared to the other sources of financing or if there is a dependency upon a guarantee from a non-Canadian, non-Canadians can be in a position to indirectly exercise control over the company.

[61] The Agency stated in its Preliminary Determination that Flair’s dependence on 777 for financing, along with 777’s ability and apparent willingness to exert its control over Flair, are strong indicators that Flair may be controlled in fact by 777. The majority of the debt is held by 777 via a Promissory Note. Further, the specific interest rate charged on the Promissory Note is an indicator that Flair is viewed as high risk by investors, casting doubt on whether it could secure replacement or additional financing elsewhere in the marketplace. The relatively short time periods between maturity dates with the continual requirement to extend the financing on the Promissory Note could provide 777 with the means to exert control over Flair. Further, 777 demonstrated that it is able to use its financing position as leverage when, in October 2020, it required Flair, as a condition to advancing additional monies on the Promissory Note, to agree to 777 receiving a three-year business plan for Flair that was acceptable to 777 and to certain changes to the company’s officer and Board composition.

[62] Flair in its response argues that the Agency has previously stated that the financing of aircraft has an international aspect to it and that an attempt to impose a Canadian financing requirement on air carriers would result in severe and unacceptable restrictions. Flair further argues that the Agency has specifically held on prior occasions that some degree of influence—even substantial influence—over the affairs of the carrier is acceptable and that control in fact concerns do not arise when the lender and borrower are operating on an arm’s length basis. Influence has to be dominant or determining to result in control in fact.

[63] The Agency acknowledges that financing from international sources does not necessarily create control in fact concerns. The Agency notes that any such consideration is to be made based on the facts of each situation. The Agency notes that influence has to be dominant or determining to result in control in fact.

[64] Flair in its response states that it is cash self-sufficient and has not accessed funds from 777 since mid-March. Flair has filed information with the Agency to confirm its cash position, including cash flow forecasts. Flair believes it will be able to generate sufficient cash reserves during the summer travel season to remain self-sufficient throughout the slower winter season. In the event that there is a further downturn in the aviation market and that Flair requires further financing during the winter season, Flair believes it will be able to access financing from Canadian sources. Should Flair have to resort to non-Canadians for further financing, Flair undertakes to submit the terms of any such financing to the Agency prior to proceeding with the transaction. Flair states that it is in discussions with the investment arm of a Canadian bank and private equity firms to explore financing alternatives to strengthen the airline’s financial position. Flair also states that it intends to list its shares on public equity markets through an initial public offering (IPO) with the funds to be used to repay the debt held by 777 and to build cash reserves.

[65] The Agency notes that Flair’s future plans to limit its dependence on 777, such as by obtaining funds through an IPO, are uncertain future events that do not address present-day concerns that Flair may be controlled in fact by non-Canadians. However, the information provided by Flair demonstrating that it is presently cash flow self‑sufficient mitigates concerns that Flair will continue to be dependent on 777 for new additional funding in connection with its future operational activities. It does not, however, address the concerns about Flair’s dependence on 777 in respect of the existing outstanding debt.

[66] The Agency notes that the risk remains that should there be a downturn in the aviation sector in general, or in Flair’s business in particular, it could require Flair to seek additional financing, at which point Flair may need to turn to 777 if it cannot secure the funding through other sources. The Agency, however, recognizes that it is not the case at the moment given that Flair is cash flow self-sufficient and forecasts, based on its bookings, that it will continue to be so. Flair is also in the process of negotiating an operating line of credit, which demonstrates some capacity to access financing other than solely through 777.

[67] Flair, in its response, indicated that it has recently expanded its credit facility with certain non-Canadian lenders and used the proceeds to pay down a portion of the debt held by 777. Flair has also noted that 777 has extended the maturity date for the Promissory Note to March 17, 2026, and has agreed to modify events of default in the Promissory Note so that it would be unable to call the Promissory Note other than in limited circumstances, such as in the case of insolvency, bankruptcy or winding up of the company. Flair argues that these actions are further indicators that 777 has no intent to leverage its financial position to exert control over Flair and that collectively, with all of the other changes, the ability of 777 to exert influence over Flair using the Promissory Note as leverage is removed.

[68] The Agency finds that extending the Promissory Note’s maturity date to 2026, while at the same time amending the Promissory Note to limit 777’s ability to call the loan, provides for the debt funding to continue to be available until at least 2026 and, as such, considerably mitigates 777’s ability to exert influence over Flair. Consequently, the Agency finds that its concerns regarding Flair’s financial dependence on 777 have been sufficiently addressed.

[70] The Agency noted in its Preliminary Determination that Flair has 12 aircraft (since increased to 14) under operating leases which are either leased from affiliates of 777 or are guaranteed by 777 or its affiliates, and that 777 had a veto over all of Flair’s aircraft lease decisions and, as such, Flair depends on 777 for the provision of aircraft, which is a strong indicator of control in fact.

[71] Flair in its response argues that the Agency has previously held that aircraft leases, even on favourable terms, do not give rise to control in fact issues, particularly if the air carrier remains responsible for the operating costs and if the leasing arrangements are consistent with market conditions and/or actual business needs of the air carrier. Flair states that it is responsible for the costs associated with the leased aircraft, the leasing of the aircraft is consistent with its business needs, and that the leases employ industry-standard arm’s length terms, including with respect to rent, and do not give rise to any element of control over Flair to lessors and guarantors. Flair states that 777’s veto rights over Flair’s leasing decisions have all been eliminated from the USA.

[72] Subsequent to filing its response on May 3, 2022, Flair informed the Agency that it has agreed to purchase one Boeing MAX 8 aircraft from 777. Flair has also been assigned the direct purchase rights previously held by 777 to acquire from Boeing five new MAX 8 aircraft. Flair has agreed to a sale and leaseback finance arrangement with independent aircraft lessors to fund the direct lease of the existing aircraft that is being acquired from 777 and for four of the new aircraft to be acquired from Boeing. These leases are not subject to any guarantee or financial assistance from 777. The first of these aircraft is to be delivered in June 2022. Flair has filed with the Agency term sheets reflecting these arrangements.

[73] The Agency recognizes that aircraft leases with non-Canadians, including non-Canadian shareholders of the company, do not necessarily give rise to significant control in fact issues, but also notes that such a determination must be considered after taking into account the relevant facts of each situation. In the present case, the Agency’s concerns are not tied to the specific terms and conditions of the lease arrangements with 777, but rather on Flair’s dependence on 777 for its aircraft given its financial position and, particularly, in light of 777’s veto rights. With the elimination of 777’s veto rights, the remaining issue is whether Flair remains dependent on 777 for the lease of its aircraft. The Agency notes that the lease agreements provide for an average remaining lease term of 9 years and do not provide 777 with the ability to take back the aircraft before the end of the lease term except in the event of default. Further, Flair has demonstrated that it can lease new aircraft without having to rely on a guarantee being provided by 777.

[74] Consequently, the Agency finds that its concerns related to Flair’s dependence on 777 for its aircraft have been addressed.

[79] The Agency finds that the amendments to the USA, the Promissory Note, and to the overall corporate governance structure have served to significantly reduce or remove the means through which control can be exercised. Canadians are now in a position to control shareholder and Board meeting business, and 777’s rights are consistent with the rights that are held by Canadian shareholders who have a similar economic interest to 777.

[80] Flair continues, however, to be financially dependent on 777 for the ongoing funding of its operations, including the leasing of its aircraft. While Flair has communicated an intent to diversify its funding sources, no such changes have yet occurred.

[81] While Flair continues to be financially dependent on 777 for the majority of the existing debt, Flair has demonstrated that it is now in a position to generate positive cash flow from operations to the point of being cash self-sufficient, which alleviates concerns it would continue to be dependent on 777 for additional new financing. Further, the extension of the Promissory Note’s maturity date to 2026 while, at the same time, limiting 777’s ability to call the loan, provides for the necessary debt funding to remain in place while significantly restricting 777’s ability to use it as a means to exert control over Flair.

The CTA decision does not say that foreign debt isn't an issue and that Flair can have as much as they want. They explicitly state that a main factor in their concerns over whether 777 Partners had control-in-fact of Flair was the amount of indebtedness and the ability of 777 to exert pressure; the statement above shows that there is a limit on how much foreign debt Flair can have, and "Should Flair have to resort to non-Canadians for further financing, Flair undertakes to submit the terms of any such financing to the Agency prior to proceeding with the transaction." That's a pretty definitive statement that "There is no limit on how much a US person can lend a Canadian airline provided it is not structured to create control" is entirely wrong. The reason Flair was allowed to continue operating was because of amendments made between the Preliminary and Final Determinations which completely overhauled their corporate and financing structures, not because the CTA said that everything had been all good in the first place.

sxf24 wrote:

You need to read the entire decision. Determining control is not binary and requires significant analysis. The CTA walks through the various considerations.

This entire line of discussion is insane. If 777 Partners wants to lend money to Flair, Canadian employees and customers benefit from the airline’s continued operations. People get excited about new airlines and more competition in every other country. Why do so many invest so much time and expend all of this passion on trashing Flair?

The Agency noted in its Preliminary Determination that Flair has 12 aircraft (since increased to 14) under operating leases which are either leased from affiliates of 777 or are guaranteed by 777 or its affiliates, and that 777 had a veto over all of Flair’s aircraft lease decisions and, as such, Flair depends on 777 for the provision of aircraft, which is a strong indicator of control in fact.