Flair CEO Stephen Jones said the low-cost airline’s expansion plans will effectively be suspended for at least a year as it grapples with delayed plane deliveries and high debt.
“This year will be a more subdued year, but we aim to return to strong growth mode in 2025,” he said in an interview.
As recently as fall, the Edmonton-based company had a goal of increasing its fleet from 20 currently to 26 by 2024. Jones said Monday that the number likely won’t increase much next year. This was partially due to a holdup at Boeing.
The US aircraft manufacturing giant has come under intense regulatory scrutiny over its safety record after a 737 Max 9 jetliner was grounded for weeks after a side panel ruptured during a flight earlier this month. ing.
Jones said the Max program has seen a number of delays in deliveries. Planes scheduled to arrive in the spring won’t land at Flair’s gates until late fall, because that’s “not the best time to expand production capacity.”
“This is a tough industry,” he said, “and it will take some time for the financial situation to improve.”
According to court documents, Flair Airlines owes the federal government $67.2 million in unpaid taxes, prompting the Canada Revenue Agency to obtain a seizure and sale order for the airline’s assets.
Jones said the amount relates to unpaid import duties on the 20 Boeing jets that make up Flair’s fleet.
But he said the federal court order obtained by tax authorities in November would not affect the company’s operations, which have expanded over the past year and faced increased competition from rival airlines. He said the company has agreed to settle its debts with the CRA.
“We are working on a plan with them to repay the outstanding amount,” Jones confirmed by phone. He added that the court-issued writ of seizure and sale is “an emergency measure in place in case we fail in that plan, which we do not intend to do.”
The terms of the deal are confidential, but Jones said it would involve monthly payments, which the CRA said were “understood.”
The Department of Revenue cannot comment on specific cases for confidentiality reasons, but said it would consider making arrangements with companies “based on their ability to pay” before taking further steps to recover funds. Stated.
“As a last resort, we may take additional legal collection measures, such as seizure of property and assets, to protect the Crown’s interests,” Spokesperson Kim Tyfault said in an email.
The Nov. 23 court order, first reported by the Globe and Mail, authorizes “the Sheriff of Alberta or a civil enforcement agency” to seize and sell Flair’s property and assets.
It’s the latest chapter in a years-long struggle for airlines to stay solvent and within regulations, amid multiple run-ins with the courts.
Last March, Flair ordered four of its aircraft to be taken away in the middle of the night by aircraft leasing company Airborne Capital, which claimed that the company had consistently missed millions of dollars in rent payments over the past five months. It was seized.
In response, Flair filed a $50 million lawsuit against Airborne and three other leasing companies, alleging that the companies’ continued demands for payment were “baseless.”
Flair has touted its performance in recent months, touting passenger growth, a domestic-leading completion rate of 98%, and on-time performance of 69%, all weak compared to global competitors but strong compared to Canadian competitors. ing.
But even as the ultra-low-cost carrier disbanded its low-cost subsidiary Swoop in October, the ultra-low-cost airline remains a rival to newly scaled-down WestJet Airways in Western Canada, as well as Porter Airlines and low-cost carriers. The airline is facing increasing competition from Lynx Airlines. It is expanding rapidly.
With an increased focus on sunny destinations this winter, Flair will be in direct competition with other airlines with similar initiatives, including WestJet’s Sunwing Airlines and Air Transat. Become.
“I think Flair is probably in the toughest position of any player in the Canadian market right now,” said Duncan Dee, Air Canada’s former chief operating officer.
He pointed to Flair’s debts and seizure of his plane as evidence of his struggle to make ends meet.
“The picture it paints is one in which Flare faces much more significant challenges than what appears on the surface,” Dee said.
Jones said Flair has seen significant growth over the past year, even though the debt-ridden company is experiencing growing pains and is still working to stabilize its finances and gain consumer confidence. For the most part, the company says it has continued to do well, supported by the large number of passengers.
In 2022, Transport Canada urged Flair to revamp its board of directors to comply with domestic ownership rules and strip its top investor, 777 Partners, of its shareholder rights.
In addition, Flair must continue to pay more than $7 million a month in lease payments for more than two dozen Boeing 737s and manage loans totaling between $200 million and $300 million, which means that import taxes on the jets will be levied. It’s getting even tougher. Pay salaries — Jones told The Canadian Press in August.
He cited an 18% interest rate on the loan from Miami-based 777 Partners, which owns a quarter of the airline.
Interest is “non-cash,” meaning no monthly payments are required and is simply added to the principal, he noted last summer. “At some point, there will be some form of liquidation, whether it’s restructuring or whatever.”
Meanwhile, a Facebook page featuring the plight of Flair passengers continues to document problems, but mid-2022 has wreaked havoc on travel for a travel industry unprepared for a post-pandemic surge in air travel demand. It is characterized by fewer complaints compared to
This report by The Canadian Press was first published Jan. 29, 2024.
— With files from Tara Deschamps in Toronto
Companies featured in this article: (TSX:TRZ)
Christopher Reynolds, Canadian Press