Flair Airlines (F8, Kelowna) will vigorously defend a lawsuit filed by one of its shareholders over its fleet expansion plans announced during the COVID-19 pandemic, says president and chief executive, Stephen Jones.

While unable to comment in detail as the issue is subject to court action, he told ch-aviation by email: "In our view this action is ill-advised, and we will defend it fully and vigorously. The business is going extremely well and we look forward to delivering on our vision to be Canada’s ULCC (ultra-low-cost-carrier)."

Majority shareholder Prescott Strategic Investments LP through its general partner Prescott Strategic Investments Ltd. filed a petition in the British Columbia Supreme Court on June 18, 2021, naming as respondents Flair Airlines and its Miami-based 24.9% shareholder and lessor, 777 Partners, reported Business Intelligence for BC.

The petition seeks declarations that Flair’s affairs are “being conducted in a manner that is oppressive” to Prescott. It also seeks an order for Flair and 777 Partners to buy out Prescott’s shares for CAD0.85 (USD0.68) per share.

Prescott owns just under 68% of the airline’s voting shares and took over the company’s management in 2018. “Shortly after taking over management of Flair, Prescott’s partners became aware that Flair required an immediate infusion of funds in order to pay down a line of credit,” the petition states, a situation which saw 777 Partners sign on as an investor after being approached by Flair. The airline reportedly owes 777 Partners CAD140 million Canadian dollars (USD112.3 million), most of which is at an 18% interest rate.

In the court filing, Prescott claims the dispute was spurred by Flair’s management deciding to “aggressively expand its operations during a global pandemic” by signing leases on thirteen new B737-8 with a subsidiary controlled by 777 Partners.

As previously reported, Flair expects to take delivery of eight B737 MAX 8s by August 1, 2021, of an initial lease commitment of 13 of the type from 777 Partners. The next batch of deliveries will start in December through to Spring 2022. The plan is to acquire 50 aircraft within five years, in a vision dubbed “F50”.

According to the petition, Flair’s decision to lease the thirteen B737 MAX 8s for new routes out of five Canadian airports “caused serious concerns for Prescott”, which claims Flair had not sought shareholder approval for the leases and expansion plans. “Because Flair had already begun selling tickets connected to the expanded services, Flair’s position was entrenched and any after-the-fact vote by shareholders would be futile,” the petition states.

Prescott claims Flair also did not get approval for the leases from the Canadian Transportation Agency, raising “significant concern” about whether the leases would put the company under the effective control of US-based 777 Partners, which could lead to a finding that it wasn’t “controlled in fact” by Canadians as required by the Canada Transportation Act. Such a finding could strip the aviation firm of its license to operate in Canada, Prescott alleges.

Meanwhile, directors of 777 Partners allegedly threatened to call in Flair’s debt and put it into receivership if it does not proceed with the leases and expansion plans, which Prescott claims are not in Flair’s best interest.

According to the petition, Flair’s fleet of three B737-800s was mostly grounded from September 2020 to April 2021, with the airline using only one for its Vancouver International -Edmonton International - Toronto Pearson route and its Vancouver - Calgary - Toronto route during that time.

Prescott notes the expansion plans came amid COVID-19 as Canadian air travel dropped by around 90% of pre-pandemic passenger numbers, causing other airlines such as WestJet and Air Canada to scale back or halt expansion plans including cancelling orders for their new B737 MAX 8s.

Jones told ch-aviation in June the airline was “confident in our business model and in our cost base, and in our investor support.” He pointed out that during the last year and during COVID-19, ultra- and low-cost carriers' market share grew from 25% to 30% globally.

The petition’s factual basis has not been tested in court, and Flair and 777 Partners had not filed responses by the time of publication.