Flair Airlines (F8/FLE), the low-cost carrier based in Edmonton, Canada, is under investigation after concerns were raised about whether the company's control remains in Canadian ownership. Any breach of the ownership guidelines could result in a fine and even suspension of Flair's operating license.

Investigation into ownership and control

Investigations are being carried out by the Canadian Transport Agency (CTA) after it began having concerns regarding corporate ownership relating to Flair Airlines. It is trying to ascertain whether there has been a breach of the laws limiting foreign investors' control on a Canadian domiciled operator.

The investigation commenced after concerns were raised following a routine review of the airline's corporate structure and financial backers. This review highlighted that Miami-based 777 Partners owns 25% of the carrier amongst the airline's investors. Moreover, a point that is giving further concern is that the same investor also occupies three of five seats on the airline's board. Not only that, but it also leases numerous aircraft to the Canadian carrier.

Foreign investment in any Canadian airline cannot exceed 49% in total or 25% by any single individual. Additionally, foreigners cannot have overarching control of the airline or 'control in fact' as using the terminology used by the CTA. The legal definition of 'control in fact' is quite broad in this regard,

'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.'

Despite the announcement of the investigation, Flair itself is determined to demonstrate to the CTA that it has nothing to hide and that no breaches to the ownership and control laws have occurred. Commenting on the investigation, Steven Jones, Flair's CEO, stated,

"Flair is completely compliant with all applicable airline regulations, including those dealing with Canadian control. It is a private company, and while we always have and will continue to coordinate with all regulators as necessary, our shareholdings and financial affairs are confidential."

In an official filing to the authorities of British Columbia by Flair back in November 2021, the airline stated it was 58-per-cent owned by Canadians and that three of Flair's five directors are Americans. These three directors are either owners or are employed by 777 Partners.

However, not content with the specific contents of this filing, the CTA has decided to delve further into certain aspects of it that it felt warranted further investigation. The CTA describes itself as a "quasi-judicial body" but operates mainly in secret and without public hearings.

Should the CTA finds that a breach may have occurred, it has the power to issue a preliminary determination which would allow a period of time for Flair to respond to those concerns, and to put its house in order, so that the CTA is satisfied that the breach has been adequately addressed and resolved.

Flair also has a right to appeal to any finding made by the CTA by way of an appeal directly to the Transportation Appeal Tribunal of Canada.

Commenting on the announcement of the formal investigation to Canada's Globe and Mail newspaper, John Gradek, a lecturer in aviation leadership at McGill University, stated,

"The organization's mind has to be in Canada and controlled by Canadians. The formation of the CTA panel signals staff investigators found there is enough evidence to proceed with the new level of investigation. They have finished their investigations, and there are enough grounds for the CTA to convene a panel, bring in witnesses and have depositions. It's a fairly formal process."

Ongoing legal woes

This latest announcement adds further pressure on the Canadian airline. It is already embroiled in an ongoing legal battle with its largest Canadian investor, Prescott Strategic Investments. In a twist to the story, this company happens to be partly owned by Flair's former CEO, Jim Scott. However, a publication ban and sealing order have been ordered on the lawsuit, meaning that the exact nature and further details pertaining to the case have not been made public.

Adding further fuel to Flair's legal fire is an allegation that the airline is controlled by Americans, which was made last fall in a wrongful dismissal lawsuit filed by the airline's former finance director, Jocelyn Harris.

Flair remains bullish with future growth planned

Flair, which describes itself as 'Canada's everyday low fare airline,' is Canada's fourth-largest carrier. With new aircraft arriving and a plethora of new routes starting this year, it is due to take the third spot by May.

According to planespotters.net, the airline currently operates 12 Boeing 737s, including 9 737 MAXs, with an average fleet age of 4.7 years.

The current 737 MAXs are leased from 777 Partners and, along with another arriving shortly, make up the order for the type made directly with 777 Partners back in early 2021. The airline plans to have 20 of the type flying in time for this summer.

The airline announced plans in early 2021 to boost its fleet to 50 aircraft by 2025. In December 2021, Flair said it would add a further 14 737 MAX planes, leasing them from a mix of lessors, including 777 Partners.

Facing stiff competition within Canada

The airline has big plans for expansion in the coming months. However, it also faces increasing competition from the likes of Westjet and its ultra-low-cost offshore Swoop, as well as newcomer Lynx.

The market for low-cost travel originating from Canada is undoubtedly hotting up in this post-pandemic age. However, this latest investigation hanging over Flair will present an unwelcome distraction that the airline certainly doesn't need right now.