Canadian Airline Flair Gets Green Light to Grow and Buy More Boeing 737 MAXs
Jun. 1—Canada's ultra-low-cost startup carrier Flair Airlines, which for two months has faced the threat of closure by government regulators over allegations that it was not controlled by Canadians, on Wednesday got the green light to continue operations.
The Canadian government ruling in favor of Flair will be a relief to Boeing.
Flair is a new customer for Boeing's 737 MAX aircraft, with 11 MAXs in its current fleet as well as three older model 737 NGs. In a virtual news conference from Edmonton, Alberta, CEO Stephen Jones said Flair will now move forward and take another MAX from Boeing within a week, with three more coming in June and another in July.
Flair says it intends to have a fleet of 30 jets by the end of next year. "We've got our foot to the floor on that plan," Jones said.
The Canadian Transportation Agency's final ruling Wednesday declared that management changes to Flair's governance structure and financing mean it now meets government airline ownership requirements in that it is controlled by Canadians and not its U.S. financial backers, Miami-based investment company 777 Partners.
Flair is attempting to break the hold of the country's large carriers Air Canada and WestJet by introducing very low fares on the model of Ryanair in Europe and flying into secondary airports such as Kitchener/Waterloo, about a 90-minute drive from Toronto.
"Flair is challenging the status quo in this country that accepts sky-high domestic airfares as a fact of life, a status quo created and protected by the big air carriers that makes it cheaper to fly to Europe than it is to fly to Halifax," said Jones. "You don't need to spend $800, you can spend $150 to fly across the country."
"It's only the beginning of what we see as a major shift in air travel for Canadians," he said.
The big Canadian carriers responded to Flair's 2021 rebranding and growth plan with aggressive criticism of its often unreliable flight schedule and a media campaign to convince regulators that the airline broke the country's ownership rules.
While the major Canadian airlines got government subsidies to survive the COVID-19 pandemic downturn, Flair took out a high-interest loan from U.S. investors 777 Partners and then leased its MAXs from the same company, which had bought them from Boeing.
That led some industry veterans to question Flair's business model as an untenable combination of a high-cost airline with low fares. But Jones insists that the lease rates it's paying on the MAX aircraft are industry standard and that the business model will work.
Flair's U.S. financial backers — whose name is unrelated to the Boeing 777 jet, simply denoting its original street address in Miami — have diverse investments in insurance, consumer and commercial finance, media, entertainment and sports, including soccer teams in Europe and South America.
It's a relatively new player in aircraft leasing, with an unusual business model of buying jets that it then will lease only to airlines in which it has an ownership stake.
It's backing not only Flair in Canada but a similar ultra-low-cost startup in Australia called Bonza that is expected to begin flying this year.
Steven Udvar-Hazy, a leading figure in the airline lessor business who leases jets to Flair rival Air Canada, in an interview said the Australian venture is dubious because four airlines already operate there domestically and he sees no room for Bonza.
But Josh Wander, co-founder of 777 Partners, insisted there's an opportunity in both Australia and Canada because aviation in both countries has been dominated by full-fare airlines. He said he expects each airline venture to grow.
"Our hope is that in the coming years that we're going to buy a lot more planes," he said.
"We're not worried about being restricted to leasing to our own airlines," Wander added. "We very much believe in our own airlines. And our expectation is that there will be more than the two that you're aware of in the near term."
Wander's firm has a total of 68 MAXs on order from Boeing, all ordered in 2021 at the height of the pandemic.
Demand for the MAX has surged since, which has allowed 777 Partners to take a profit and reduce risk by selling to other lessors four of the 11 jets delivered so far and leased to Flair.
Wander expects to buy more MAXs later. "Our expectation is that order book will grow meaningfully in the near future," he said.
To win approval from the Canadian Transportation Agency, Jones said 777 Partners dropped some directors from Flair's board and extended the maturity date on its debt.
In addition to fighting off the allegation that it was U.S.-controlled, Flair has for months faced criticism for last-minute flight cancellations and nonresponsive customer service.
On Wednesday, Jones said those issues are the result of the world coming out of the pandemic downturn in air travel and that many airlines face similar labor and capacity shortages.
"All airlines are struggling at the moment as we see the system growing and people trying to come back after the pandemic. The airports are crowded, security lines are full," he said.
Jones said Flair is working on its schedule reliability and has invested in automated technology at its call centers to improve customer service response times.
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