One of Flair Airlines’ biggest backers is reducing its stake in the discount carrier, just a day after an Australian airline it owned was forced into insolvency when all its planes were seized by a lender.
Late Wednesday, Flair announced that Miami-based 777 Partners would be transferring part of its stake in the airline to an “affiliate” of one of Flair’s lenders.
Sources say 777’s ownership stake dropped from just under 25 per cent to less than 10 per cent. As part of the transaction, the lender’s affiliate also restructured Flair’s debt.
The Flair change came a day after 777-backed Australian discount carrier Bonza Airlines was forced into insolvency proceedings following the seizure of its entire fleet of planes.
Industry sources say the unidentified Flair lender is affiliated with AIP Capital, a finance company which had Bonza’s planes seized this week.
A report in Australia said U.S. insurance conglomerate A-CAP and its affiliates — including AIP — currently hold roughly $500 million of Flair debt.
Despite the change, which industry analysts say could signal financial trouble for Flair and 777, Flair CEO Stephen Jones insisted it’s business as usual for the discount carrier.
“Customers can absolutely book with confidence. We’re looking forward to the biggest summer we’ve ever had,” said Jones, who also noted that Flair is the only discount carrier left in Canada after Lynx Air went into insolvency proceedings and ceased operations in February. “We’re the only ultra low-cost carrier left in the market. The only one providing affordable travel for Canadians.”
Flair had been in advanced discussions to buy its smaller rival before Lynx filed for protection from creditors.
While saying he was saddened by Bonza being forced into insolvency, Jones insisted it wouldn’t have any effect on Flair.
“Does it concern me for Flair? No it doesn’t. There’s no impact whatsoever on Flair, even though there was a common shareholding between the two companies,” said Jones. “There’s no flow of funds or any balance sheet connection between the companies whatsoever.”
Still, say industry experts, it appears as though 777 is stepping back from its discount airlines, whether by choice or because it’s coming under financial pressure from AIP.
“These two things happening within 24 hours of each other is absolutely not a coincidence. That’s not something that just happens. Somebody’s in there protecting their assets,” said John Gradek, a former Air Canada executive and head of McGill University’s Global Aviation Leadership Program.
Neither 777 nor AIP responded to requests for comment.
A privately-held company, 777 has come under increasing public scrutiny this year as it attempts to buy English Premier League soccer club Everton. Since announcing its intent in September to purchase Everton, U.K. reports say 777 has loaned the top-flight soccer club more than 200 million British pounds, or roughly $342 million Canadian.
There has been increasing skepticism in the U.K. press about whether 777 will be able to complete its purchase of the club.
In mid-April, AIP announced it would be managing the assets of newly-formed Phoenix Aviation Capital, an airplane leasing company 100 per cent owned by A-CAP. This week, AIP confirmed that the planes seized from Bonza have been transferred to Phoenix’s control. A-CAP owns 49 per cent of AIP.
It wouldn’t be a shock, argued Gradek, to see something similar happen to Flair.
“Of course it’s a possibility that could happen to Flair, if they don’t pay their leases,” said Gradek, noting that something similar happened to Flair last year.
Last March, Flair had four of its planes seized by an Irish leasing company after the company said the airline fell behind in its lease payments.
Earlier this year, Flair was ordered by an Alberta court to pay $67 million to the Canada Revenue Agency.
Despite the apparent turmoil, Jones insisted that the airline is on sound financial footing, and is still sticking to the payment schedule it agreed to with the CRA.
And, without naming AIP, Jones said Flair’s lender has shown a strong commitment to the airline.
“They’ve proven that they want to increase their exposure to Flair, and they’re fantastic supporters of the business,” said Jones.
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