March 1st, 2024

Flair Airlines reaches payment plan on $67 million in taxes owing

By Christopher Reynolds, The Canadian Press on January 29, 2024.

Court documents reveal that Flair Airlines owes Ottawa $67 million in unpaid taxes, prompting the federal government to obtain an order for the seizure and sale of the carrier's property. A Flair Airlines plane is shown in this undated handout photo at the at the Fort Lauderdale airport. THE CANADIAN PRESS/HO-Flair Airlines * MANDATORY CREDIT *

Flair Airlines owes the federal government $67.2 million in unpaid taxes, court documents show, prompting the Canada Revenue Agency to obtain an order for the seizure and sale of the carrier’s property.

The sum relates to unpaid import duties on the 20 Boeing 737 Max jetliners that make up the budget airline’s fleet. according to CEO Stephen Jones.

However, he said the Federal Court order obtained by the tax agency in November has no impact on the carrier’s operations, which have expanded over the past year and ramped up competition with rival airlines, and that the company has agreed to settle the debt.

“We have a mutually agreed-upon payment plan with CRA to pay these importation duties, and we are current with that plan,” he said in an emailed statement, adding that the terms of the deal are confidential.

The CRA said it cannot comment on specific cases for confidentiality reasons, but that it looks to make arrangements with companies “based on their ability to pay” before it takes further steps to recover the money.

“As a last resort, we may take additional legal collection actions such as seizing property or assets to protect the interests of the Crown,” said spokeswoman Kim Thiffault in an email.

The court order from Nov. 23, first reported by The Globe and Mail, directs the “Sheriff of Alberta or any civil enforcement agency” to seize and sell Flair’s property and assets.

The writ marks the latest chapter in a multi-year struggle to stay solvent and within regulatory lines, as the airline repeatedly crossed paths with the courts.

Last March, Flair saw four of its planes repossessed in the middle of the night after aircraft leasing manager Airborne Capital claimed that the company regularly missed rent payments that amounted to millions of dollars over the preceding five months.

In response, Flair launched a $50-million court action against Airborne and three other leasing firms, arguing that ongoing demands for payment from the four companies were “baseless.”

Flair has touted its achievements in recent months, claiming the top flight completion rate in the country at 98 per cent and an on-time performance of 69 per cent – weak globally, but solid compared with its Canadian competitors. It said it flew 296,000 passengers in December and 4.5 million in 2023, marking big gains from the previous year.

But the ultra-low-cost carrier faces increased competition from WestJet – newly retrenched in Western Canada even as the Calgary-based carrier wound down low-cost subsidiary Swoop in October – and from Porter Airlines and budget rival Lynx Air, both of which are expanding swiftly.

A greater focus on sun destinations this winter has also put Flair in direct competition with other airlines that continue to do likewise, including WestJet-owned Sunwing Airlines as well as Air Transat.

The chief executive says Flair has been running a smooth operation propelled by high passenger numbers for much of the past year, despite growing pains at the debt-laden company that’s still striving to stabilize its finances and gain consumer confidence.

In 2022, the Canadian Transportation Agency prompted Flair to rejig its board and revoke shareholder rights from top investor 777 Partners in order to comply with rules around domestic ownership.

Moreover, Flair must continue to make payments of more than US$7 million per month on its 20-odd Boeing 737 plane leases and manage loans amounting to between US$200 million and US$300 million – making import taxes on those same jets all the tougher to pay – Jones told The Canadian Press in August.

He cited rates of 18 per cent on loans from 777 Partners, the Miami-based company that owns one-quarter of the airline.

The interest is “non-cash” – no monthly payments required – and merely adds to the principal, he noted last summer. “At some point there will be some form of reckoning, whether it’s a restructure or whatever.”

Meanwhile, a Facebook page dedicated to Flair passenger woes continues to log issues, but features fewer complaints than in mid-2022, when travel chaos descended on a sector unprepared for the surge in post-pandemic flight demand.

Flair aims to expand its fleet to 26 planes this year from 21 last summer.

This report by The Canadian Press was first published Jan. 29, 2024.

– With files from Tara Deschamps in Toronto

Companies in this story: (TSX:TRZ)

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