Loading

Flair Airlines could face challenges in executing growth after aircraft seizure

Analysis

Canadian ultra-low cost carrier Flair and aircraft leasing management company Airborne are embroiled in a public dispute over Airborne's decision to seize four Boeing narrowbody aircraft from the airline. Airborne seized the Boeing aircraft - one 737-800 and three 737-8s - from Flair on 11-Mar-2023.

It is a highly unusual situation, and creates challenges for Flair as it scrambles to find aircraft to operate its planned schedule for the summer season in the Northern Hemisphere. Flair is examining ways to get alternative sources of capacity. Its CEO Stephen Jones said, "...but this is pretty short notice, and so it is more likely that we will need to trim some of the schedule to fit the available capacity".

Previously, Flair has said that it was planning to bolster capacity by 50% during the northern summer of 2023 and grow its fleet to 27 aircraft.

The controversy has resulted in Flair suing Airborne and the leasing company's lessor partners, and the situation could be a setback for Flair as it works to reach its short term and long term ambitions.

Summary

  • Flair works to get hold of other aircraft for its summer schedule after four Boeing narrowbodies were seized by Airborne.
  • Airborne seized four Boeing aircraft - one 737-800 and three 737-8s - from Flair on 11-Mar-2023.
  • The airline is suing Airborne and lessors, claiming the lessors breached their obligations.
  • Flair could face some headwinds stemming from the aircraft dispute.

Airborne's seizure of aircraft is affecting Flair's summer schedule

Airborne seized four Boeing aircraft - one 737-800 and three 737-8s - from Flair on 11-Mar-2023.

The airline quickly returned to a full schedule, "...because we had three [Boeing 737] MAX aircraft already in the airline, but waiting for the summer period", Flair CEO Stephen Jones said during a 14-Mar-2023 media briefing.

However, Mr Jones added: "I would say we have some challenges ahead of us in the summer as we need to make sure we have enough capacity to meet the schedule that we have proposed, and we are working on that now".

Flair is examining ways to get alternative sources of capacity, Mr Jones stated, saying, "...but this is pretty short notice, and so it is more likely that we will need to trim some of the schedule to fit the available capacity".

Previously, Flair has said that it was planning to bolster capacity by 50% during the northern summer of 2023 and grow its fleet to 27 aircraft.

During late 2022 Flair had a fleet of 22 aircraft, according to the CAPA Fleet Database - 19 Boeing 737-8s and three 737-800s.

But its fleet size is now 18 aircraft, as shown below.

Flair Airlines: fleet summary, as of Mid Mar-2023

Mr Jones noted that Flair had just about USD1 million dollars due on the aircraft that were seized, by about four days.

But Airborne said the leasing of the aircraft was terminated "following a five-month long period, during which Flair was regularly in default of its leases by failing to meet payments when due, with payment arrears reaching millions of dollars".

The lessor said that during that period Airborne's senior executives were in direct and regular contact with representatives of Flair, reminding them of their legal obligations - "however missed payments and lease defaults persisted".

Flair is now suing Airborne and the lessors of the aircraft, seeking CAD50 million in damages.

In its court filing the airline said that on 22-Feb-2023 Airborne had delivered default notices to the operator for USD4.2 million, and Flair said that it had paid that amount by 06-Mar-2023. Airborne manages the leases for lessors of the aircraft in question.

On 9-Mar-2023 Airborne provided Flair with an updated statement of account, which included USD1.2 million in rent outstanding for 9-10 days.

The airline said that Mr Jones had confirmed to Airborne on 10-Mar-2023 "that all allegedly outstanding payments would be made early in the week of 13-Mar-2023.

In the correspondence that followed, Airborne said nothing about terminating the lease agreements or repossessing the aircraft", Flair said in its filing with the court.

"Flair is not aware of any circumstance when a lessor has terminated aircraft leases and repossessed aircraft based on 9 or 10 days of minor arrears that were in the process - as advised to the lessor without objection - of being paid", the airline said.

Further: "If a deferred payment is offered or requested by an airline, then, in Flair's experience, the affected lessor will always object if that arrangement is not acceptable to it."

The ULCC also argued that the lessors had breached their duty of good faith by terminating the lease agreements and repossessing the aircraft instead of accepting the payment and charging interest, "which was open to the lessors under the lease agreements." The airline is claiming that the lessors' "purported termination, repossession and failure to continue leasing the aircraft to Flair constitute breaches of the lessor's obligations under the lease agreements."

Flair stated that between the period of the execution of the aircraft lease agreements and Feb-2023 the lease rates for 737 MAX models had increased. The airline claimed that "in or about Feb-2023 or early Mar-2023", before termination notices were delivered to Flair, agreements were forged to sell or lease the aircraft to another entity.

Airborne had no direct comment regarding the lawsuit, but it has reiterated a previous statement in which it "strongly rejects the allegations that have been made by Flair Airlines in recent days in relation to four Airborne-managed aircraft".

Could Flair face some apprehension from the financing community?

Mr Jones (Flair) stated that the events regarding the four aircraft had triggered conversations with Flair's existing lessors, "and I would say every one of them has been incredibly supportive", he said, noting "they're all 100% up to date in terms of payments".

But the seizure of the aircraft and the cancellations that followed have likely created headwinds for Flair, which transitioned to the ultra-low cost model in 2018, and has ambitions to operate up to 50 aircraft during the next couple of years.

Although Mr Jones said Flair was not at risk of running out of cash for the foreseeable future, the dispute with Airborne could create some trepidation within the financing community, which could result in challenges for Flair to obtain financing at favourable rates in the future.

Passenger angst tends to fade over time (and with cheap fares), and Flair did move quickly to restore its full schedule, so the disruption to its operations was contained.

Flair is attempting to execute on its plans, but challenges remain

Obviously Flair is focused on putting this episode behind it and executing its growth strategy.

But at least in the short term, the seizure is resulting in the airline likely having to adjust its expectations as it works to find narrowbody aircraft - which are increasingly in short supply.

Want More Analysis Like This?

CAPA Membership provides access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find Out More