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News / Business

As bailiffs seize jets from Canadian airline, Boeing order in the balance

By Dominic Gates, The Seattle Times
Published: March 27, 2023, 6:00am

In the early morning Canadian cold on March 11, the beginning of spring break for school-age kids in Ontario, families duly assembled at the Region of Waterloo International Airport west of Toronto to fly on Flair Airlines to the sun in Orlando, Florida.

But more than three hours before the 7:20 a.m. flight — “in the dark of night,” as Flair CEO Stephen Jones later expressed it — bailiffs arrived at the airport to take ownership of the airplane, a Boeing 737 Max.

As the sun rose, two police vehicles drove out onto the tarmac and parked alongside the jet. Officers got out and inspected documents citing nonpayment of the airplane lease.

The paperwork in order, the bailiffs seized the airplane and the flight was abruptly canceled. Families were left stranded, and with no alternative flight from Flair that morning, scrambling to find another way to get to Orlando.

The repossession of scheduled airliners for nonpayment of monthly rental charges is rare in North America. Behind this incident is a new business model for buying jets created by Miami-based investment firm 777 Partners that Boeing enthusiastically embraced. Lately, it’s not going smoothly.

The Miami firm has unfilled firm orders pending for 34 Maxes. But in the final months of 2022, the firm couldn’t take 11 Maxes it had scheduled for delivery, and Boeing scrambled to find other lessors who took the planes.

That and the crisis at Flair, in which 777 Partners has a 25% ownership stake, has raised doubts about the Miami firm’s future Max deliveries.

At the Farnborough Air Show in July, 777 Partners co-founder Josh Wander announced a big deal to buy 66 additional Maxes. The agreement was never finalized and those 66 planes are not in Boeing’s order book.

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The immediate question, one which both Boeing and 777 Partners declined to answer on the record, is whether the Miami financier team will even take all the remaining jets on firm order.

Jet repo time

Edmonton, Alberta-based Flair Airlines made its first order for Boeing Maxes in 2021 with the ambition to establish itself as an “ultra-low-cost carrier” in Canada, where historically airfares have been high. It offers cheap flights on domestic routes across Canada and to international destinations.

It has faced repeated criticism for unreliable service and sudden flight cancellations. And early last year, large competing full-fare airlines tried to get the Canadian government to pull Flair’s operating license, alleging that the 777 Partners funding broke Canadian laws barring foreign control of its airlines.

In June, though, after 777 Partners gave up some board seats and Flair offered assurances that it had alternative financing options, the Canadian Transportation Agency ruled that Flair was sufficiently Canadian-controlled.

Flair portrays the seizure of the airplanes as another attempt by competitors to stop the airline.

It filed a $50 million lawsuit last week against Ireland-based lessor Airborne Capital, which had seized the planes, as well as other lessors and an unnamed competing airline, alleging the lessors took advantage of a “technical default” because they “found a better deal” leasing the planes elsewhere.

In an interview Monday, Flair CEO Jones called the repossession of the four Max jets “unwarranted.”

“It was $1.3 million that was overdue, outside the grace period, by about five days,” Jones said. “And I was in communication with Airborne telling them they would be paid early in the following week, Monday, Tuesday.”

Jones has publicly minimized this shortfall as less than half a day’s revenue for the airline.

Airborne in a statement said termination of the leases on the four aircraft followed “a five-month long period during which Flair was regularly in default of its leases by failing to meet its payments when due, with payment arrears reaching millions of dollars.”

Airborne added that despite repeated direct messages that Flair had to meet its obligations, “missed payments and lease defaults persisted.”

Jones does not dispute that the airline regularly paid late.

“We’re a startup airline going through one of the toughest times of the season. And so there were times that we were late,” Jones said. “But we always cleared it up and we were always in communication.”

Still, the debacle could have been worse.

Because of the persistent failure to pay the leases on time, airplane lessors were actively shopping around 11 of the Maxes in Flair’s fleet to other airlines before the four were seized.