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Flair, which flies 12 planes to destinations in Canada and abroad, announced plans in early 2021 to boost its fleet to 50 aircraft by 2025.Bayne Stanley/The Canadian Press

Canada’s transportation regulator has launched a formal investigation into Flair Airlines’ compliance with laws that limit the control a foreign investor can have in a domestic carrier.

The Canadian Transportation Agency took the step after a review of Edmonton-based Flair’s ownership, which includes Miami-based 777 Partners. The U.S. investment firm owns 25 per cent of Flair, occupies three of its five board seats, and leases several planes to the airline.

The CTA said its probe came about as part of its monitoring of the industry. The federal regulator, which has the power to issue fines and suspend an airline’s operating licence, recently formed a panel to review the issue after a preliminary investigation.

“The CTA, as part of its ongoing regulatory activities, monitors airlines’ compliance with the Canadian ownership and control requirement,” the agency said in an e-mail. “Staff initiated a review of Flair’s ownership interest to assess its compliance with this requirement.”

Foreign investment in a Canadian airline cannot exceed 49 per cent, or 25 per cent by an individual. Additionally, foreigners cannot control the airline, something the CTA calls “control in fact.”

The CTA defines control in fact as “the power, whether exercised or not, to control the strategic decision-making activities of an enterprise and to manage and run its day-to-day operations. Those who may have the power to influence a company’s decisions can include minority owners, designated representatives, financial institutions, employees and others.”

“The mind of the organization has to be in Canada and controlled by Canadians,” said John Gradek, a former Air Canada executive who teaches aviation leadership at McGill University.

The formation of the CTA panel signals staff investigators found there is enough evidence to proceed with the new level of investigation, he said.

“They have finished their investigations and there are enough grounds for the CTA to convene a panel, to bring in witnesses and have depositions. It’s a fairly formal process.”

“Flair is completely compliant with all applicable airline regulations, including those dealing with Canadian control,” Stephen Jones, the airline’s chief executive officer, said in a statement. “Flair is a private company, and while we have always and will continue to co-ordinate with all regulators as necessary, our shareholdings and financial affairs are confidential.”

In November, Flair said it was 58-per-cent owned by Canadians. Three of Flair’s five directors are Americans who either own or are employed by 777 Partners, according to incorporation filings in British Columbia.

A spokesman for 777 Partners did not answer e-mailed questions.

The CTA describes itself as a “quasi-judicial body” but operates largely in secret, without public hearings. “In situations when the CTA identifies concerns about the Canadian status of the air carrier, the CTA typically issues a preliminary determination in which it provides the carrier a time period for it to respond to those concerns,” the CTA said in an e-mail. The CTA’s decisions may be appealed to the Transportation Appeal Tribunal of Canada.

An allegation that the airline is controlled by Americans was also made last fall in a wrongful dismissal lawsuit filed by the airline’s former finance director, Jocelyn Harris. That claim has not been tested in court.

Flair is embroiled in a legal battle with its largest Canadian investor, Prescott Strategic Investments, partly owned by Flair’s former CEO, Jim Scott. Flair sought and was granted a publication ban and sealing order on that lawsuit. Steve Warnett, a lawyer for Prescott, declined to comment, citing the court order.

Flair, which describes itself as “Canada’s everyday low fare airline,” flies 12 planes to destinations in Canada and abroad.

The airline announced plans in early 2021 to boost its fleet to 50 aircraft by 2025, leasing the first 13 of the Boeing 737 Max jets from 777 Partners, its biggest U.S investor. In December, Flair said it would add another 14 737 Max planes, leasing them from “a mix of lessors,” including 777 Partners.

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