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An airliner cuts through the skies over Montreal on Dec. 23, 2020.Paul Chiasson/The Canadian Press

The federal transportation regulator has determined that Edmonton-based Flair Airlines may be in violation of the law that requires it to be controlled by Canadians.

Flair faces the loss of its operating licence to fly in Canada if the Canadian Transportation Agency’s preliminary ruling, issued March 3, is finalized after a review.

In an e-mail to The Globe and Mail, Flair denied that it is in violation of Canadian laws. But The Globe has learned it has asked Transport Canada for an 18-month exemption from the Canadian control law in order to address the regulator’s concerns.

“Flair is requesting an 18-month exemption while the company revises its corporate governance and financing structure to ensure it continues to meet the Canadian ownership and control requirements of its domestic and international licences,” said a letter from Transport Canada to industry participants, a copy of which was obtained by The Globe. The CTA “has given Flair 60 days (until May 3) to respond to their concerns, which relate to corporate governance and corporate finance.”

Transport Canada said it was unable to immediately respond to questions.

A Canadian airline that flies domestically or internationally must be 51-per-cent owned by Canadians with no single foreign entity owning more than 25 per cent. Additionally, foreigners cannot exert control over the airline, a situation the CTA calls “control in fact.”

The CTA said a panel of its members found Flair “may not be controlled in fact by Canadians and may, therefore, not be ‘Canadian,’ as defined in the Canada Transportation Act.”

The CTA said there is no timeline for its final ruling. “The panel will consider all evidence and if it determines at the end of the process that Flair is not Canadian, Flair’s licences would be suspended,” the agency said in an e-mail.

In a statement to The Globe, Stephen Jones, Flair’s chief executive officer, denied the carrier has violated the laws and said Flair will co-operate with the CTA. “Flair Airlines is a Canadian airline and is controlled by Canadians both in law and in fact,” Mr. Jones said.

Flair did not immediately respond to follow-up questions about its exemption request.

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 CTA is an independent tribunal that has the powers of a court. Its decisions may be appealed to the Transportation Appeals Tribunal.

Flair is 25-per-cent owned by Miami-based investment firm 777 Partners, which was founded in 2015 by Steven Pasko and Joshua Craig Wander, the airline has told The Globe. In November, Flair said it was 58-per-cent owned by Canadians. Its five-person board of directors incudes three Americans who either own part of 777 Partners or are employed by 777 Partners, according to incorporation filings in British Columbia. Questions sent to a spokesperson for 777 Partners were not answered.

The Globe first reported the CTA investigation in December in a story about the airline’s aggressive expansion plans amid the pandemic.

In January, 2021, while most airlines were trying to survive the collapse in demand for travel, Flair unveiled an ambitious plan to fly 13 new Boeing 737 Max passenger jets. The planes would be leased from 777 Partners.

Within five years, Flair said, it would have 50 planes, a remarkable achievement for a carrier that had a fleet of three.

The Globe has obtained a copy of Flair’s application to Transport Canada for an 18-month exemption to the Canadian control laws. The 11-page submission, dated April 4, says shutting down the airline would eliminate 1,000 jobs and limit Canadians’ options for a low-cost airline that flies to underserved markets.

The airline said it needs more time to address the CTA’s objections to the involvement of 777 Partners, which it said offered stability when no other financial backing was available.

“This support included providing operating capital by way of debt to Flair, as well as enabling Flair to access new aircraft that, given its balance sheet and credit status, Flair would not have been able to obtain on its own,” the airline said, adding, “Suspending Flair’s operations would be contrary to public interest and a temporary ministerial exemption to forestall the possible consequences is appropriate.”

WestJet Airlines’ vice-president of government relations, Andrew Gibbons, said the Calgary-based airline will urge Transport Canada to reject Flair’s exemption request. Flair’s foreign investment was used to pay for fleet expansion, giving it an unfair advantage by breaking the rules, Mr. Gibbons said.

“With this exemption request formally submitted, it is a confirmation that Flair is knowingly violating the longstanding regulations around foreign ownership and has no plan under way to mitigate this situation,” Mr. Gibbons said. “It is WestJet’s expectation that Transport Canada will reject the 18-month exemption request and uphold a final CTA ruling that confirms Flair is in violation of Canadian aviation policy.”

John Gradek, who teaches aviation leadership at McGill University, said it appears Flair is trying to leverage its ties to regional airports to stay alive. “They have brought this on themselves. They seem to be flaunting the regulations,” Mr. Gradek said, noting there is nothing in the laws that allows airlines to be foreign-owned simply because they serve small cities.

Flair did not receive a bailout loan under a government program to help large employers survive the pandemic, unlike rivals Air Canada, Porter Airlines, Transat and Sunwing Airlines. But it did receive $11.3-million in grants in 2021 and 2022 from two other federal programs, according to government data.

Transport Canada said in its letter to industry participants that it will be examining the “public interest and innovation rationales” for Flair’s requested exemption from Canadian control laws and has asked for their opinions on the matter.

Flair is in a legal battle with its largest Canadian investor, Prescott Strategic Investments, which is partly owned by Flair’s former CEO, Jim Scott. Flair won a sealing order and publication ban on that lawsuit.

The CTA has told The Globe that its investigation began as part of its routine monitoring of the industry.

The allegation that Flair is controlled in fact by U.S. investors was also made in a harassment and wrongful dismissal lawsuit filed by a former Flair finance official, Jocelyn Harris. The airline has sued the former employee for her comments in the Globe story, alleging she disclosed confidential information.

Ms. Harris, in her statement of defence, denied she violated any confidentiality conditions and said Flair’s lawsuit was an “improper” attempt to intimidate her.

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