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Former Lynx Air CEO Merren McArthur poses with one of the airline's Boeing 737 Max jets in Calgary.Todd Korol/The Globe and Mail

Discount airline Lynx Air says it is struggling to fund daily operations and will stop flying on Sunday night after being granted creditor protection in an Alberta court.

The Calgary-based airline, which flies nine Boeing 737 Max aircraft and launched in April, 2022, told employees in a memo it was unable to secure enough financing to stay in business.

In a court filing, Lynx said it is unable to repay its loans, faces unspecified enforcement actions from suppliers and barely has enough cash to operate day to day.

Lynx’s failure underscores the hurdles discount airlines face in Canada – trying to offer cheap seats with a shallow pool of investment capital while paying high aviation fees in a small market spread over a large country. At the same time, expansion in the industry in recent years has ramped up competition and given travellers a wider range of airlines to choose from, in Canada and the United States.

Lynx’s shutdown comes on the cusp of the busy spring break travel season, when thousands of Canadians fly south or visit families and friends.

Lynx Air shutdown could leave travellers stranded as of Monday

Carol Leon of Toronto said the airline’s shutdown has stranded her two daughters, aged 19 and 22, in Cancun, Mexico, with nowhere to stay and no way to get home. The pair flew down to enjoy reading week together, their first trip without parents along. Lynx cancelled their return flight for Sunday, Feb. 25, and said it is unable to offer another flight or assist with refunds.

Ms. Leon found a return flight for later next week with WestJet, but says $2,200 for two fares is unaffordable. “There’s no help from anywhere,” Ms. Leon said by phone from Toronto. “It’s just not right.”

Lynx said customers with flights booked should ask their credit card companies for refunds. Passengers scheduled to return home on Monday or later should try to rebook a return flight before the airline ceases operations on Feb. 26 at 12:01 a.m. MT, or seek a refund from their credit card provider.

However, Boris Stojanov of Calgary said his credit card company rejected his request for a refund by phone Friday. He said Lynx owes him about $3,000 for two coming family trips, including to Disneyland. “They’ve completely ruined my vacation,” he said by phone.

In a statement Lynx said, “Over the past year, Lynx Air has faced a number of significant headwinds including rising operating costs, high fuel prices, exchange rates, increasing airport charges and a difficult economic and regulatory environment.”

Lynx’s startup investors included Stephen Bronfman’s Claridge Inc., Torquest Partners and Indigo Partners LLC, the U.S. private equity company run by Bill Franke, whose stable of discount airlines includes Frontier Airlines and Wizz Air.

Lynx has been without a chief executive officer since September, when founding CEO Merren McArthur departed for “personal” reasons.

Lynx said it obtained creditor protection in the Court of King’s Bench of Alberta under the Companies’ Creditors Arrangement Act.

According to documents filed in court as part of the creditor protection proceedings, Lynx described itself as “insolvent” with “insufficient cash” to continue. It intends to wind down the business.

“Certain critical service suppliers have recently elected to take enforcement actions, which, if pursued, would jeopardize the … ongoing operations, and would likely result in [Lynx’s] operations being shut down in a chaotic and haphazard manner,” the filing said.

The airline pointed to three factors that delayed the airline’s launch and contributed to its failure: the rise in jet fuel prices; COVID-19 travel restrictions and their lingering effects; and the 2019 grounding of 737 Max jets after two fatal crashes.

A division of Indigo provided Lynx with $71-million in startup financing, the court documents say, and another $22-million in debt financing last year. Indigo lent Lynx another $20-million in January and February of 2024.

“While the applicants have in the past received debt financing from Indigo to fund its operating costs, it has never been able to achieve profitability in order to become self-sustaining,” the filing says, adding Lynx has been unable to find new financing. “As a result, the applicants find themselves in a situation where not only can they not repay the Indigo [loans], but they are on the brink of not being able to fund day-to-day operations.”

Transport Minister Pablo Rodriguez said in a statement he expects Lynx to provide refunds to customers who cannot travel. “For any travellers that had a return flight booked with Lynx, I expect Lynx to help you get back home as soon as possible,” he said.

Lynx’s roots date back to 2006, when it was founded by former WestJet executive Tim Morgan as Enerjet, and later, Jet Naked and FlyToo.

Lynx planned to fly 870 flights in March, to destinations such as Phoenix, Toronto and Orlando, according to aviation data company Cirium.

Duncan Dee, a former operating chief at Air Canada, said Lynx had an experienced management team but faced a tough business climate.

The Canadian capital markets pool is relatively small, and makes it difficult to raise enough money to operate in a capital-intensive business, Mr. Dee said. Foreigners cannot own more than 49 per cent of an airline, and any individual is restricted to 25 per cent.

Lynx bills itself as a low-cost airline, a model popular in Europe and elsewhere that offers cheap seats but little else. Passengers pay extra for luggage, food and drinks on planes with less leg room and lower-paid cabin staff than regular airlines. (Lynx offers no food at all.)

Its target customer is someone who would normally take a car or bus, or not fly at all.

But the high fees and taxes charged by Canadian airports, security agencies and air traffic services combine to drive up airfares. This means discount airlines cannot offer truly affordable tickets, Mr. Dee said.

“What ends up happening is Canadians … drive across the border,” Mr. Dee said. “They’ll go to Buffalo, they’ll go to Bellingham, Wash., Burlington, Vt., and to Bangor, Me. All of these border airports thrive on Canadians being stimulated into travel.”

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