Determination No. A-2022-63

BACKGROUND

[1] The CTA requires that air carriers holding certain licences issued by the Canadian Transportation Agency (Agency) be Canadian, as defined in subsection 55(1) of the CTA. This is a requirement that must be complied with at all times.

[2] Flair holds licences authorizing domestic, scheduled international, and non-scheduled international air services (large aircraft) to which subsection 55(1) applies.

[3] On March 3, 2022, the Agency issued a preliminary determination (Preliminary Determination) finding that the influence of 777 Partners LLC (777), a non‑Canadian, over Flair was dominant and that 777 may have control in fact of Flair and consequently Flair may not be Canadian, as defined in subsection 55(1) of the CTA.

[4] The Agency found in its Preliminary Determination that 777 may have control in fact of Flair on the basis of the following: it had assumed the majority of risks and was entitled to the majority of benefits in respect of Flair’s operations; it controlled the Board of Directors (Board); it held rights that exceeded those granted to the other shareholders; it had played an active role in the management of Flair’s business; it was in a position to select whom it would bring in as a new shareholder; and, finally, Flair was dependent on 777 for its financing and leasing of aircraft. After considering all of these together, the Agency found on a preliminary basis that 777 may control in fact Flair.

[5] The Agency provided Flair with the opportunity to show cause, no later than May 3, 2022, why the Agency should not find that Flair is not Canadian and, therefore, cancel Flair’s domestic, scheduled international, and non-scheduled international licences.

[6] On May 3, 2022, Flair filed its response to the Agency’s Preliminary Determination, including amendments to its Unanimous Shareholder Agreement (USA) and a Promissory Note, to address concerns raised by the Agency in its Preliminary Determination. Flair, with the concurrence of the Agency, subsequently filed additional information, including executed versions of the amended USA and Promissory Note.

[7] The USA defines the relationship between the individual shareholders and Flair, including with respect to the corporate governance of Flair, and the assignment of rights among the shareholders. The Promissory Note governs the debt arrangement between Flair and 777.

SUMMARY

[8] The Agency finds, after considering all of the facts, that the changes implemented since the Agency’s Preliminary Determination, including to the USA and Promissory Note, have addressed the concerns raised by the Agency in its Preliminary Determination.

[9] Accordingly, the Agency finds that, as Flair meets the incorporation and voting interest requirements and that Canadians control in fact Flair, Flair is Canadian, as defined in subsection 55(1) of the CTA.

THE LAW AND GUIDANCE MATERIAL

[10] Pursuant to subparagraphs 61(a)(i), 69(1)(a)(i) and 73(1)(a)(i) of the CTA, Flair must be Canadian to provide domestic, scheduled international, or non-scheduled international air services, respectively.

[11] Pursuant to subsection 63(1), 72(1) and paragraph 75(1)(a) of the CTA, the Agency shall suspend or cancel the domestic, scheduled international, or non-scheduled international licence, respectively, where the Agency determines that the licensee is no longer Canadian.

[12] Pursuant to subsection 55(1) of the CTA, Canadian means:

(a) a Canadian citizen or a permanent resident as defined in subsection 2(1) of the Immigration and Refugee Protection Act,

(b) a government in Canada or an agent or mandatary of such a government, or

(c) a corporation or entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least 51% of the voting interests are owned and controlled by Canadians and where

(i) no more than 25% of the voting interests are owned directly or indirectly by any single non-Canadian, either individually or in affiliation with another person, and

(ii) no more than 25% of the voting interests are owned directly or indirectly by one or more non-Canadians authorized to provide an air service in any jurisdiction, either individually or in affiliation with another person.

[13] Canadian status determinations are based on the Agency’s application of the definition of “Canadian” found in the CTA to information that an applicant has provided about matters such as its corporate structure, governance, service contracts, debt, and equity. This application of the statutory definition to information submitted is informed by the considerations laid out in the Guide to Canadian Ownership and Control in Fact for Air Transportation (Guide).

OWNERSHIP AND DEBT INTEREST

[14] The voting interests in Flair are owned and controlled 58.3 percent by Canadians and 41.7 percent by non-Canadians.

[15] The majority of Flair’s funding is provided through debt arrangements. In addition to its equity investment, 777 has also provided approximately 70 percent of Flair’s debt financing. The balance of the debt financing is held by a number of non-Canadian lenders.

[16] Flair and each of its shareholders are party to a USA that defines the relationship between the individual shareholders and Flair, including with respect to the corporate governance of Flair and the assignment of rights among the shareholders.

ANALYSIS

[17] Three requirements must be met for an air carrier to be considered Canadian: (1) the incorporation or formation requirement, (2) the voting interest requirement, and (3) the control-in-fact requirement.

[18] The first requirement is met if the corporation or entity is incorporated or formed under the laws of Canada or one of its ten provinces.

[19] The second requirement is satisfied if at least 51 percent of the voting interests in the corporation or entity are owned and controlled by Canadians, with no single non‑Canadian or group of non-Canadian air service providers directly or indirectly owning and controlling more than 25 percent of the voting interests, either individually or in affiliation with another person.

[20] The third requirement typically entails the most analysis. Control in fact is 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. The influence needs to be dominant or determining to be considered, “control in fact”. The analysis to determine control in fact is done after considering all of the facts together, taking into account many factors recognizing that each case is unique.

[21] Where the ownership of the licence holder resides with one or more entities, the definition of Canadian is also applied to each of those entities. If, in turn, they are owned by other entities, the Agency must determine who controls the company up to the top of the ownership chain, applying the definition of Canadian at each level of the corporate ownership structure.

Incorporation and voting interest requirements

[22] Flair is incorporated under the laws of the Province of British Columbia. Flair’s voting interests are owned and controlled 58.3 percent by Canadians with no single non‑Canadian or group of non-Canadian air service providers directly or indirectly owning more than 25 percent of the voting interests, either individually or in affiliation with another person.

[23] The Agency finds that Flair meets the incorporation and voting interest requirements to be Canadian.

Control-in-fact requirement

[24] The Guide explains the factors the Agency considers in assessing control in fact. The factors fall into four categories: i) corporate governance; ii) shareholder rights; iii) risks and rewards; and, iv) business affairs and activities.

[25] The Agency considers and weighs all facts together to make a determination. As well, control does not need to be exercised for a person to have control in fact. When the individual has the ability to control, whether they use it or not, they are considered to have control in fact.

[26] The Agency’s assessment of the control-in-fact requirement follows.

(i) CORPORATE GOVERNANCE

[27] These factors pertain to whether or not non-Canadians are able to influence decision‑making by influencing the Board or officers of the company, and whether quorum provisions for shareholder and Board meetings could allow non‑Canadians to control decision-making.

(a) Shareholder meetings

[28] A quorum indicates the minimum number of voting shareholders that must be present at a meeting for the meeting to be considered valid. A corporation’s quorum provisions must require that no less than half of the shareholders present at a meeting be Canadian.

[29] The Agency noted in its Preliminary Determination that, in accordance with the provisions of the USA, it was possible for a quorum to be established with Canadian shareholders controlling less than 50 percent of the votes. Further, the USA provided that if a quorum is not present at the beginning of any shareholders’ meeting, the meeting would be adjourned until 7 days later, at which point, only 777 must be present to form a quorum. The Agency’s concern was that 777 could have had the means to control the proceedings of a shareholders’ meeting.

[30] Flair has amended its quorum provisions to require that no less than half of the voting rights to be exercised at any shareholder or adjourned shareholder meeting must be held by Canadians to constitute a quorum. The requirement for 777 to be present to form a quorum has been removed, significantly lessening 777’s potential to control the proceedings.

[31] The Agency finds that its concerns related to the quorum requirements for shareholders’ meetings have been addressed.

(b)  Board of Directors

[32] The Board is elected by the shareholders to govern and manage the affairs of the corporation. For control in fact to reside with Canadians, (i) Canadian shareholders must have the right to appoint no less than half of the Board, and (ii) no less than half of the members of the Board must be Canadian.

[33] The Agency expects a corporation’s quorum provisions for Board meetings to require that no less than half of the directors present be Canadian and that no less than half of the directors present to have been appointed by Canadian shareholders. In the case of tie-break votes, the deciding vote must be cast by a Canadian appointed by Canadian shareholders.

[34] The same director and quorum requirements generally apply to Board committees.

[35] The Agency noted in its Preliminary Determination that neither of these requirements were met, noting that the Board, at the time, had five sitting members, three of whom were non-Canadian directors appointed by 777, thus giving 777 the potential to control the management of the company.

[36] Flair responded that the USA has been amended to require that no less than half of the Board will at all times be comprised of Canadians who have been designated or appointed by Canadians. The USA provides for nine directors with seven of the directors to be designated or appointed by Canadians. Further, amendments have been made to the quorum provision for directors’ meetings to ensure that no less than half of the directors in attendance are Canadian and have been designated or appointed by Canadian shareholders. In the case of a tie-break vote, the deciding vote will be cast by a Canadian Chair of the Board designated or appointed by Canadian shareholders. The same requirements have been applied to committees of the Board.

[37] Flair has also confirmed that one of the 777-appointed directors has resigned from the Board resulting in there presently being four sitting members, two of whom are non‑Canadians. In the case of a tie vote, the tie-breaking vote would be cast by one of the Canadian directors.

[38] The Agency notes the changes related to Flair’s Board, including composition and quorum requirements, and finds that its concerns regarding 777’s power to control the Board, and thereby to manage the affairs of the company, have now been addressed.

(c) Officers

[39] Officers of a corporation serve at the pleasure of the Board. They are entrusted with the day-to-day responsibility of running the corporation. Officers do not need to be Canadian for the corporation to be considered Canadian by the Agency. However, they should be at arm’s length from non-Canadian shareholders and the directors appointed by them.

[40] The Agency noted in its Preliminary Determination that 777 controlled the Board at the time, and was consequently in a position to appoint the officers of Flair. The Agency further noted that, for a period of time, persons associated with 777 were filling in as the acting Chief Financial Officer and acting Chief Information Officer of Flair and that these appointments demonstrated the active role that 777 appears to have taken in the management of Flair’s business.

[41] Flair in its response states that these individuals never formally took on roles within Flair or held any authority over the airline. Their roles were advisory only, and were always meant to be temporary, purely to ensure continuity of Flair’s operations until qualified candidates could be identified. As soon as qualified candidates were identified and hired, the individuals associated with 777 ceased their advisory roles. The search for qualified candidates was completed in October 2020, and the roles were filled on a full‑time basis by independent Canadians. The individuals associated with 777 have not acted in their temporary advisory capacities since then.

[42] The Agency is satisfied that Flair’s officers are at arm’s length from any non-Canadian shareholders and any directors appointed by them and that going forward any officers will be appointed by Flair’s Board, which is itself controlled by Canadians.

[43] Therefore, 777 does not have the means to control the company through the Board’s appointment of the officers of the company.

(ii) SHAREHOLDER RIGHTS

[44] The Agency considers several factors when assessing whether shareholders have the power to exert influence over a company’s decisions, including veto and security rights.

(a) Veto rights

[45] Veto rights allow a shareholder to reject a resolution despite the resolution having majority assent of the voting shareholders. The Agency noted in its Preliminary Determination that, pursuant to the USA, 777 had a number of veto rights that other shareholders did not have. The Agency also noted that 777’s veto rights over Flair’s sale, purchase, or lease of any aircraft enabled 777 to control key strategic and operational decisions that are dependent on the timing of aircraft acquisitions, on fleet size and on aircraft type.

[46] Flair responded that the USA has been amended to remove these veto rights. A copy of the amended USA has been provided to the Agency.

[47] The Agency finds that its concerns related to veto rights held by non-Canadian shareholders have been addressed and, therefore, 777 does not have the means to control the company’s decisions on these matters.

(b)  Security rights

[48] In addition to voting rights, other rights and privileges can be attached to securities that could give non-Canadians the power to control Flair’s strategic decision-making activities and to manage and run its day-to-day operations.

[49] The Agency noted in its Preliminary Determination that 777 holds a Promissory Note, as a result of debt it has issued to Flair, that includes rights allowing 777 to convert a portion of the debt for shares in Flair, but only as long as they do not exceed the 25% voting interest limitations placed on non-Canadian investors. Alternatively, 777 can transfer its rights to assignees who can convert the debt into a voting interest in Flair, as it did in March 2021, and thus is in a position to influence the composition of Flair’s ownership group. Through these debt conversion rights, 777 is able to dilute the voting interests of existing shareholders while avoiding dilution of its own shares, thus creating the potential to increase its influence relative to other shareholders.

[50] Flair in its response points out that there are now new provisions in place to limit the overall voting interests of non-Canadians consistent with the definition of Canadian, as defined in subsection 55(1) of the CTA. Flair further states that while 777 has assigned certain of its rights under the Promissory Note to third parties, this has actually increased the number of Canadian shareholders, and that all of the third parties are independent and at arm’s length from 777.

[51] The Agency notes that any concerns it may have over the debt conversion rights are mitigated by the debt conversion rights providing for a relatively small remaining voting interest to be assigned and by the fact that rights that have been assigned so far have been assigned to arm’s-length third parties and, accordingly, these do not trigger a concern regarding non-Canadian control.

(iii) RISKS AND REWARDS

(a) Risks and benefits

[52] The Agency generally expects that the parties that assume the majority of the risks and are entitled to the majority of benefits related to an air carrier’s operation are also the parties with the ability to exercise control in fact.

[53] The Agency noted in its Preliminary Determination that a Canadian investor and 777 each hold the two largest equity interests in Flair. 777 also holds a Promissory Note issued by Flair. The Agency noted that, on this basis, 777 can be considered to have assumed the majority of investment risk in the business. Likewise, based on 777’s equity interest in Flair and the interest income it is entitled to on the Promissory Note, 777 can be considered to be entitled to the majority of benefits. 777, as the party that has assumed the majority of risks and is entitled to the majority of benefits, would consequently be expected to be in a position to hold control.

[54] Flair argues that the above-noted factors are not determinative of control in fact. Flair states that the Agency has consistently held that it will consider whether the non‑Canadian has the motivation, inclination and intention, and ability to exercise control in fact over the Canadian carrier and that 777 has no motivation, inclination, or intention to control Flair. Flair further argues that 777 provided additional funding to Flair throughout the COVID-19 pandemic when it required additional financial support and, at the same time, to protect its own investment in the company and not to control the affairs of Flair. Flair further puts forward that the Agency has previously held that, in determining intent, it will take into account the nature of the business of the non‑Canadian investor, for instance, whether the non-Canadian lender is a foreign air carrier. In this case, Flair states that while 777 has some investments in aviation, it is not a foreign air carrier, and aviation is not its sole business.

[55] The Agency does not find Flair’s arguments convincing on this matter. Irrespective of the reasons for 777’s investment in Flair, it has assumed the majority of risks and is entitled to the majority of benefits, as a result of its significant investment in the equity and debt of the company. 777 is a sophisticated investor with expertise in the aviation sector and the Agency is not convinced that 777 does not have the motivation or intent to control in fact Flair. Indeed, 777’s involvement so far has not, from the Agency’s perspective, been akin to a passive investor. However, the Agency notes that while 777 could have the intent to influence the strategic direction of Flair, it also requires the means to do so in order to be able to control the company. The matter of means is addressed below.

(b)  Rights held by shareholders

[56] When a non-Canadian investor is the sole holder of a right or of a disproportionate number of rights, it can indicate that control in fact resides with non-Canadians.

[57] The Agency noted in its Preliminary Determination that the rights that 777 holds pursuant to the USA, namely the rights to appoint directors and its veto rights, greatly exceeded those of the Canadian shareholders. The disparity between 777’s rights and those of other shareholders, when compared to their respective equity interests, indicates that control would appear to reside with 777.

[58] Flair in its response argues that the disparity in the rights held by Canadian shareholders, with similar ownership interests to that of 777, namely to appoint directors, has been addressed by the reduction in the number of directors that 777 can appoint and by providing similar rights to other shareholders. Flair further states that 777’s veto rights under the USA referred to in the Preliminary Determination have been removed. Flair also indicates that certain rights that only 777 had in respect of the quorum provisions for Board meetings have also been removed.

[59] The Agency finds that its concerns regarding 777’s rights as a shareholder and, therefore, its power to control the company have been addressed.

(iv) BUSINESS AFFAIRS AND ACTIVITIES

(a) Debt and guarantees

[60] In situations where the monetary size of the debt held by non-Canadians is significant compared to the other sources of financing or if there is a dependency upon a guarantee from a non-Canadian, non-Canadians can be in a position to indirectly exercise control over the company.

[61] The Agency stated in its Preliminary Determination that Flair’s dependence on 777 for financing, along with 777’s ability and apparent willingness to exert its control over Flair, are strong indicators that Flair may be controlled in fact by 777. The majority of the debt is held by 777 via a Promissory Note. Further, the specific interest rate charged on the Promissory Note is an indicator that Flair is viewed as high risk by investors, casting doubt on whether it could secure replacement or additional financing elsewhere in the marketplace. The relatively short time periods between maturity dates with the continual requirement to extend the financing on the Promissory Note could provide 777 with the means to exert control over Flair. Further, 777 demonstrated that it is able to use its financing position as leverage when, in October 2020, it required Flair, as a condition to advancing additional monies on the Promissory Note, to agree to 777 receiving a three-year business plan for Flair that was acceptable to 777 and to certain changes to the company’s officer and Board composition.

[62] Flair in its response argues that the Agency has previously stated that the financing of aircraft has an international aspect to it and that an attempt to impose a Canadian financing requirement on air carriers would result in severe and unacceptable restrictions. Flair further argues that the Agency has specifically held on prior occasions that some degree of influence—even substantial influence—over the affairs of the carrier is acceptable and that control in fact concerns do not arise when the lender and borrower are operating on an arm’s length basis. Influence has to be dominant or determining to result in control in fact.

[63] The Agency acknowledges that financing from international sources does not necessarily create control in fact concerns. The Agency notes that any such consideration is to be made based on the facts of each situation. The Agency notes that influence has to be dominant or determining to result in control in fact.

[64] Flair in its response states that it is cash self-sufficient and has not accessed funds from 777 since mid-March. Flair has filed information with the Agency to confirm its cash position, including cash flow forecasts. Flair believes it will be able to generate sufficient cash reserves during the summer travel season to remain self-sufficient throughout the slower winter season. In the event that there is a further downturn in the aviation market and that Flair requires further financing during the winter season, Flair believes it will be able to access financing from Canadian sources. Should Flair have to resort to non-Canadians for further financing, Flair undertakes to submit the terms of any such financing to the Agency prior to proceeding with the transaction. Flair states that it is in discussions with the investment arm of a Canadian bank and private equity firms to explore financing alternatives to strengthen the airline’s financial position. Flair also states that it intends to list its shares on public equity markets through an initial public offering (IPO) with the funds to be used to repay the debt held by 777 and to build cash reserves.

[65] The Agency notes that Flair’s future plans to limit its dependence on 777, such as by obtaining funds through an IPO, are uncertain future events that do not address present-day concerns that Flair may be controlled in fact by non-Canadians. However, the information provided by Flair demonstrating that it is presently cash flow self‑sufficient mitigates concerns that Flair will continue to be dependent on 777 for new additional funding in connection with its future operational activities. It does not, however, address the concerns about Flair’s dependence on 777 in respect of the existing outstanding debt.

[66] The Agency notes that the risk remains that should there be a downturn in the aviation sector in general, or in Flair’s business in particular, it could require Flair to seek additional financing, at which point Flair may need to turn to 777 if it cannot secure the funding through other sources. The Agency, however, recognizes that it is not the case at the moment given that Flair is cash flow self-sufficient and forecasts, based on its bookings, that it will continue to be so. Flair is also in the process of negotiating an operating line of credit, which demonstrates some capacity to access financing other than solely through 777.

[67] Flair, in its response, indicated that it has recently expanded its credit facility with certain non-Canadian lenders and used the proceeds to pay down a portion of the debt held by 777. Flair has also noted that 777 has extended the maturity date for the Promissory Note to March 17, 2026, and has agreed to modify events of default in the Promissory Note so that it would be unable to call the Promissory Note other than in limited circumstances, such as in the case of insolvency, bankruptcy or winding up of the company. Flair argues that these actions are further indicators that 777 has no intent to leverage its financial position to exert control over Flair and that collectively, with all of the other changes, the ability of 777 to exert influence over Flair using the Promissory Note as leverage is removed.

[68] The Agency finds that extending the Promissory Note’s maturity date to 2026, while at the same time amending the Promissory Note to limit 777’s ability to call the loan, provides for the debt funding to continue to be available until at least 2026 and, as such, considerably mitigates 777’s ability to exert influence over Flair. Consequently, the Agency finds that its concerns regarding Flair’s financial dependence on 777 have been sufficiently addressed.

(b)  Lease of assets

[69] Control in fact may be indicated when an air carrier is dependent on a party to lease assets that cannot be acquired otherwise.

[70] The Agency noted in its Preliminary Determination that Flair has 12 aircraft (since increased to 14) under operating leases which are either leased from affiliates of 777 or are guaranteed by 777 or its affiliates, and that 777 had a veto over all of Flair’s aircraft lease decisions and, as such, Flair depends on 777 for the provision of aircraft, which is a strong indicator of control in fact.

[71] Flair in its response argues that the Agency has previously held that aircraft leases, even on favourable terms, do not give rise to control in fact issues, particularly if the air carrier remains responsible for the operating costs and if the leasing arrangements are consistent with market conditions and/or actual business needs of the air carrier. Flair states that it is responsible for the costs associated with the leased aircraft, the leasing of the aircraft is consistent with its business needs, and that the leases employ industry-standard arm’s length terms, including with respect to rent, and do not give rise to any element of control over Flair to lessors and guarantors. Flair states that 777’s veto rights over Flair’s leasing decisions have all been eliminated from the USA.

[72] Subsequent to filing its response on May 3, 2022, Flair informed the Agency that it has agreed to purchase one Boeing MAX 8 aircraft from 777. Flair has also been assigned the direct purchase rights previously held by 777 to acquire from Boeing five new MAX 8 aircraft. Flair has agreed to a sale and leaseback finance arrangement with independent aircraft lessors to fund the direct lease of the existing aircraft that is being acquired from 777 and for four of the new aircraft to be acquired from Boeing. These leases are not subject to any guarantee or financial assistance from 777. The first of these aircraft is to be delivered in June 2022. Flair has filed with the Agency term sheets reflecting these arrangements.

[73] The Agency recognizes that aircraft leases with non-Canadians, including non-Canadian shareholders of the company, do not necessarily give rise to significant control in fact issues, but also notes that such a determination must be considered after taking into account the relevant facts of each situation. In the present case, the Agency’s concerns are not tied to the specific terms and conditions of the lease arrangements with 777, but rather on Flair’s dependence on 777 for its aircraft given its financial position and, particularly, in light of 777’s veto rights. With the elimination of 777’s veto rights, the remaining issue is whether Flair remains dependent on 777 for the lease of its aircraft. The Agency notes that the lease agreements provide for an average remaining lease term of 9 years and do not provide 777 with the ability to take back the aircraft before the end of the lease term except in the event of default. Further, Flair has demonstrated that it can lease new aircraft without having to rely on a guarantee being provided by 777.

[74] Consequently, the Agency finds that its concerns related to Flair’s dependence on 777 for its aircraft have been addressed.

(c) Financial strength and business activity

[75] The comparative financial strength, business activity and relevant expertise of individual shareholders can indicate which shareholders exercise influence and control in fact over an air carrier.

[76] The Agency noted in its Preliminary Determination that 777’s senior management team has expertise in the airline industry overseeing an aviation portfolio while 777 has the means to fund Flair’s operations, something Canadian shareholders, either individually or as a group, have not been able to accomplish. 777’s unique position of financial strength among shareholders enables it to exert significant influence, and its expertise in the aviation sector puts it in a position to assume more than a passive role in the strategic and operational decisions of Flair.

[77] Flair in its response argues that the Agency has previously held that a larger and financially stronger company would not necessarily gain control of a smaller and financially weaker company, as long as the relationship between the two companies is determined by agreements in place or where it lacks the means through which to exercise control in a dominant and determinative way. Flair states that the changes that have been made to corporate governance, veto rights, and to the terms of the Promissory Note, along with Flair having become cash flow self-sufficient, have removed the means through which control could be exercised.

[78] The Agency notes that a relationship with a larger and financially stronger company is not automatically considered as being determinative of control, but is nonetheless a factor that is to be taken into account, along with all of the other information before the Agency in rendering its determination.

DETERMINATION

[79] The Agency finds that the amendments to the USA, the Promissory Note, and to the overall corporate governance structure have served to significantly reduce or remove the means through which control can be exercised. Canadians are now in a position to control shareholder and Board meeting business, and 777’s rights are consistent with the rights that are held by Canadian shareholders who have a similar economic interest to 777.

[80] Flair continues, however, to be financially dependent on 777 for the ongoing funding of its operations, including the leasing of its aircraft. While Flair has communicated an intent to diversify its funding sources, no such changes have yet occurred.

[81] While Flair continues to be financially dependent on 777 for the majority of the existing debt, Flair has demonstrated that it is now in a position to generate positive cash flow from operations to the point of being cash self-sufficient, which alleviates concerns it would continue to be dependent on 777 for additional new financing. Further, the extension of the Promissory Note’s maturity date to 2026 while, at the same time, limiting 777’s ability to call the loan, provides for the necessary debt funding to remain in place while significantly restricting 777’s ability to use it as a means to exert control over Flair.

[82] Flair now has the ability to acquire aircraft from suppliers of its choosing, as 777 can no longer unilaterally veto aircraft acquisition decisions. In respect of Flair’s current fleet, the length of the leases and the lease terms and conditions provide for the aircraft to remain available, thereby limiting the ability of 777 to exert its influence. Further, Flair has demonstrated that it can lease new aircraft without having to rely on a guarantee being provided by 777.

[83] The Agency, after considering all of the facts together, finds that 777 is not in a position to exercise control in fact over Flair. Moreover, with the changes to the corporate governance structure, Flair is controlled in fact by Canadians.

[84] In light of the foregoing, the Agency finds that Flair is Canadian, as defined in subsection 55(1) of the CTA.