VANCOUVER, BRITISH COLUMBIA, Canada Jetlines Ltd. (JET: TSX-V) (the “Company” or “Jetlines”) is pleased to announce that it has entered into a subscription agreement (the “Subscription Agreement”) with SmartLynx Airlines SIA (“SmartLynx”) for financing commitments of up to $15 million (the “Offering”). SmartLynx specializes in full-service ACMI (Aircraft-Crew-Maintenance-Insurance) aircraft lease services and is the leading ACMI provider in Europe for Airbus A320 aircraft. SmartLynx aircraft has been utilized by major airlines including Norwegian, EasyJet, Thomas Cook and TUI.
“This financing transaction with SmartLynx provides further validation of the Jetlines business plan and the need for a true ultra-low cost carrier in Canada. This also provides endorsement from a seasoned European airline that flies aircraft for some of the most successful ultra-low cost carrier airlines in the world. We look forward to working with the SmartLynx group as we continue to build out the business plan in preparation for launch,” commented Mark Morabito, Executive Chairman of Jetlines.
Javier Suarez, CEO of Jetlines added “In addition to the great value added by the investment SmartLynx is making in Jetlines, having them as our partner brings in a good number of synergies that will translate into significant long-term operational savings. SmartLynx reputation and broad network will help Jetlines accomplish our near-term goals”.
Zygimantas Surintas, CEO of SmartLynx commented “Expansion of our operations into new markets is a strategic long-term priority for SmartLynx, and the Canadian market is among those we have been looking at for several years. We are excited about the opportunity for partnership with Jetlines – not only through SmartLynx’s investment but also through SmartLynx’s ability to contribute our years of experience in airline operations, aircraft leases, maintenance operations and other matters to help Jetlines succeed. The SmartLynx team believes in the ULCC model in Canada and hopes that it can play a part in bringing cheaper air travel to Canadians.”
Details of the Offering
The Offering will consist of 22,727,272 subscription receipts of the Company (“Subscription Receipts”) at a price of $0.33 per Subscription Receipt (the “Offering Price”), for gross proceeds of $7.5 million. The Subscription Receipts will be issued pursuant to the terms of a Subscription Receipt Agreement (the “Subscription Receipt Agreement”) between the Company, SmartLynx and an escrow agent. SmartLynx also has the option exercisable for a period of twelve months following the closing of the Offering to complete a second financing for variable voting shares for additional gross proceeds of up to $7.5 million at the discounted market price at the time it exercises its option (the “Option”).
Each Subscription Receipt will entitle SmartLynx to receive, without payment of additional consideration or further action on the part of the holder, one unit of the Company (each a “Unit” and collectively the “Units”), upon receipt by the escrow agent, prior to August 31, 2019 (the “Deadline”) of a release notice from the Company and SmartLynx (the “Release Notice”), confirming that: (a) the Company has raised additional gross proceeds of $40 million (the “Funding Milestone”) from a subsequent financing by May 31, 2019 (such completion date subject to waiver by SmartLynx); (b) the receipt by the Company’s subsidiary, Canada Jetlines Operations Ltd. (“Jetlines Operations”), of its air operator certificate from Transport Canada; and (c) no termination event has occurred.
Each Unit will consist of one variable voting share of the Company and one common share purchase warrant (each, a “Warrant”). Each Warrant shall entitle the holder thereof to purchase one variable voting share of the Company at a price of $0.45 at any time up to 5:00 p.m. (Vancouver time) on the date which is 36 months from the closing date.
If: (i) the Release Notice is not delivered by the Deadline, or (ii) the Offering is terminated in accordance with the terms of the Subscription Receipt Agreement, then SmartLynx will be entitled to receive an amount per Subscription Receipt equal to the Offering Price and an entitlement to the interest earned thereon. Any shortfall will be funded by the Company. In addition, the Company is obligated to pay a termination fee of US$250,000 if the Company has not achieved the Funding Milestone by May 31, 2019 or commits certain other material breaches and SmartLynx terminates the Subscription Agreement.
The net proceeds of the Offering will be used to further the business objectives of Jetlines in launching an ultra-low cost airline carrier in Canada, including advancing the licensing process, augmenting the leadership team with operations and commercial personnel, branding and marketing activities, as well as advance internet, digital media and IT systems initiatives.
It is expected that SmartLynx will become an insider of the Company on conversion of the Subscription Receipts.
Details of the Commercial Arrangement
In connection with the Offering, Jetlines Operations and SmartLynx will enter into an agreement whereby SmartLynx shall provide ACMI (Aircraft-Crew-Maintenance-Insurance) services to Jetlines Operations during the following eight winter seasons. This agreement will allow Jetlines to increase its capacity in the market during the very busy Canadian Winter Season. In addition, SmartLynx and the Company will enter into a two-year agreement that will provide Jetlines with services and certain proprietary software meant to support Jetlines during the early stage of their operations.
The Company, Jetlines Operations and SmartLynx will also enter into a framework agreement (the “Framework Agreement”) in connection with the closing of the Offering that will govern aspects of the relationship between the parties. The Framework Agreement will cover matters including the right of SmartLynx to appoint a single Board member to the Company and Jetlines Operations, rights to participate on Board committees, arrangements regarding the review of aircraft leases, the grant of a pro-rata right to SmartLynx to participate in future financings and certain other rights detailing with operational and expenditure matters of the Company and Jetlines Operations.
The closing of the Offering is conditional on the satisfaction of conditions to closing contained in the Subscription Agreement, which conditions include, among other things, approval of the TSX Venture Exchange for the Offering and the execution of the Subscription Receipt Agreement and the execution of the agreements referred to above. It is expected that the Offering will close on or before December 24, 2018.
About SmartLynx Airlines SIA
SmartLynx Airlines was founded in 1992 as a private airline. Today it is the leading ACMI (Aircraft-Crew-Maintenance-Insurance) provider in the EU on Airbus aircrafts. As an EU airline, SmartLynx Airlines complies with IOSA and EASA international quality standards, and has access to free route airspace. In 2019, SmartLynx’s fleet will consist of 20 Airbus aircrafts, flying routes in Europe and Asia. SmartLynx flight crew members represent more than 17 nationalities, speak multiple languages. The average experience of SmartLynx’s captains exceeds 5300 block hours and first officers exceeds1900 block hours.
For more information on SmartLynx, please visit their website at www.smartlynx.aero