Canada Jetlines Ltd. (JET: TSX-V; JETMF: OTCQB) (the “Company” or “Jetlines”) postpones launch date until Competition Bureau defines its position.
The Company advises that it has not satisfied the financing condition to secure $40 million in financing in addition to the funds committed by SmartLynx. As a result, SmartLynx and InHarv ULCC Growth Fund have exercised their rights to terminate their investment commitments. The Dec 17, 2019 Launch date will need to be postponed and the Company will not pay additional deposits and will therefore not receive their first two Airbus 320 it has planned to receive in November this year. No further date will be announced until funding is secured.
One of the principal concerns encountered by Jetlines team while engaging with investors is that they believe the existing dominant members of Canada’s aviation duopoly will react very aggressively once the company starts operations, and in fact have already done so in anticipation of Jetlines entry into the market. Specifically, Jetlines retained market analysis experts that concluded there is ample evidence to state that:
- Swoop is pricing lower than other airlines, and significantly lower than the other ULCC entrant serving Canadian and transborder passengers;
- Empirical evidence suggests that Swoop is pricing below avoidable costs on the routes identified by the Competition Bureau in their current investigation;
- Empirical evidence suggests that Swoop is pricing below avoidable costs on routes other than those identified by the Competition Bureau in their current investigation;
- Qualitative analysis of changes in service illustrates Swoop / WestJet’s rapid increase in capacity beyond what economic sense might dictate;
- After Flair discontinued service to and from Hamilton, ON, Swoop maintained higher prices on the routes where Flair discontinued service than their other routes; and
- Although Jetlines’ avoidable costs will be lower than Swoop’s, empirical evidence suggests that Swoop is pricing below Jetlines’ avoidable costs as well — and is attempting to deter entry by Jetlines on its proposed routes.
In the opinion of Jetlines management and its retained experts, the above factors all amount to an abuse of dominance. Senior representatives from the Company’s management team made multiple appearances before the Competition Bureau between January and July 2019.
An Air Protest was staged in the month of July to motivate the Competition Bureau to define its position on the current investigation the Bureau is conducing on WestJet and Swoop. The Company believes further consolidation in the Canadian Airline Industry is making the market opportunity even bigger and has confidence in raising the money once there is a firm position by the Competition Bureau.
In order to conserve cash, the Company will lay off most employees except for a core team lead by the Executive Chairman who will continue meeting with investors trying to secure financing. The Company intends to rehire employees again once proper funding has been secured. In addition, the Company’s CEO, Mr. Javier Suarez, has tendered his resignation effective immediately. The Company will begin the process to identify a replacement CEO. Mr. Zygimantas Surintas has also tendered his resignation as a director of the Company.
Most contracts signed for airline systems have been put on hold and will be ready to be restarted once the airline is ready to launch. Similarly, all the manuals that have been submitted to Transport Canada in order to obtain the Airline Operators Certificate will be kept and updated as required.
Mark Morabito, Executive Chairman comments, “It is very unfortunate that we have to postpone our launch date. We have built as much as anybody can without access to more capital. We have invested in bringing on board the most talented people who have done an incredible job putting together our operations manuals and systems, our brand, website and all other commercial components needed for launch.”
The Company also confirms that, further to its press release of October 8, 2019, the total amount of debt settled through the issuance of 738,094 shares is $195,595.