Unpaid bills raise concerns about NewLeaf Travel Co’s financial viability

Two consultants who have done work for NewLeaf Travel Co. Inc. say the discount travel company owes them tens of thousands of dollars, raising concerns about the airline’s financial position as it gets set to offer its first flights later this month.

Invoices and emails seen by the Financial Post indicate that NewLeaf owes two companies approximately $135,000 for a range of consulting work.

Both vendors, who asked not to be named for fear of business repercussions, said they agreed to do the work with the understanding that they would be paid by NewLeaf once the company had secured funding, but have not yet received a cent.

NewLeaf’s lawyer, Orvel Currie, said the company that retained the services of the consultants was technically not NewLeaf, but a numbered corporation with common shareholders, and there’s a dispute with both consultants over the services they provided.

However, both consultants say it was their understanding that they were performing work directly for NewLeaf — invoices are made out to NewLeaf Corp. and New Leaf Airways — and have received no complaints about their services.

NewLeaf plans to offer ultra-cheap flights to 12 Canadian cities through a partnership with Flair Airlines, a charter service based in Kelowna, B.C.

The company began selling tickets on June 23 and the first flights are scheduled for July 25. It had originally planned to launch in February but halted ticket sales after the Canadian Transportation Agency (CTA) said it would review its licensing requirements.

Gabor Lukacs, an air passenger rights advocate, said he’s worried about what the unpaid bills could mean for passengers.

“I fear that passengers are going to lose money in the end,” Lukacs said. “Not paying bills, and bills of this magnitude … is usually a sign of an insolvent or near-insolvent airline.”

NewLeaf’s lawyer disputed this.

“This has nothing to do with NewLeaf’s financial position, because NewLeaf is simply out there doing business and in the nature of business you’re going to have disagreements with suppliers and vendors,” said Currie, a lawyer with D’arcy & Deacon LLP.

One vendor provided invoices showing that NewLeaf owes her company more than $76,000 for work done in late 2014 and early 2015. She said she usually asks clients to pay her within 15 to 20 days but made a special case for NewLeaf because they were still raising money and she was excited to get in on the ground floor of a company that was aiming to disrupt Canada’s airline industry.

“This was a bit of an exception because I understood they didn’t have funding, but it’s gone on for too long,” the vendor said, adding that she has had to lay off two employees because of the unpaid bills.

“There is a degree of trust that you put with companies like this who say that they value the work that you do. When there’s no payment, that kills the trust.”

On the same day that NewLeaf announced its plan to relaunch, it also said a group of Manitoba First Nations had made a “significant investment” in the company through a business consortium called South Beach Capital Partners. No financial details were released, but the consultants say this, combined with the fact that NewLeaf is now selling tickets, indicates that it has the funding to pay them.

“I just feel like my back is against the wall,” the vendor said. “We’ve done some honest work, we’ve put in the time. … I have paid people because of this out of my own pocket and I would expect there to be some acknowledgement of that.”

Another consultant sent invoices showing that he’s owed more than $58,000 by NewLeaf for work done before March of this year, when he severed the relationship due to unpaid bills. He said he hasn’t heard anything from the company since its relaunch in June.

“I took the high road, I sent them a congratulating letter saying, ‘Now that you’re relaunching one has to assume you’ve got financing, and as such I would kindly ask you to repay the outstanding invoices,’” the consultant said, adding that he got no response and is considering his legal options.

We’ve done some honest work, we’ve put in the time

NewLeaf was able to relaunch after the CTA ruled that resellers of airline tickets don’t need to hold an air license.

An air carrier that holds a license must demonstrate that “it has sufficient funding in place, without taking into account any revenue from operations, to meet the costs … associated with starting up and operating the air service for a 90-day period,” according to the CTA.

But because NewLeaf doesn’t need a license it doesn’t have to meet the funding requirements. Flair would have had to meet the funding requirements only when it first applied for its license, according to the CTA.

This could leave passengers stranded if the company runs out of money, said Lukacs, who is currently challenging the licensing ruling before the Federal Court of Appeal.

“If you don’t have capital on hand, then what do you do?” Lukacs asked. “Passengers booked for later dates end up subsidizing the flights of people who fly first and at some point this pyramid breaks down, the company becomes insolvent and the people who booked for a later date are left stranded.”

Source by business.financialpost…

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