Summary
- 777 Partners was accused of fraud in lawsuit involving a British company as a defendant.
- The lawsuit alleged that 777 Partners double-pledged over $185 million of assets to two separate companies.
- The company had a minority shareholding in Flair Airlines, while its other investment in aviation, Bonza, entered voluntary insolvency on April 30, 2024.
777 Partners, a minority stakeholder in Flair Airlines and the owners of the now-insolvent Australian carrier Bonza, has been accused of years-long fraud by a British asset management company in a lawsuit in the United States.
777 Partners’ personal piggy bank
The lawsuit, filed by Leadenhall Capital Partners with the US District Court of the Southern District of New York on May 3, 2024, accused three individuals, 777 Partners, and associated companies, including Advantage Capital Holdings (A-CAP), of fraud, perpetrated by the plaintiffs. The full text of the lawsuit can be read here.
According to Leadenhall, one of the plaintiffs, a managing partner at 777 Partners, pledged over $350 million in assets while knowing that these assets did not exist, were not owned by any entities owned by the 777 Partners executive, or had been pledged to another party as collateral.
Photo: Michael Doran I Simple Flying
The British company had entered into a credit facility agreement with several companies, including 777 Partners, in May 2021. To sign the agreement, the plaintiffs pledged $350 million in assets to withdraw funds between May 2021 and September 2024.
“And because the value of the borrowers’ assets also functioned as the borrowing base, the borrowers were required to re-affirm, on a monthly basis and each time they drew funds from the facility, that they owned any assets pledged as collateral to Leadenhall “free and clear” of any other interests.”
As such, the British firm stated that if the plaintiffs could not ensure that the pledged assets were free and clear of other legal obligations, the credit facility would become “an illegal and unsecured personal piggy bank that” 777 Partners and its executives could use to finance “finance risky private equity investments in aviation” and other industries.
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Ponzi scheme at worst
The lawsuit explained that the fraud related to the credit facility started to unravel in September 2022, when Leadenhall received an anonymous tip alleging that one of the 777 Partners executives was deceiving the British company about the free use of the pledged assets. In March 2023, a US-based company informed Leadenhall that 777 Partners had also pledged resources for their credit agreement, with a subsequent investigation revealing that the plaintiffs double-pledged $185 million in assets.
Photo: sockagphoto | Shutterstock
However, while the plaintiff pledged to resolve the issue, further investigations unveiled that 777 Partners cannot act independently since A-CAP was the company that provided funding for 777 Partners and their ventures, including aviation-related business. An insider told Leadenhall that, essentially, A-CAP had an express agreement with 777 Partners, which allowed the former to control the operations of the latter. As such, Leadenhall’s lawyers bluntly stated that the plaintiffs,
“[…] are operating a giant shell game at best, and an outright Ponzi scheme at worst, that takes money in from investors and lenders and shuffles it around to various money-losing alter egos in the enterprise to disguise their true financial condition.”
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Breaking up with 777 Partners
Nevertheless, according to the lawsuit, 777 Partners owned 10% of the Canada-based low-cost carrier Flair Airlines. While the airline was close to having its aircraft repossessed since it owed the Canada Revenue Agency (RCA) CAD67 million ($49 million), the airline’s chief executive officer (CEO), Stephen Jones, said that the carrier and RCA had agreed upon a payment plan and that Flair Airlines has been staying “current with that plan,” according to CBC.
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In March 2023, an aircraft lessor repossessed three Boeing 737 MAX 8 and four 737-800 aircraft from the Canadian airline due to unpaid leases for the assets. The four, formerly registered as C-FLKI, C-FLKD, C-FLRS, and C-FFLA, still belong to Airborne Capital. Between February 2022 and March 2023, Flair Airlines’ fleet decreased by 12 aircraft, including 11 Boeing 737 MAXs, according to ch-aviation data.
Photo: sockagphoto | Shutterstock
Still, the airline kept breathing and has since broken away from 777 Partners. On May 1, the Canadian carrier announced that an affiliate of its largest senior lender is acquiring “a portion” of the shares owned by 777 Partners while also providing non-binding funding.
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Different fortunes
However, Bonza, the Australian low-cost carrier, was not so lucky. On April 30, the airline announced that it has entered voluntary administration and suspended commercial services up to and including May 7. Qantas Group, which includes Jetstar, and Virgin Australia responded to the suspension of flights, offering Bonza customers an opportunity to fly with them free of charge.
Photo: Bonza
Still, the loss of Bonza will not significantly impact the Australian market. Data from the aviation analytics company Cirium showed that as of last week, the low-cost carrier scheduled 172 weekly domestic flights. In total, there are 11,702 scheduled weekly domestic flights in Australia in May, meaning that the airline’s market share was 1.46%, with the latest schedule update showing Bonza planning to operate 168 flights or a market share of 1.43%.
In an exclusive report by Australian Aviation, a source familiar with the matter told the publication that Bonza was never responsible for paying leases for its four Boeing 737 MAX 8 aircraft, and instead, 777 Partners were obliged to cover the payments.
Photo: Bonza
A report by the Australian Financial Review (AFR) stated that Bonza’s business model was built on the airline operating much smaller 72-seat turboprop aircraft on routes to secondary cities, absent of services by Qantas and Virgin Australia.
While the latter part had been true, with Bonza basing its operations at such airports as Sunshine Coast Airport (MCY) and Gold Coast Airport (OOL), the aircraft it operated turned out to be much larger when 777 Partners came into the fold. Its Boeing 737 MAX 8s welcomed 186 passengers, which came with higher costs in a market with plenty of capacity from other airlines and groups, including such financial powerhouses as Qantas and its subsidiary, Jetstar.
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