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Passenger rights advocate files injunction against NewLeaf Travel Co four days before launch

In an emailed statement Thursday, NewLeaf CEO Jim Young called the motion 'baseless' and 'simply not merited'

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TORONTO — Four days before NewLeaf Travel Co. Inc. is set to launch its first flights, a passenger-rights advocate is asking the Federal Court of Appeal to shut down the discount tour operator unless it can post a $3.74-million performance bond.

The urgent motion, filed Thursday by air passenger rights activist Gabor Lukacs, cites concerns about NewLeaf’s financial position, calling it a “shell company without significant assets.”

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“NewLeaf is a fledgling, financially unstable company that is unlikely to be able to deliver the services that it has sold or pay compensation to passengers whom it may strand as a result of non-performance,” according to the notice of motion.

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To protect passengers who may find themselves unable to get home if NewLeaf folds, Lukacs is asking the court to require the company to post a “performance bond and/or security and/or guarantee in the amount of $3,744,000 for the claims of stranded passengers.”

According to the motion, the amount would be enough to get one week’s worth of stranded passengers home.

In an emailed statement Thursday, NewLeaf CEO Jim Young called the motion “baseless” and “simply not merited.”

“Our primary concern is to provide a service for millions of Canadian travellers that is affordable, accessible and safe. It’s unfortunate that Mr. Lukacs seems intent on taking this option away from Canadians,” Young said.

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“The response has been overwhelming and ticket sales have exceeded projections. We are well positioned financially to fly for the long, long term.”

At issue is the fact that NewLeaf is not technically an airline, but rather a reseller of airline seats. It has partnered with Flair Airlines, a B.C.-based charter service, to provide flights to 11 Canadian destinations, the first of which are scheduled to take off on Monday.

The purpose of the motion is to ensure that NewLeaf puts its money where its mouth is

The Canadian Transportation Agency (CTA) ruled in March that NewLeaf is not required to hold an air licence, which means that, unlike new airlines, it’s not obligated to demonstrate that it has enough money in the bank to operate for 90 days. Lukacs is also challenging the CTA’s licensing decision before the Federal Court of Appeal.

“The purpose of the motion is not to shut down NewLeaf, but to ensure that it is NewLeaf and its investors that bear the financial risk rather than the travelling public,” the motion says. “In other words, the purpose of the motion is to ensure that NewLeaf puts its money where its mouth is.”

Lukacs’s main concern is that passengers won’t have any recourse if NewLeaf goes under and they’re forced to buy expensive, last-minute tickets on Air Canada or WestJet Airlines Ltd. to get home.

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“Passengers could seek refunds from credit card companies or from their insurance for any travel services they have paid for and not received,” CTA spokeswoman Martine Maltais said in an email.

Concerns about NewLeaf’s financial situation have come from several quarters. The Financial Post has spoken to three consultants who say the company hasn’t paid them for their work. One of those, Hessie Jones, of marketing consultancy ArCompany, is suing the company and its CEO Jim Young for more than $76,000 in unpaid invoices plus $20,000 in damages.

NewLeaf originally planned to launch in February, but halted ticket sales on Jan. 18. It blamed the fact that the CTA was reviewing whether the company should be required to hold an air licence, but emails obtained by Lukacs and included in the motion indicate that it actually suspended sales because of a lack of funding.

One email from Young, sent Jan. 24, said managers at Flair Airlines “lost their nerve and exerted enough pressure to force the suspension.” That same email says an investor who was going to contribute $250,000 “walked away from the table,” while another $750,000 investment “was put on hold.”

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Another email from December shows that Young believed $2 million in funding would be enough to launch “with a cushion.” By comparison, the CTA has told Canada Jetlines Inc., an aspiring ultra-low-cost airline, that it will need $27 million in order to receive an air license based on the 90-day funding requirement.

NewLeaf spokeswoman Lisa Saunders, citing chief commercial officer Dean Dacko, said this week that the company doesn’t disclose financials but has “raised sufficient capital to more than guarantee a successful launch.”

The company said in June that it has secured a “significant investment” from a group of Manitoba First Nations through a business consortium called South Beach Capital Partners, but will not release financial details.

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