Porter loses court battle – ordered to pay >$131M
A 99-page decision has been issued by the Ontario Superior Court in the ongoing fight between Porter Airlines and Nieuport Aviation, which purchased the Toronto Island Airport terminal from Porter for a price in excess of $700 million.
The court awarded Nieuport damages totalling over $131M plus interest plus costs.
That’s a lot of back fees to pay, and it continues going forward, making the Island Airport tremendously unattractive for Porter.
The prospect of losing Porter, which Connect Air has no chance of making up for, and the fast-approaching Runway End Safety Area (RESA) requirement for the Island Airport, places the Airport’s survival in serious doubt. The RESA requirement costs, according to PT, $50M to $130M – IF they can get Council to extend the lease that expires on June 30, 2033. It’s not financeable if the lease is not renewed.
The 325,000-passenger threshold for the RESA requirement will be met this year, we expect. That means they must comply by 2026.
Porter sold the terminal to Nieuport for a generous price on the strength of a promised steady income stream. When Porter’s business faltered ‑ it told Nieuport that it expected a loss of $39,650,000 in 2018 and forecast a loss of $35 million in 2019 ‑ it cut the number of flights out of the Airport and propose to cut the fees paid to Nieuport because it was using the terminal less.
After 15 days of hearings, with six lawyers representing each party, Judge Peter Cavanagh found that Porter’s position was wrong and it was obliged to pay fees it had agreed upon for use of the terminal.
The decision is based upon extensive and detailed contractual interpretation of the provisions of the various agreements among Nieuport, Porter, and Ports Toronto, the operator of the Airport.
The agreement between Porter and Nieuport was negotiated at the time of the sale of the terminal. Porter, seeking to maximise the sale price, according to the judge, agreed to pay fees to Nieuport ($900 (2014 dollars) per day) for each of the permitted number of arrivals and departures (slots) allocated to Porter, regardless of whether Porter actually used them.
Said the judge, at paragraph 212:
The revenue to be earned by Newport… was a key consideration for at in relation to the purchase price to be paid to (Porter) under the Asset Purchase Agreement.
A witness who was the lead negotiator for Newport’s purchase told the judge that (paragraph 216‑7):
A central selling feature of the Terminal and critical factor in determining the purchase price that Nieuport ultimately offered was the fact that carriers will pay fixed terminal fees based on the daily slots that they were allocated, regardless of the carrier’s utilisation of those slots.
Porter and its financial advisers made clear [to Nieuport] that the allocated slot is an indivisible concept that recurs on every day of the year… and therefore the terminal fees for those daily slots would provide prospective purchasers with steady and “highly stable” revenues regardless of utilisation.
The witness (paragraph 218) pointed to a confidential information memorandum presented to prospective purchasers that included this:
The total fee revenue is fixed and paid monthly by carriers providing a steady stream of revenue without variability based on carriers’ actual flown schedules.
The judge further found that Porter was not entitled to relief from its obligation to pay for those slots as a consequence of the COVID pandemic. While there was a force majeure clause, that clause did not apply where Porter’s decision to suspend commercial operations was the result of the reduction in demand for commercial air services.
Porter needed financing in 2021 to support its restorative operations, approaching approximately 50 target investors. It claimed damages because the uncertainty around the terminal fees led to the collapse of the potential deal in 2021 for an equity investment of approximately $70 million (paragraph 577‑8)