Private aviation operator Encompass Aviation has filed a lawsuit against membership-based charter broker Surf Air, for whom Encompass has been acting as primary California operator since May 2017.
The lawsuit, filed in the United States District Court for the Southern District of New York, asks the court to enforce Surf Air’s obligations to Encompass as specified in several operating agreements signed by the two companies last year, and also to enforce subsequent payment agreements.
As of June 14, 2018, Encompass claims Surf Air owes them more than US$3.1m while engaging other operators in an attempt to keep flying, defaulting on their agreements with Encompass.
What happened?
In 2016, Surf Air and its board decided that selling its airline assets to a US entity would broaden their opportunity to expand and to make its product offering more attractive to its membership base. Resulting negotiations led to an agreement in May 2017 for Encompass to acquire Surf’s airline assets and operate for Surf Air in California.
Encompass claims that shortly after the agreement, Surf Air failed to make its agreed-upon payments to Encompass. Four months into the contract, Encompass says Surf’s payment deficit was more than US$3.7m. Despite non-payment, Encompass continued in good faith to operate flights.
In the lawsuit, Encompass says that despite collecting revenue from its members, Surf Air failed to pay the contracted costs for flight operations and related maintenance responsibilities undertaken by Encompass.
On June 15, 2018, without any prior notice, Surf sent a termination letter to Encompass after it granted another operator the right to operate all Surf Air flights in California.
Steve Harfst, president and CEO of Encompass Aviation, said, “We have been happy to serve as Surf’s primary carrier in the state of California. But we’ve come to the breaking point. Surf has repeatedly allocated its revenue on things other than paying in full for flight operations and aircraft maintenance.
“Surf has failed to honor its obligations under its agreements with Encompass and we have been significantly damaged as a result, both by Surf’s repeated failure to pay for services rendered and by its blatantly improper attempt to walk away from our service in favor of another operator.”
The reaction
In response to the lawsuit filing, Surf Air released a statement which said, “The Encompass claims are not accurate, the lawsuit is without merit and Surf Air intends to defend itself vigorously. Surf Air is also considering counterclaims. The company has retained Skip Miller, partner at Miller Barondess, as its litigation counsel.
“With regard to the change in flight operators in California, Surf Air has opted to work with business partners that can continue to provide exemplary service to its members. Surf Air previously announced that it has contracted with Advanced Air to take over all of Surf Air’s California routes effective June 17, 2018.”
