Encompass Aviation: Surf Air defaults on payments and breaches contract with Encompass Aviation

Encompass Aviation LLC has issued this statement:

Private aviation operator Encompass Aviation LLC filed a lawsuit on June 19, 2018 against financially distressed membership based charter broker Surf Air Inc., 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 the charter service’s obligations to Encompass as specified in several operating agreements signed by the two companies last year, and also to enforce subsequent payment agreements stipulated to in the interim. As of June 14, 2018, Surf Air owed Encompass more than $3,100,000, while engaging other operators in an attempt to keep flying while defaulting on their agreements with Encompass.

“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,” said Steve Harfst, President and CEO of Encompass Aviation. “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.”

Because of pending federal government investigations concerning Surf’s possible illegal activities in 2016, Surf and its board decided that selling its airline assets to a U.S. entity would significantly 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 of 2017 for Encompass, at the time a fully FAA-certificated air operator, to acquire Surf’s airline assets and operate for Surf in California. Within a short time, Surf failed to make its agreed-upon payments to Encompass. Just four short months into the contract, Surf’s payment deficit had ballooned to more than $3.7 million. Despite non-payment, Encompass continued in good faith to operate flights and maintain the operating integrity and safety of the aircraft used to transport Surf’s customers.

Throughout the term of the agreement, Surf continued to demand performance by Encompass in exchange for little to no payment. Despite collecting revenue from its members, Surf 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. This is in violation of the right of first refusal clause of the contract between Surf and Encompass. In addition to today’s legal action, on Monday, attorneys for Encompass sent a cease and desist letter to Surf Air’s board of directors and management, seeking payment owed and to prevent them from taking further action against Encompass.

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