Surf Air Files Counterclaim to Encompass Complaint

 - July 6, 2018, 10:30 AM
Surf Air's rebuttal to last month's lawsuit by Encompass Air claims Encompass demanded payments far in excess of the proposed contract rates, failed to provide full transparency for financial and operating data, and demonstrated an inability to handle managerial aspects of the business.

After Surf Air suddenly stopping flying its customers with Encompass Aviation on June 15, Encompass filed a lawsuit against Surf Air, accusing it of failing to live up to contractual obligations, including not paying the full amount owed to Encompass for the flights it conducted on behalf of Surf Air.

Surf Air yesterday filed a response to the Encompass lawsuit, alleging that “Encompass demanded payments far in excess of the proposed contract rates, failed to provide full transparency for financial and operating data, and demonstrated an inability to handle managerial aspects of the business.”

Surf Air is an “all-you-can-fly” membership program that originally launched with its own charter certificate and a fleet of Pilatus PC-12s, eventually buying another operation—Rise—in Texas (flights operated by Tradewind Aviation) and launching service in Europe. Surf Air later relinquished its charter certificate and contracted the California charter flying to Encompass Aviation in May 2017, subleasing PC-12s to Encompass. After ending the relationship with Encompass, Surf Air moved its customers into charter flights operated by Advanced Air of Hawthorne, California. Surf Air transferred four of its PC-12s to Tradewind Aviation and said it expected the rest of its fleet, another eight PC-12s, to be transferred to Advanced Air.

The Encompass lawsuit claims that Surf Air still owes $3.1 million in delinquent payments for flights and services that Encompass conducted, and that Surf Air violated the contractual agreement between the two companies. Specifically, Encompass alleges that Surf Air failed to pay for flights two weeks in advance and that “it consistently was delinquent in paying following the provision of flight operations and maintenance.” Encompass also claimed that the contract prohibits Surf Air from contracting with another charter operator because this “violates Encompass’ express rights of ‘first refusal’ and ‘last offer’ in the parties'…agreement…”

Encompass is currently operating eight PC-12s that it leased from Surf Air and operated on behalf of Surf Air, according to Encompass president and CEO Steven Harfst. “These are available to the open market within California for charter,” he told AIN.

According to Surf Air attorney Skip Miller, partner at Miller Barondess, there has been no interruption of service to Surf Air members after the switch to flying by Advanced Air. He said that Surf Air will retrieve the eight PC-12s leased to Encompass “and will turn them over to Advanced Air.”

Surf Air is also facing liens imposed by the U.S. Internal Revenue Service for a total of $2,330,323.10 in unpaid federal excise taxes, according to documents reportedly filed with the California Secretary of State’s office. The taxes were assessed quarterly and cover periods through the end of 2016 and all of 2017. Miller said that Surf Air “is working with the IRS” on payment of the taxes.