Surf Air breaches contract with Encompass Aviation

Encompass Aviation LLC, a private aviation operator, has filed a lawsuit against financially distressed membership-based charter broker Surf Air Inc., for whom Encompass has been acting as primary California operator since May 2017, the company said.

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.

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.