Air Canada and Chorus Aviation Inc. Announce a Conditional Amended and Extended Capacity Purchase Agreement
MONTREAL and HALIFAX, Jan. 13, 2015 /CNW Telbec/ – Air Canada (TSX: AC) and Jazz Aviation LP (‘Jazz’), a wholly-owned subsidiary of Chorus Aviation Inc. (TSX:CHR.B CHR.A), have reached agreement on an amended and extended capacity purchase agreement (‘CPA’) which provides for significant cost reductions for both parties, strengthens the relationship and better aligns their interests over the long term. The new CPA is subject to a number of terms and conditions, including the ratification of a new tentative agreement reached between Jazz and its pilots, represented by the Air Line Pilots Association (‘ALPA’), and approvals by the respective Boards.
“Our restructured capacity purchase agreement with Jazz represents another important milestone in Air Canada’s ongoing cost reduction initiatives and the execution of our commercial strategy,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada. “The agreement better aligns the interests of both companies and the resulting fleet, operational and cost efficiencies will allow Air Canada to compete more effectively in regional markets, improve our product and service offerings and generate connecting traffic to support our growing international network.”
“We are pleased to have reached new agreements that strengthen our competitive position in regional markets and our relationship with Air Canada for the long term,” remarked Joe Randell, President and Chief Executive Officer, Jazz and Chorus Aviation Inc. “We are aligned with Air Canada in terms of cost reduction and operational efficiency gains. While we have made significant progress in our cost reduction efforts, this improved contract will allow us to further address our cost challenges. I’m confident we will deliver additional value to our stakeholders as there is certainty of Jazz’s operations for the next eleven years, and it places Jazz in a more cost competitive position over the longer term. This confidence is shared by Air Canada with the elimination of any future benchmarking process over the term of the contract. The projected economics of the new contract are anticipated to support the Chorus dividend and the long term sustainability of Jazz.”
“I would like to thank the bargaining teams for forging a new pathway forward with Jazz and Air Canada,” said Captain Claude Buraglia, Chairman, Master Executive Council, Air Line Pilots Association. “This long term labour agreement provides competitive terms and secures Jazz’s leading position within the Air Canada network, which will provide certainty for our pilots. This clearly demonstrates the innovative spirit of our pilot group and sets the foundation for a renewed relationship that will benefit all stakeholders.”
The highlights of the new CPA include:
- Extension of the term by five years to December 31, 2025;
- Establishment of a pilot mobility agreement that provides Jazz pilots with access to pilot vacancies at Air Canada, thus allowing a significant reduction in Jazz operating costs;
- Simplification and modernization of the Jazz fleet;
- Reduction in Air Canada and Jazz costs derived from a combination of improved fleet economics, greater network flexibility and reduced operating and labour costs. This supports Air Canada’s cost reduction initiatives; and
- Modification of Jazz’s CPA fee structure, moving from a “cost plus” mark-up to a more industry standard fixed fee compensation structure. This will provide more cost certainty and better align the cost reduction goals of both Air Canada and Jazz. This eliminates non-value added costs and the necessity of the 2015 benchmarking exercise.
While it is anticipated that Jazz will achieve similar returns to its current fee structure until 2020, there will be a reduction in the fixed fee compensation structure beginning in 2021. The new CPA affords Chorus the opportunity to provide more Jazz operated aircraft to Air Canada at market rates. Provisions within the new CPA will contribute significantly to ensuring Jazz is a formidable cost competitor in the regional sector over the term of the new CPA, thereby enabling Jazz to bid for new regional flying for Air Canada on a more competitive basis.
Further modernization of the Jazz fleet continues with the addition of 23 Dash 8 Q400 aircraft to gradually replace 34 Bombardier Dash 8-100 and 25 CRJ200 aircraft. The transition to a newer, larger gauge aircraft operation calls for a reduction in the Jazz fleet from 122 to an established minimum guarantee of 101 aircraft by the end of 2020, and 86 aircraft by the end of 2025. The transition to newer and more efficient larger gauge aircraft significantly helps to reduce per seat operating costs. The up-gauging of aircraft results in a reduction of seat capacity of less than 4% by 2020, and is further reduced by less than 9% by 2025.
The new CPA is subject to respective Board approvals, the ratification of the pilot tentative agreement, and all requirements of the pilot mobility agreement being met. It is anticipated that all such approvals should be obtained by February 1, 2015.
Air Canada and Chorus do not intend to provide further comment pending the successful ratification of the tentative agreement with Jazz pilots. A news release updating the market will be issued when all terms and conditions are met.
Caution Regarding Forward-Looking Information
CHORUS AVIATION INC.
Chorus advises that certain statements in this news release may contain statements which are forward-looking. These forward-looking statements are identified by the use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, “would”, and similar terms and phrases, including references to assumptions. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions.
Forward-looking statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and other uncertain events. Forward-looking statements, by their nature, are based on assumptions, including those described below, and are subject to important risks and uncertainties and uncertainties and that the Chorus dividend policy under which the Board evaluates the dividend on a regular basis and declares dividends at their discretion as further described in the Chorus M,D&A. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to differ materially from those expressed in the forward-looking statements. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, risks relating to Chorus’ relationship with Air Canada, risks relating to the airline industry, energy prices, general industry, market, credit, and economic conditions, competition, insurance issues and costs, supply issues, war, terrorist attacks, epidemic diseases, environmental factors, acts of God, changes in demand due to the seasonal nature of the business, the ability to reduce operating costs and employee counts, secure financing, employee relations, labour negotiations or disputes including, majority ratification of the tentative agreement and acceptance by a majority of pilots of the mobility rights, restructuring, pension issues, currency exchange and interest rates, leverage and restructure covenants in future indebtedness, dilution of Chorus shareholders, uncertainty of payments, managing growth, changes in laws, adverse regulatory developments or proceedings, pending and future litigation and actions by third parties. There is no assurance that the conditions to the CPA will be met so as to become effective. The forward-looking statements contained in this discussion represent Chorus’ expectations as of January 13, 2015, and are subject to change after such date. However, Chorus disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
Air Canada’s public communications may include forward-looking statements within the meaning of applicable securities laws. Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including without limitation, industry, market, credit and economic conditions, the ability to reduce operating costs and secure financing, pension issues, energy prices, employee and labour relations, currency exchange and interest rates, competition, war, terrorist acts, epidemic diseases, environmental factors (including weather systems and other natural phenomena, and factors arising from man-made sources), insurance issues and costs, changes in demand due to the seasonal nature of the business, supply issues, changes in laws, regulatory developments or proceedings, pending and future litigation and actions by third parties as well as the factors identified throughout Air Canada’s public disclosure file available at www.sedar.com. Any forward-looking statements contained in this news release represent Air Canada’s expectations as of the date of this news release and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
SOURCE Chorus Aviation Inc.
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