Chorus Aviation Announces New Capacity Purchase Agreement with Air Canada to 2025
New agreement delivers greater certainty and long-term sustainability
HALIFAX, Feb. 2, 2015 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR.B CHR.A), parent company of Jazz Aviation LP (‘Jazz’) today announced that all terms and conditions have been met to establish an amended and extended capacity purchase agreement (‘CPA’) with Air Canada effective January 1, 2015.
“We are transforming Chorus to become a more formidable competitor in the regional aviation industry,” said Joseph Randell, President and Chief Executive Officer, Chorus. “The time is right to restructure the CPA as it was no longer competitive in the ever-changing regional environment. Significant achievements such as the simplification and modernization of our fleet combined with an industry-leading agreement with our pilots, and a new compensation structure under the CPA all serve as catalysts to secure our cornerstone business with our customer Air Canada, and to create incremental value through growth and diversification.”
“We will build upon our strengths as a proven, experienced and long-term regional operator,” continued Mr. Randell. “Our interests are aligned with Air Canada. Our amended CPA and fleet modernization improves fleet economics and enables a stronger relationship for the long term. Chorus will continue to enjoy strong compensation levels over our 11-year horizon which is anticipated to support the current dividend and diversification opportunities going forward.”
The amended CPA is retroactively effective January 1, 2015 and is in effect until December 31, 2025. The year 2015 is expected to be transitional as the amendments to the CPA are implemented and the fleet transforms over the term of the contract.
The compensation structure changes from a ‘cost plus a 12.5% mark-up’ to a fixed fee arrangement. The new compensation structure is at the core of the amended agreement as it simplifies the relationship, improves transparency, and provides an alignment and mechanism for cost reduction benefits to materialize on an accelerated basis. It also eliminates the requirement for a benchmarking provision.
Chorus is now compensated using the industry standard approach of a fixed fee per aircraft regardless of how much an aircraft is flown. Chorus provides additional services that support the CPA regional network such as airport operations, and therefore is also compensated with a fixed infrastructure fee. As the fleet plan transitions, Chorus will increase its aircraft leasing revenue over the term of the CPA to include a minimum of 34 Q400 and 17 Dash 8-300s to be leased under the Air Canada CPA.
The overall fleet plan calls for the addition of 23 78-seat Q400s that will gradually replace 34 37-seat Dash 8-100s, and 25 50-seat CRJ-200s over the next 11 years. The fleet of 26 Dash 8-300s will continue to operate to 2025. The transition gradually reduces the minimum number of aircraft from 122 to 86 over the term of the agreement which translates to a reduction in overall seat capacity of less than 9% by the end of the 11 year period. This simplification and modernization of the fleet will deliver significant cost efficiencies that will provide the economics required to maintain a significant long-term presence in Air Canada’s regional network.
In order to achieve the right economics with the older fleet of Dash 8-100 and Dash 8-300 aircraft, the business will consist of two operating units. The first unit, which is Jazz, will transition to a mix of larger, newer aircraft comprised of Q400, CRJ 200 and CRJ705 aircraft. The creation of a second airline will address the requirement for improved economics of the older Dash 8-100/300 fleet. This unit will be similar to Air Canada’s rouge as it will have its own work force.
Seabury Group LLC served as strategic advisor to Chorus with respect to structuring and negotiating the new CPA.
Further details regarding the amended CPA will be provided in the audio and slide webcast described below.
Investor Conference Call / Webcast
Chorus will hold an analyst call at 9:30 a.m. ET on Monday, February 2, 2015 to discuss the amended CPA with Air Canada. Analysts wishing to participate in the discussion are required to access this event by dialing 1-888-231-8191. To listen to the live webcast, and to view the presentation slides, please visit: http://event.on24.com/r.htm?e=934386&s=1&k=BE38F4901B5DA71495BCC01A65E0F748. Media Player or Real Player is required to listen to the broadcast; please download well in advance of the call.
The webcast link will be active and offer playback of the webcast for one year; ending February 2, 2016. It can also be found on the Chorus website (www.chorusaviation.ca) under Reports > Executive Management Presentations.
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 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 MD&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, airline leasing, energy prices, general industry, market, credit, and economic conditions, (including a severe and prolonged economic downturn allowing Air Canada to decrease the amounts it pays under the CPA during such downturn), 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 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. The forward-looking statements contained in this discussion represent Chorus’ expectations as of February 2, 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.
Headquartered in Halifax, Nova Scotia, Chorus was incorporated on September 27, 2010 and is a dividend-paying holding company with various interests including Jazz Aviation Holdings Inc. and Chorus Aviation Holdings Inc.
Jazz Aviation Holdings Inc. holds all of Chorus’ business interests associated with the CPA with Air Canada which includes Jazz Aviation LP (‘Jazz’), Jazz Aircraft Financing Inc. (‘JAFI’), and Jazz Leasing Inc. (‘JLI’). JAFI and JLI were established for the sole purpose of acquiring and financing Q400 aircraft and related equipment, and leasing them to Jazz for use in the CPA.
Chorus Aviation Holdings Inc. is a holding company to facilitate diversification of Chorus’ business, such as the establishment of Chorus Airport Services Inc. which provides airport handling services.
Chorus is traded on the Toronto Stock Exchange under the trading symbols of CHR.A and CHR.B
For more information, visit www.chorusaviation.ca
Jazz Aviation LP has a strong history in Canadian aviation with its roots going back to the 1930s. Jazz is wholly owned by Chorus Aviation Inc. and continues to generate some of the strongest operational and financial results in the North American aviation industry. As the largest regional airline in Canada, Jazz has a proven track record of industry leadership and exceptional customer service, and has leveraged that strength to deliver value to all its stakeholders. Jazz operates more flights and flies to more Canadian destinations than any other airline. As of December 31, 2014, Jazz had a workforce of 4,130 professionals highly experienced in the challenging and complex nature of regional operations. Jazz employees are an integral part of communities across our nation with 20% of our workforce based in Atlantic Canada, 46% based in Central Canada, 33% based in Western Canada, and 1% in Northern Canada.
Under a capacity purchase agreement with Air Canada, using the Air Canada Express brand, Jazz provides service to and from lower-density markets as well as higher-density markets at off-peak times throughout Canada and to and from certain destinations in the United States. In the fourth quarter of 2014 Jazz operated scheduled passenger service on behalf of Air Canada with approximately 736 departures per weekday to 55 destinations in Canada and to 18 destinations in the United States. With a fleet of 122 Canadian-made Bombardier aircraft, Jazz flies more daily flights to more Canadian destinations than any other airline.
Under the Jazz brand, the airline offers charters throughout North America with a dedicated fleet of three Bombardier aircraft for corporate clients, governments, special interest groups and individuals seeking more convenience. Jazz also has the ability to offer airline operators services such as ground handling, dispatching, flight load planning, training and consulting.
For more information, visit www.flyjazz.ca.
SOURCE Chorus Aviation Inc.