Chorus Aviation Announces Revisions to the Capacity Purchase Agreement with Air Canada
Enhancing Jazz’s position within Air Canada’s network
- 25 Embraer 175 aircraft to be added to the Covered Aircraft fleet, increasing the fixed fee margin.
- Jazz to provide 100% of Air Canada Express 70+ seat regional capacity until 2025.
- Dash 8-300 aircraft to exit the Covered Aircraft fleet.
- Controllable cost guardrail receivable to be capped at $20 million per year, improving working capital.
- All other material components of the CPA are unchanged.
HALIFAX, NS, March 1, 2021 /CNW/ – Chorus Aviation Inc. (‘TSX: CHR) (‘Chorus’), parent company of Jazz Aviation LP (‘Jazz’), today announced an agreement to revise the capacity purchase agreement (‘CPA’) between Jazz and Air Canada. The agreement addresses the dramatic and sustained reduction in air travel demand caused by the COVID-19 pandemic by optimizing the Jazz fleet. The revisions to the CPA are conditional on Jazz reaching an agreement with the Air Line Pilots Association, International which represents Jazz pilots. If this condition is satisfied, the CPA will be amended on a retroactive basis to January 1, 2021.
Chorus and Air Canada have a successful history of working together to adjust the terms of the CPA for mutual benefit. These proposed changes relate primarily to the Covered Aircraft, enhancing Jazz’s position in Air Canada’s network as the sole regional partner for 70+ seat regional aircraft until 2025 while providing Air Canada with greater cost efficiency and flexibility.
"The COVID-19 pandemic continues to challenge the aviation industry. With the Jazz fleet operating at a fraction of the capacity it flew a year ago, now is the time to update the CPA to help preserve regional flying and Jazz’s place within it," commented Joe Randell, President and Chief Executive Officer, Chorus.
"The Jazz fleet is up-gauging to larger regional jet aircraft and replacing smaller turboprop fleet sooner than contemplated in the previous fleet plan. Bringing the Embraer 175 aircraft into the Jazz Covered Aircraft fleet makes Jazz the exclusive Air Canada Express operator of 70+ seat aircraft until 2025 and is a demonstration of our cost competitiveness and strong relationship with Air Canada. Further, quarterly reconciliation of the controllable cost guardrail receivable provides greater certainty in the timing of cash flows and improves our liquidity by eliminating potentially significant draws on working capital," concluded Mr. Randell.
Revisions to the CPA include the following:
Consolidation of 25 Embraer 175s into Jazz’s Covered Aircraft fleet
- Jazz will operate the 25 E175s under the CPA.
- Jazz will become the exclusive Air Canada Express operator of 70+ seat aircraft until the end of 2025.
- Fixed fees will increase by $46.0 million over the term of the CPA with annual minimum fixed fees increasing by $1.2 million per year from 2021 to 2025, and by approximately $4.0 million per year from 2026 to 2035.
Removal of 19 Dash 8-300s from Jazz’s Covered Aircraft fleet
- 19 Dash 8-300s will be removed from the fleet in 2021. Removal of the Dash 8- 300s will reduce future aircraft leasing revenue under the CPA by approximately $56.0 million over the remaining term of the contract.
- Chorus owns these Dash 8-300s, 15 of which have undergone the Extended Service Program (‘ESP’) which prolongs their useful life by approximately 15 years. Chorus has the ability to sell or lease these aircraft or convert them for cargo operations.
Controllable Cost Guardrail Receivable
- Uncertainty in the flying schedule caused by the pandemic resulted in the accumulation of a $44.2 million controllable cost guardrail receivable from Air Canada at December 31, 2020.
- The revisions to the CPA will cap the controllable cost guardrail receivable to a maximum of $20.0 million annually and provide for quarterly reconciliations to avoid the accumulation of a receivable in excess of the agreed maximum.
- The 2020 guardrail receivable has been paid; however, without the proposed changes to the guardrail, the 2021 CPA guardrail receivable could be as high as $45 million.
- Quarterly reconciliations against the new guardrail receivable cap will reduce Chorus’ financial exposure by capping the guardrail receivable and minimize draws on Chorus’ available working capital.
As a result of these revisions to the CPA, Chorus anticipates one-time costs, charges, and other fees to range between $90.0 million and $110.0 million, with approximately half of this range being non-cash in nature, and the cash portion paid over several years.
All other material components of the CPA are unchanged, including:
- Contract expiring on December 31, 2035.
- Minimum fleet guarantee of 105 aircraft until 2025, and 80 aircraft from 2026 and beyond.
- Performance incentive compensation.
- Pilot mobility program.
Upon becoming effective, these revisions to the CPA optimizes the Jazz fleet for Air Canada and makes it the exclusive provider 70+ seat regional capacity in the Air Canada Express network until 2025, while providing significant cost savings and network planning flexibility for Air Canada.
This news release contains ‘forward-looking information’. Forward-looking information is identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "potential", "project", "will", "would", "should" and similar terms and phrases, including references to assumptions. Forward-looking information, by its nature, is based on assumptions regarding future events and circumstances, and is therefore subject to important risks and uncertainties that may cause actual results to differ materially from those expressed in forward-looking information. Actual results may differ materially from those expressed in this news release for a number of reasons, including the failure of the CPA amendments described herein to become effective due to the non-satisfaction of the condition precedent or otherwise, the impact of the COVID-19 pandemic on Air Canada’s financial condition and prospects, the risk of disputes or defaults under the CPA, as well as the risk factors identified in Chorus’ most recent Management’s Discussion & Analysis and Annual Information Form and in Chorus’ public disclosure record available at www.sedar.com.
About Chorus Aviation Inc.
Chorus is a global provider of integrated regional aviation solutions. Chorus’ vision is to deliver regional aviation to the world. Headquartered in Halifax, Nova Scotia, Chorus is comprised of Chorus Aviation Capital a leading, global lessor of regional aircraft, and Jazz and Voyageur Aviation – companies that have long histories of safe operations with excellent customer service. Chorus provides a full suite of regional aviation support services that encompasses every stage of an aircraft’s lifecycle, including aircraft acquisitions and leasing; aircraft refurbishment, engineering, modification, repurposing and preparation; contract flying; aircraft and component maintenance, disassembly, and parts provisioning.
Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol ‘CHR’. www.chorusaviation.com
SOURCE Chorus Aviation Inc.