Chorus Aviation announces strong fourth quarter and year-end earnings
- Fourth quarter adjusted net income of $23.7 million, $0.20 per share
- Monthly dividend increased to $0.04 per share
HALIFAX, Feb. 19, 2015 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR.B CHR.A) today announced its fourth quarter and year-end 2014 earnings.
Q4 2014 HIGHLIGHTS
- Adjusted EBITDA1 of $49.8 million.
- Operating income of $33.0 million.
- Adjusted net income1 of $23.7 million.
- Adjusted net income per share1 of $0.20 per basic share.
- Net income of $11.3 million.
- Net income per share of $0.09 per basic share.
For the fourth quarter 2014, Chorus reported Adjusted EBITDA of $49.8 million compared to $48.9 million in the same quarter 2013, an increase of $0.9 million. Operating income was $33.0 million, $0.5 million higher than the same period 2013. Adjusted net income of $23.7 million or $0.20 per basic share was up by $2.9 million or $0.03 per basic share over the fourth quarter 2013. Chorus incurred $1.3 million in employee separation program costs in the fourth quarter versus $1.2 million in the same period in 2013. Chorus has invested $21.8 million in employee separation since the inception of this cost savings program in the first quarter of 2013.
“I am pleased with our strong financial and operational results,” said Joseph Randell, President and Chief Executive Officer, Chorus. “Quarter-over-quarter, we experienced increases in our key financial performance measures of operating income, adjusted EBITDA and adjusted net income. Chorus shareholders benefited from adjusted net earnings per share of $0.20, an increase of 17.6% compared to the fourth quarter in 2013. Our operational performance in the quarter was also solid as we ranked second among Canadian airlines for on-time performance as reported by FlightStats Inc. Our Board of Directors has approved an increase in the monthly dividend from the current level of $0.0375 to $0.04 per Class A and Class B share effective with the March dividend for shareholders of record at the close of business on March 31, 2015, and payable on April 17, 2015.”
“We have continued to build upon our strengths and achieved an amended Capacity Purchase Agreement with Air Canada that delivers a long-term and sustainable future for our company,” continued Mr. Randell. “Strong cash flow in 2014 supported the early redemption of the convertible debentures, the repurchase and cancellation of approximately 2.3 million shares, the conversion to a monthly dividend, dividend payments of just under $64.0 million, and the investment of approximately $11.9 million in employee separation programs. These initiatives strengthened the balance sheet as we prepare to take delivery of six new Q400s in 2015. We maintained our position amongst North American regional airlines for on-time performance which contributed to a $1.8 million increase in performance incentives earned over 2013. Thank you to the team for delivering exceptional performance again last year.”
Year end 2014 HIGHLIGHTS
- Adjusted EBITDA1 of $204.0 million.
- Operating income of $137.9 million.
- Adjusted net income1 of $95.2 million.
- Adjusted net income per share1 of $0.78 per basic share.
- Net income of $64.7 million.
- Net income per share of $0.53 per basic share.
For the year ended December 31, 2014, Chorus reported Adjusted EBITDA of $204.0 million compared to $186.9 million in the same period in 2013, an increase of $17.1 million. Operating income was $137.9 million, $13.6 million higher than the same period 2013. Adjusted net income of $95.2 million or $0.78 per basic share was up by $10.5 million or $0.09 per basic share over the same period 2013.
For reporting purposes, at each quarter and year end, Chorus converts its US denominated aircraft debt into equivalent Canadian dollars based on the prevailing exchange rate. Chorus manages its exposure to currency risk on such long-term debt by billing related lease payments under the Capacity Purchase Agreement (‘CPA’) with Air Canada in the underlying currency (US dollars) related to the aircraft debt. In the fourth quarter of 2014, Chorus had an unrealized foreign exchange loss of $12.4 million versus an unrealized foreign exchange loss of $12.1 million in the same period of 2013. For the full year 2014, Chorus recorded an unrealized foreign exchange loss on long-term debt and finance leases of $30.5 million versus $22.8 million in 2013.
Financial Performance – Fourth Quarter 2014 Compared to Fourth Quarter 2013
Operating revenue decreased from $413.2 million to $401.3 million, representing a decrease of $11.9 million or 2.9%.
Flight revenue, including charter revenue, increased by $4.4 million or 2.0%. $3.5 million of this increase resulted from rate increases made pursuant to the CPA. A favourable US dollar exchange rate resulted in a $4.5 million increase in the quarter. These increases were offset by decreased billable block hours of $3.6 million.
Aircraft leasing revenue under the CPA increased by $1.2 million or 8.5%. The increase was related to a favourable US dollar exchange rate. Aircraft leasing revenue under the CPA is generated from the 21 Q400 aircraft and four Q400 engines owned by Chorus.
The Controllable Mark-up, excluding Compensating Mark-up, increased by $0.2 million. A favourable US dollar exchange rate resulted in a $0.6 million increase in the quarter; offset by decreased billable block hours. In 2014, actual Annual Delivered Block Hours were 362,530, which is below the minimum of 367,106 hours. As a result, the Compensating Mark-up formula in the CPA was applied and the Controllable Mark-up was increased to compensate Chorus for its reduced operating margin and increased unit costs resulting from reduced Block Hours. Chorus recorded $1.2 million in Compensating Mark-up in the quarter as an increase in operating revenue.
Incentives earned under the CPA increased by $0.5 million, of which $0.1 million related to a favourable US dollar exchange rate and the remainder to improved operating performance.
Pass-through revenue decreased by $19.6 million or 12.8% from $153.0 million to $133.4 million, which included a decrease of $10.8 million related to decreased fuel costs, and $8.5 million related to reduced airport and navigation fees and terminal handling services. A favourable US dollar exchange rate partially offset these decreases by $1.0 million. Effective January 1, 2014, Air Canada entered into a commercial agreement with the Greater Toronto Airport Authority (‘GTAA’) that encompasses Chorus’ Air Canada Express operations. GTAA costs related to landing, terminal and other airport user fees, which are treated as pass-through costs under the CPA, are now paid directly by Air Canada pursuant to this agreement.
Operating expenses decreased from $380.8 million to $368.3 million, a decrease of $12.4 million. An unfavourable US dollar exchange rate compared to the same period in 2013 increased operating expenses by $5.6 million. Controllable costs increased from $227.8 million to $234.9 million, an increase of $7.1 million or 3.1%. $4.6 million of this controllable cost increase is attributable to an unfavourable US dollar exchange rate. Pass-through costs decreased from $153.0 million to $133.4 million, a decrease of $19.6 million or 12.8%.
Salaries, wages and benefits decreased by $1.2 million from $100.4 million to $99.2 million. Adjusted salaries, wages and benefits (adjusted by removing employee separation program costs and capitalized major maintenance overhaul labour costs), which includes pension, incentive compensation and other employee benefits, decreased by $1.1 million. Employee separation program costs incurred during the three months ended December 31, 2014 were $1.3 million, an increase of $0.1 million over the same period of 2013. Salaries and wages were also affected by more labour costs being capitalized on owned aircraft for major maintenance overhauls of $0.2 million.
Aircraft maintenance expense increased by $5.6 million from $39.4 million to $45.0 million. An unfavourable US dollar exchange rate on certain maintenance material purchases accounted for a $3.0 million increase, and increased other maintenance costs of $3.7 million. These increases were offset by decreased block hours of $0.8 million and higher maintenance costs of $0.3 million being capitalized as a result of major maintenance overhauls accounted for a $0.3 million of the decrease.
Non-operating expenses decreased by $1.1 million from $14.6 million to $13.6 million. The weakening of the Canadian dollar during the quarter contributed to a foreign exchange loss of $10.6 million compared to a foreign exchange loss of $11.2 million in the same period last year. Interest expense related to long-term debt increased by $0.1 million.
Adjusted EBITDA was $49.8 million compared to $48.9 million in 2013, an increase of $0.9 million or 1.8 %, producing an Adjusted EBITDA margin of 12.4%.
Operating income of $33.0 million was up $0.5 million or 1.6% over fourth quarter 2013 from $32.5 million.
Net income for the fourth quarter of 2014 was $11.3 million or $0.09 per basic share, an increase of $2.6 million from $8.8 million. On an adjusted basis, net income was $23.7 million or $0.20 per basic share, an increase of $2.9 million from $20.8 million. A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in Chorus’ Management’s Discussion and Analysis dated February 18, 2015.
Investor Conference Call / Audio Webcast
Chorus will hold an analyst call at 9:30 a.m. ET on Thursday, February 19, 2015 to discuss the fourth quarter and year end 2014 results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via: http://www.newswire.ca/en/webcast/detail/1470951/1637393 or on Chorus’ website at www.chorusaviation.ca under Reports > Executive Management Presentations. This is a listen-in only audio webcast. Media Player or Real Player is required to listen to the broadcast; please download well in advance of the call.
The conference call webcast will be archived on Chorus’ website at www.chorusaviation.ca under Reports > Executive Management Presentations. A playback of the call can also be accessed until midnight AT, February 27, 2015 by dialing toll-free 1- 855-859-2056, and passcode 65668356.
1 Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
EBITDA is defined as earnings before net interest expense, income taxes, and depreciation and amortization and is a non-GAAP financial measure. Adjusted EBITDA (net income before net interest expense, income taxes, depreciation and amortization and other items such as asset impairment and foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus, and commonly by other regional airlines in the industry, as a supplemental financial measure of operational performance. Management believes Adjusted EBITDA assists investors in comparing Chorus’ performance on a consistent basis without regard to depreciation and amortization, which are non-cash in nature and can vary significantly depending on accounting methods and factors such as historical cost. Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statement of cash flows, forming part of the financial statements.
Adjusted Net Income
Adjusted net income and adjusted net income per share are used by Chorus to assess performance without the effects of unrealized foreign exchange gains or losses on long-term debt and finance leases related to aircraft. Chorus manages its exposure to currency risk on such long-term debt by billing the lease payments within the CPA in the underlying currency (US dollars) related to the aircraft debt. These items are excluded because they affect the comparability of our financial results, period over period, and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring due to ongoing currency fluctuations between the Canadian and US dollar. While employee separation program costs have not been included within our definition of adjusted net income, it is shown separately to facilitate transparency and comparability.
Forward Looking Statements
This news release should be read in conjunction with Chorus’ audited consolidated financial statements for the years ended December 31, 2014 and December 31, 2013, and MD&A dated February 18, 2015 filed with Canadian Securities Administrators (available at www.sedar.com).
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. 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, the airline industry, airline leasing, energy prices, general industry, market, credit, and economic conditions, (including a severe and prolonged economic downturn which could result in reduced payments under the amended CPA), 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 of Chorus to reduce operating costs and employee counts, the ability of Chorus to secure financing, employee relations, labour negotiations or disputes, pension issues, currency exchange and interest rates, leverage and restructure covenants in future indebtedness, dilution of Chorus shareholders, uncertainty of dividend 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 18, 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 including 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 established for the purpose of facilitating 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.