Chorus Aviation Inc. announces fourth quarter and year end 2012 results and intention to make a Normal Course Issuer Bid
Annual adjusted net earnings per share increases to $0.77
Consistent quarterly profitability since 2006
HALIFAX, Feb. 20, 2013 /CNW/ – Chorus Aviation Inc. ("Chorus") (TSX: CHR.B CHR.A CHR.DB) today announced of its fourth quarter and year end 2012 earnings. The highlights are provided below.
Q4 2012 HIGHLIGHTS
- Operating revenue of $411.7 million.
- Free Cash Flow1 of $30.3 million, or $0.24 per basic share.
- Operating income of $25.4 million.
- Net income of $14.7 million, or $0.12 per basic share.
- Adjusted net income1 of $17.9 million, or $0.14 per basic share.
- Billable Block Hours of 97,249.
Year end 2012 HIGHLIGHTS
- Operating revenue of $1,710.7 million.
- Free Cash Flow1 of $139.8 million, or $1.13 per basic share.
- Operating income of $128.6 million.
- Net income of $101.1 million, or $0.81 per basic share.
- Adjusted net income1 of $95.5 million, or $0.77 per basic share.
- Billable Block Hours of 404,101.
"I am pleased with our annual and fourth quarter financial and operational performance," said Joseph Randell, President and Chief Executive Officer, Chorus. "Our operating income improvement of $26.6 million was driven by the operating margin from our Q400 leasing operations, the one-time termination fee from Thomas Cook and incentive revenue earned under the CPA. Our continuous focus on safety and operational excellence resulted in a $4.4 million increase in performance incentives earned in 2012 over 2011 as we consistently maintained the highest standing in on-time performance amongst Canada's major operators. This is a great accomplishment when you consider we fly more daily flights within Canada and fly to more Canadian destinations than any other carrier – I commend our employees for their exceptional hard work and dedication."
"The resolution to the benchmarking arbitration with Air Canada has unfortunately been further delayed," continued Randell. "Although there can be no assurances as to the outcome, we remain confident in our position and continue to work to reach a successful conclusion on the remaining issues in dispute. In the meantime, we prepare for the future by focusing on the imperative of cost competitiveness while strengthening our foundation. This will allow us to sustain a strong organization."
Financial Performance – Fourth Quarter 2012 Compared to Fourth Quarter 2011
Operating revenue increased from $407.7 million to $411.7 million, representing an increase of $4.0 million or 1.0%. Passenger revenue, excluding pass-through costs, increased by $4.9 million or 2.0% primarily as a result of an increase in Billable Block Hours, rate increases made pursuant to the Capacity Purchase Agreement ('CPA') with Air Canada, increased revenue related to a new engine maintenance contract for the Q400 aircraft of $5.5 million, and a $0.1 million increase in incentives earned under the CPA; offset by a lower US dollar exchange rate and no activity in the quarter for Thomas Cook. Pass-through costs decreased from $158.4 million to $157.4 million; a decrease of $1.0 million or 0.7% which included an increase of $1.8 million related to fuel costs. Other revenue increased by $0.1 million.
Operating expenses increased from $382.4 million to $386.3 million, an increase of $3.8 million or 1.0%. Controllable Costs increased by $4.9 million, or 2.2%; offset by a decrease in pass-through costs of $1.0 million.
Depreciation and amortization expense increased by $2.1 million, primarily related to the purchase of Q400 aircraft, with the balance due to increased capital expenditures on aircraft rotable parts and other equipment; offset by decreased major maintenance overhauls and certain assets having reached full amortization.
Aircraft maintenance expense increased by $7.9 million as a result of increased Block Hours of $0.6 million, increased maintenance cost for a new maintenance contract for the Q400 aircraft of $5.5 million, increased engine overhaul on charter aircraft of $1.2 million, an inventory adjustment of $1.6 million and increased other maintenance costs of $1.9 million; offset by a decrease in engine maintenance activity due to engine charges for the CRJ aircraft of $1.8 million and a decrease in the US-dollar exchange rate on certain material purchases of $1.1 million.
Aircraft rent decreased by $4.4 million primarily as a result of no expense in the fourth quarter for Thomas Cook aircraft, the return of CRJ aircraft of $2.1 million and a lower US dollar exchange rate of $0.9 million.
Salaries, wages and benefits decreased by $2.1 million primarily as a result of a reduction in the number of full time equivalent employees; offset by wage and scale increases under new collective agreements, increased incentive compensation expense, increased pension expense resulting from a revised actuarial valuation and lower capitalized salaries and wages related to major maintenance overhauls.
Other expenses decreased by $0.7 million primarily due to decreased professional fees and general overhead expenses.
Non-operating expenses increased $10.2 million. This change was mainly attributable to a foreign exchange loss of $3.8 million (of which $3.3 million was related to an unrealized foreign exchange loss on long-term debt and finance leases) arising as a result of the change in value of the Canadian dollar relative to the US dollar and increased interest expense related to the Q400 aircraft financing of $1.0 million.
EBITDA1 was $40.2 million compared to $38.0 million in 2011, an increase of $2.2 million or 5.9%, producing an EBITDA margin of 9.8%. Free Cash Flow was $30.3 million, an increase of $1.0 million or 3.3% from $29.4 million.
Operating income of $25.4 million for the three months ended December 31, 2012, was up $0.1 million or 0.4% over fourth quarter 2011 from $25.3 million.
Net income for the fourth quarter of 2012 was $14.7 million or $0.12 per basic share, a decrease of $8.0 million or 35.3% from $22.7 million or $0.18 per basic share. On an adjusted basis, net income was $17.9 million or $0.14 per basic share, a decrease of 8.3% or $0.02 per basic share from $19.6 million or $0.16 per basic share.
Financial Performance – Year End 2012 Compared to Year End 2011
Operating revenue increased from $1,664.5 million to $1,710.7 million, representing an increase of $46.2 million or 2.8%. Passenger revenue, excluding pass-through costs, increased by $56.8 million or 5.8% primarily as a result of a $9.0 million settlement fee related to the early termination of the Thomas Cook Flight Services Agreement, a 0.7% increase in Billable Block Hours, rate increases made pursuant to the CPA with Air Canada, a higher US dollar exchange rate, and a $4.4 million increase in incentives earned under the CPA. Pass-through costs decreased from $670.6 million to $659.3 million, or $11.3 million or 1.7%, which included $14.6 million related to fuel cost. Other revenue increased by $0.7 million.
Operating expenses increased from $1,562.5 million to $1,582.1 million, an increase of $19.6 million or 1.3%. Controllable Costs increased by $30.9 million or 3.5%; offset by a decrease in pass-through costs of $11.3 million.
Non-operating expenses decreased by $4.1 million. This change was mainly attributable to a foreign exchange gain of $5.9 million (of which $5.6 million was related to an unrealized foreign exchange gain on long-term debt and finance leases) arising as a result of the change in value of the Canadian dollar relative to the US dollar; offset by increased interest expense related to the Q400 aircraft financing of $6.6 million.
EBITDA1 was $185.3 million compared to $146.1 million in 2011, an increase of $39.3 million or 26.9%, producing an EBITDA margin of 10.8%. Free Cash Flow was $139.8 million, an increase of $33.0 million or 30.9% from $106.8 million.
Operating income was $128.6 million for the year ended December 31, 2012, was up $26.6 million or 26.1% over the year 2011 from $101.9 million.
Net income for the year 2012 was $101.1 million or $0.81 per basic share, an increase of $33.0 million or 48.4% from $68.1 million or $0.55 per basic share. On an adjusted basis, net income was $95.5 million or $0.77 per basic share, an increase of $23.8 million or 33.3% from $71.7 million or $0.58 per share.
Benchmarking Arbitration (Refer to Section 14 -Economic Dependence and Section 19 – Risks Relating to Current Legal Proceedings of Chorus' 2012 MD&A for additional information)
As communicated on October 2 and 3, 2012, the arbitration panel (the 'Panel') released its award (the 'Award') on the 2009 benchmark exercise between Jazz Aviation LP ('Jazz') (a wholly owned subsidiary of Chorus) and Air Canada.
In the Award, two of the three member Panel concluded that the component unit cost driver methodology ('CUCD') put forward by Air Canada was the appropriate methodology to use in the 2009 Benchmark to compare Chorus' Unit Costs to the stage length adjusted median controllable unit costs of the Comparable Operators. However, the Panel also agreed with Chorus that a number of the additional adjustments proposed by Chorus were also required to be made (the "Adjustments") but did not provide guidance on the calculation of such Adjustments. The Panel also agreed with Chorus that fleet age impacts the rate at which maintenance costs increase. However, the Panel did not specify a methodology for the Fleet Age Adjustment and directed Air Canada and Chorus to negotiate a further adjustment that would account for the impact of fleet age on the rate at which maintenance costs increase (the "Fleet Age Adjustment") failing which the parties will submit new proposals and analysis to the Panel on that issue.
There remain substantive disputes between the parties with respect to the interpretation and application of the Award and its impact on the Controllable Mark-Up. The parties have been unable to reach agreement on either the calculation of certain of the Adjustments or the Fleet Age Adjustment.
Air Canada took the position at the hearing that there should be no such Fleet Age Adjustment but now is taking the position that a Fleet Age Adjustment ought to be made and that such adjustment should be in its favour. The effect of making the Fleet Age Adjustment, in the manner asserted by Air Canada, would be to materially reduce the Controllable Mark-Up below the 11.41% rate that Air Canada asserts should otherwise result from the application of the other Adjustments.
Chorus remains of the view that, given its older fleet relative to those of the relevant comparable operators, and consistent with the position it took at the initial hearing, any Fleet Age Adjustment would only be to the benefit of Chorus and therefore regardless of the decision on the other Adjustment, the Fleet Age Adjustment should result in the Controllable Mark-Up remaining at 12.50% going forward until at least the 2015 Benchmark and that it should not be required to repay Air Canada any amounts in respect of payments made since January 1, 2010.
Following the release of the Award, the parties had scheduled a further hearing with the Panel to occur in the last week of November 2012 to resolve the outstanding issues in dispute, including the impact of the Fleet Age Adjustment. That hearing was subsequently adjourned to the last week of January 2013 and then to the first week of April 2013 in order to provide the parties with additional time to put forward evidence on the issues which remain in dispute.
Normal Course Issuer Bid
Chorus also announced today that it intends to make a normal course issuer bid. Under the bid, which is subject to acceptance by the Toronto Stock Exchange (the "TSX"), Chorus will have the right to purchase for cancellation up to a maximum of 11,087,520 of its Class A Variable Voting shares and/or Class B Voting shares (collectively, the "Shares"), representing 10% of the public float of the Shares. As of February 19, 2013, Chorus had 124,015,471 Shares issued and outstanding, of which 110,875,196 Shares constitute the total public float of the Shares. Purchases made pursuant to the bid will be made in the open market through the facilities of the TSX in accordance with the rules and policies of the TSX. Chorus is proposing to commence the bid on or about February 28, 2013 and have it remain in effect until one year from the date on which purchases commence. Shares purchased by Chorus pursuant to the bid will be cancelled. Chorus has not purchased any common shares during the previous year pursuant to any issuer bid.
"The directors and management of Chorus believe that the market price of the Shares during the period of the bid may be such that the purchase of Shares by Chorus for cancellation would be in the best interests of Chorus and an appropriate use of corporate funds in light of potential benefits to remaining shareholders," said Mr. Randell.
Chorus Aviation Inc.'s audited consolidated financial statements for the years ended December 31, 2012 and December 31, 2011, and accompanying Management's Discussion and Analysis (MD&A) are available at www.chorusaviation.ca and at www.sedar.com. A copy may also be obtained on request by contacting Investor Relations at: email@example.com or (902) 873-5094.
Investor Conference Call / Audio Webcast
Chorus will hold an analyst call at 9:00 a.m. ET on Thursday, February 21, 2013 to discuss the fourth quarter and year end 2012 results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via: www.newswire.ca/en/webcast/detail/1097399/1195627or in the Investor Relations section at www.chorusaviation.ca. 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' Investor Relations website at www.chorusaviation.ca. A playback of the call can also be accessed until midnight ET, February 28, 2013, by dialing (416) 849-0833 or toll-free 1- 855-859-2056, and passcode 88335638# (pound key).
1 Non-GAAP Financial Measures
EBITDA (earnings before interest, taxes, depreciation, amortization and obsolescence) is a non-GAAP financial measure commonly used throughout all industries to view operating results before interest expense, interest income, depreciation and amortization, gains and losses on property and equipment and other non-operating income and expenses. Management believes 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 non-operating factors such as historical cost. EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact on working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statement of cash flows which form part of the financial statements.
FREE CASH FLOW
Pre-conversion distributable cash was a key performance indicator used by management to evaluate the ongoing performance of Jazz Air Income Fund. Distributable cash is not a measure which is commonly utilized in respect of a public corporation. Management believes, however, that it is a term with which its shareholders are familiar and has provided Free Cash Flow as a proxy for previously reported distributable income. Free Cash Flow is calculated in the same manner as distributable cash. Free Cash Flow is defined as EBITDA less non-operating expenses, Maintenance Capital Expenditures to sustain the operation, and adjusted for any unrealized foreign exchange gain or loss on long-term debt and finance leases and any unusual non-operating one-time items. Other capital expenditures incurred to facilitate growth of the business are excluded from this calculation.
ADJUSTED NET INCOME
Adjusted net income and adjusted earnings per share are calculated by adjusting net income by the amount of any unrealized foreign exchange gains and losses on long-term debt and finance leases. During the fourth quarter of 2012, Chorus recorded a $3.3 million loss in unrealized foreign exchange on long-term debt and finance leases. On an annual basis, Chorus recorded a $5.6 million gain in unrealized foreign exchange on long-term debt and finance leases. These adjustments more clearly reflect earnings from an operating perspective.
Caution regarding forward-looking information
This news release should be read in conjunction with Chorus' audited consolidated financial statements for the years ended December 31, 2012 and December 31, 2011, and MD&A dated February 20, 2013 filed with Canadian Securities regulatory authorities (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 Jazz Aviation LP's 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, 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, restructuring, 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 20, 2013, 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.
About Chorus Aviation Inc.
Chorus Aviation Inc. ("Chorus") was incorporated on September 27, 2010 and is a dividend-paying holding company which owns Jazz Aviation LP, and Chorus Leasing III Inc.
Chorus is traded on the Toronto Stock Exchange under the trading symbols of CHR.A, CHR.B and CHR.DB.
For more information, visit www.chorusaviation.ca
About Jazz Aviation LP
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.
There are two airline divisions operated by Jazz Aviation LP: Air Canada Express and Jazz.
Air Canada Express: Under a capacity purchase agreement with Air Canada, 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 2012, Jazz operated scheduled passenger service on behalf of Air Canada with approximately 779 departures per weekday to 82 destinations in Canada and in the United States with a fleet of Canadian-made Bombardier aircraft.
Jazz: Under the Jazz brand, the airline offers charters throughout North America with a dedicated fleet of five 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.