Chorus Aviation Inc. announces second quarter 2012 results
Net income per share of $0.18
Consistent quarterly profitability since 2006
HALIFAX, Aug. 13, 2012 /CNW/ – Chorus Aviation Inc. ("Chorus") (TSX: CHR.B CHR.A CHR.DB) today announced its second quarter 2012 earnings, with net income of $22.9 million or $0.18 per share, and adjusted net income1 of $27.4 million or $0.22 per share.
Q2 2012 HIGHLIGHTS
- Operating revenue of $426.3 million.
- Free Cash Flow1 of $38.7 million, or $0.31 per share.
- Operating income of $36.6 million.
- Net income of $22.9 million, or $0.18 per share.
- Adjusted net income1 of $27.4 million, or $0.22 per share.
"I'm pleased with our second quarter performance," said Joseph Randell, President and Chief Executive Officer, Chorus. "Cash flow remains strong, and we remain focused on strengthening our foundation, improving our cost competitiveness and building value for all our stakeholders."
"Safety is at the core of all that we do and we were very pleased to take first place for innovation in Aviation Safety Management at the European Safety Management Symposium last May," stated Mr. Randell. "Jazz was selected from a strong field of inspiring finalists spanning a wide spectrum of aviation organizations from civilian and military sectors. Our selection for this international award was attributed to our success at integrating several existing systems into one safety and business management system. Jazz employees are tremendously proud of the accomplishment and I thank them for their continued commitment to our top priority."
"The delivery of the last three Q400 aircraft, from the original order of 15, was seamless, and our employees continue to deliver a solid and safe operation," continued Mr. Randell. "For the summer peak period we're operating 16 Q400s under the Air Canada Express brand, and we were pleased to announce last month that six additional Q400s will be added to the Jazz fleet by the second quarter of 2013. The rejuvenation of the fleet will deliver benefits to our stakeholders as the replacement of the older regional jets with these efficient, state-of-the-art aircraft will translate into better operating economics and passenger comfort with less environmental impact."
"In our efforts to further improve our operating efficiencies, we will consolidate our heavy maintenance operations in Halifax by next summer," said Mr. Randell. "By increasing the number of newer aircraft in the Jazz fleet, the requirement for heavy maintenance work is reduced. While we recognize the impact of this decision is difficult for a number of our employees – it is the right direction to take if we are to become more cost competitive and remain relevant in this industry as the competitive landscape continues to change."
"We were also very pleased to have successfully negotiated with Air Canada new rates for controllable costs payable by Air Canada under the Capacity Purchase Agreement ('CPA') in respect of the years 2012 to 2014 inclusive. I thank the members of the team for their efforts and believe the agreed cost levels are achievable as long as we continue to focus on the solid cost control we've exercised to date."
Financial Performance -Second Quarter 2012 Compared to Second Quarter 2011
Operating revenue increased from $402.0 million to $426.3 million, representing an increase of $24.2 million or 6.0%. Passenger revenue, excluding pass-through costs, increased by $25.7 million or 10.8% primarily as a result of $9.0 million related to the early termination of the Thomas Cook Flight Services Agreement, rate increases made pursuant to the CPA, an adjustment of $1.8 million related to the new rates which were retroactive to January 1, 2012, a higher US dollar exchange rate, and a $1.4 million increase in incentives earned under the CPA with Air Canada; offset by a $1.9 million or 1.2% decrease in pass-through costs from $161.1 million to $159.2 million, which included $5.3 million related to fuel. Other revenue increased by $0.3 million.
Operating expenses increased from $378.1 million to $389.7 million, an increase of $11.6 million or 3.1%. Controllable Costs increased by $13.5 million, or 6.2%; offset by a decrease in pass-through costs of $1.9 million. Controllable operating expenses were impacted by the changes in the fleet ownership structure for the Q400 aircraft. CRJ-100 aircraft, previously under operating leases, are being replaced by owned Q400 aircraft, whose ownership costs are comprised of depreciation under operating expenses, and interest under non-operating expenses. The Q400 aircraft lease revenue under the CPA is captured under operating revenue and is designed to provide compensation to Chorus for both depreciation and interest expense. As interest expense is shown below the operating margin, operating income increased by a similar amount on a quarter over quarter basis.
Depreciation and amortization expense increased by $4.0 million, of which $3.0 million is related to the purchase of Q400 aircraft, with the balance due to the increased major maintenance overhauls and increased capital expenditures on aircraft rotable parts and other equipment; offset by certain assets reaching full amortization.
Aircraft maintenance expense increased by $2.3 million as a result of increased Block Hours of $0.4 million, the effect of the increase in the US-dollar exchange rate on certain material purchases of $1.3 million, and increased other maintenance costs of $2.6 million; offset by a decrease in engine maintenance activity due to the return of CRJ aircraft of $2.0 million.
Salaries, wages and benefits increased by $2.8 million as a result of wage and scale increases under new collective agreements, increased Block Hours, and increased pension expense resulting from a revised actuarial valuation; offset by a reduction in the number of full time equivalent employees.
Other expenses increased by $3.4 million primarily due to increased general overhead expenses (crew expenses increased due to increased activity, rates and training expenses) and professional fees.
Non-operating expenses increased $7.8 million. This change was mainly attributable to a foreign exchange loss of $4.8 million (of which $4.5 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 $2.1 million.
EBITDA1 was $50.4 million compared to $33.9 million in 2011, an increase of $16.5 million or 48.9%. Free Cash Flow was $38.7 million, an increase of $15.4 million or 66.5% from $23.3 million.
Operating income of $36.6 million for the three months ended June 30, 2012, was up $12.6 million or 52.6% over second quarter 2011 from $24.0 million.
Net income for the second quarter of 2012 was $22.9 million or $0.18 per share, an increase of $6.0 million or 35.3% from $16.9 million or $0.14 per share.
CPA rate setting negotiations
On August 7, 2012, Jazz and Air Canada finalized an agreement on the establishment of new rates for controllable costs that are payable by Air Canada under the CPA in respect of the years 2012 to 2014 inclusive. This rate review and adjustment is required under the terms of the CPA. The new rates are retroactive to January 1, 2012, and the parties have reconciled the amounts previously paid to the amount owing based on the new rates. The reconciliation is conducted so that the parties will be in the same position they would have been had the new rates been in effect as of January 1, 2012.
Update on investment in South American regional carrier Pluna.
On April 30, 2010, Chorus purchased a 33% non-voting interest in Latin American Regional Aviation Holding Corporation ('LARAH'). LARAH held an indirect 75% equity interest in Pluna Líneas Aéreas Uruguayas S.A. ('Pluna'). The remaining 25% equity interest in Pluna was held, indirectly, by the Government of Uruguay.
In the second quarter of 2012, it was announced that Pluna was in financial difficulty, and that the Uruguayan government had taken control of the airline, allowing it to continue operating. All of the shares in Pluna held indirectly by LARAH, including the portion indirectly owned by Chorus, were placed in trust with the Montevideo Stock Exchange in return for certain conditions and indemnities from the Uruguayan government. As a result, Chorus recorded a write-down of $16.4 million to the fair value of the investment through other comprehensive loss, as there is no indication that the LARAH shares hold any current value, and there can be no assurances that a successful recapitalization of Pluna will result in Chorus holding an ownership stake in the resulting entity.
Subsequent to June 30, 2012, Pluna announced that it had ceased operations indefinitely. The situation with Pluna has no effect on Jazz operations or current cash flows.
Chorus Aviation Inc.'s unaudited interim condensed consolidated financial statements for the three months ended June 30, 2012, 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 9:30 a.m. ET on Tuesday, August 14, 2012 to discuss the second quarter 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/1001247/1081477 or 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's Investor Relations website at www.chorusaviation.ca. A playback of the call can also be accessed until midnight ET, August 21, 2012, by dialing (416) 849-0833 or toll-free 1- 855-859-2056, and passcode 96894971# (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 second quarter of 2012, Chorus recorded a $4.5 million loss in unrealized foreign exchange on long-term debt and finance leases. This adjustment more clearly reflects earnings from an operating perspective.
Caution regarding forward-looking information
This news release should be read in conjunction with Chorus' unaudited interim condensed consolidated financial statements for the three months ended June 30, 2012 and MD&A dated August 13, 2012, 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 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, 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 August 13, 2012, 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, Chorus Leasing I Inc., Chorus Leasing II Inc., and Chorus Leasing III Inc. (the leasing companies own the Q400 aircraft) and 7503695 Canada 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. Jazz currently operates scheduled passenger service on behalf of Air Canada with over 860 departures per weekday to 84 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.