Record performance incentives achieved
HALIFAX, Feb. 9 /CNW/ – Today, Jazz Air Income Fund (TSX: JAZ.UN, JAZ.DB) (the "Fund") announced the fourth quarter and year end 2009 results. The following are highlights of the financial performance.
Q4 2009 HIGHLIGHTS
- Operating revenue of $351.2 million.
- Operating income of $17.3 million.
- Performance incentive of $4.6 million.
- Net income of $20.8 million.
- Distributable cash(1) of $26.7 million.
YEAR END 2009 HIGHLIGHTS
- Operating revenue of $1,473.9 million.
- Operating income of $88.8 million.
- Performance incentive of $19.0 million.
- Net income of $92.6 million.
- Distributable cash(1) of $139.3 million.
"Despite the challenges faced by North American airlines during the year, Jazz posted strong operating and financial results every quarter in 2009," said Joseph Randell, President and Chief Executive Officer of Jazz. "The service excellence delivered by our employees greatly contributed to the achievement of our best operational performance to date – earning a record $4.6 million in performance incentives for the quarter and $19 million for the year. More importantly, we accomplished this safely and as a team."
"Solid management practices and our successful focus on cost control have contributed to maintaining a healthy balance sheet, and our liquidity position was further strengthened by the successful closing of a 9.5% convertible debenture offering in November," Mr. Randell went on to say. "Despite the volatility in capital markets, the offering was very well-received and gross aggregate proceeds were over $86 million."
"Looking ahead, we remain focused on our stated strategies aimed at growing and diversifying our revenue base," said Mr. Randell. "Further, our announcement today of our intention to introduce state-of-the-art, new Bombardier Q400 NextGen aircraft to our fleet in May, 2011 will strengthen our operational foundation." (See news release issued today by Jazz Air LP)
Financial Performance - Fourth Quarter 2009 Compared to Fourth Quarter
Operating revenue was $351.2 million, compared to $392.7 million, representing a decrease of $41.5 million or 10.6%. The decrease in operating revenue is attributable to a $26.4 million decrease in revenues arising as a result of lower pass-through costs which are charged to Air Canada and treated as Jazz revenues; a lower US dollar exchange rate; a 6.6% reduction in Billable Block Hours; a 3.1% reduction in departures; and a reduction in the mark-up charged by Jazz under the CPA, effective August 1, 2009; offset by rate increases made pursuant to the CPA.
Performance incentives payable by Air Canada to Jazz under the CPA amounted to $4.6 million or 2.1% of Jazz's Scheduled Flights Revenue as compared to $3.6 million or 1.5%. Jazz therefore earned 89% of the incentives available under the CPA in 2009, versus 65% in the previous year. Incentives earned in this quarter were higher primarily as a result of improvements in on-time performance and flight completion. Other revenue sources decreased from $3.7 million to $2.2 million.
Total operating expenses decreased from $353.0 million to $325.9 million, a decrease of $27.1 million or 7.7%. Aircraft fuel costs decreased by $24.7 million due to a decrease of $20.8 million in the cost of fuel, and a $3.9 million decrease in fuel usage due to a reduction in the number of Block Hours. Aircraft maintenance expense increased by $7.8 million as a result of increased rates under new maintenance contracts of $9.8 million, and other maintenance costs of $2.7 million; offset by the effect of the decrease in the US dollar exchange rate on certain material purchases of $4.7 million.
Non-operating expenses amounted to $2.1 million, a decrease of $155.9 million or 98.7%, from $158.0 million. The decrease was mainly attributable to a lower foreign exchange loss arising as a result of the change in value of the Canadian dollar relative to the US dollar, a gain on the disposal of property and equipment, and a goodwill impairment loss of $153.2 million in the fourth quarter of 2008; offset by increased net interest expense.
EBITDA(1) was $33.3 million compared to $47.6 million in 2008, a decrease of $14.3 million or 30.1% resulting from the reduction in both the fleet of Covered Aircraft and the Controllable Markup. Operating income, before the amortization of the CPA asset, of $25.3 million represents a reduction of $14.4 million or 36.3%. Distributable cash was $26.7 million, down from $37.4 million.
The Controllable Adjusted Actual Margin was 9.0%, which is less than the target of 11.11% by 211 basis points or approximately $4.7 million. In a quarter with less than the average Block Hour activity margins will be compressed. In the fourth quarter, this margin compression represented $0.9 million of the shortfall from target level. The balance is primarily attributable to incentive compensation expense which is excluded from the CPA revenue rate development. Prior period rates provided sufficient margin to cover incentive compensation expenses. In the fourth quarter of 2008, Controllable Adjusted Actual Margin was 14.91%, was 82 basis points or approximately $1.9 million greater than the target margin of 14.09%.
Net income for the fourth quarter was $20.8 million.
Financial Performance - Year End 2009 Compared to Year End 2008
Operating revenue was $1,473.9 million, compared to $1,636.3 million in 2008, representing a decrease of $162.4 million or 9.9%. This decrease in revenue was primarily attributable to a $180.2 million, or a 27.0%, decrease in pass-through costs under the CPA, reduced Billable Block Hours of 6.0%, a 4.2% reduction in departures and a reduction in the mark-up charged by Jazz under the CPA, effective August 1, 2009; offset by a higher US dollar exchange rate and rate increases made pursuant to the CPA.
Jazz earned 84% of the incentives available under the CPA. Performance incentives payable by Air Canada to Jazz under the CPA amounted to $19.0 million or 2.0% of Jazz's Scheduled Flights Revenue as compared to $15.7 million or 1.7% for 2008. Other revenue sources decreased from $13.4 million to $10.3 million, representing a decrease of $3.1 million or 23.1%.
Total operating expenses decreased from $1,488.0 million in 2008 to $1,345.5 million, a decrease of $142.5 million or 9.6%.
Non-operating expenses amounted to $6.4 million, a decrease of $160.2 million. The change was mainly attributable to a gain on the disposal of property and equipment, a lower foreign exchange loss arising as a result of the change in value of the Canadian dollar relative to the US dollar and in 2008, a goodwill impairment loss of $153.2 million; offset by increased net interest expense.
The Controllable Adjusted Actual Margin for the year ended 2009 was 11.21%, which is less than the weighted average target margin established under the CPA of 13.05% by 184 basis points, or approximately $17.6 million. The shortfall was primarily attributable to incentive compensation expense which is excluded from the CPA revenue rate. Prior period rates provided sufficient margin to cover incentive compensation expenses. In the year ended 2008, Controllable Adjusted Actual Margin was 13.79%, which was 30 basis points or approximately $2.8 million less than the target margin of 14.09%.
Net income for year end 2009 was $92.6 million.
Jazz Air Income Fund's audited consolidated financial statements for the year ended December 31, 2009, and accompanying Management's Discussion and Analysis (MD&A) are available on Jazz's website www.flyjazz.ca and at www.sedar.com. A copy may also be obtained on request by contacting Jazz's Investor Relations at: email@example.com or (902) 873-5094.
Quarterly Investor Conference Call / Audio Webcast
Jazz will hold an analyst call at 9:30 a.m. ET on Wednesday, February 10, 2010 to discuss the fourth quarter and year end results of Jazz Air Income Fund. The call may be accessed by dialing 1-888-231-8191 or (647) 427-7450 for the Toronto area. The call will be simultaneously audio webcast via: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2929740 or in the Investor Relations section of Jazz's website at www.flyjazz.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 Jazz's Investor Relations website at www.flyjazz.ca. A playback of the call can also be accessed until midnight ET, Wednesday, February 17, 2010, by dialing (416) 849-0833 or toll-free 1- 800-642-1687, and passcode – 50069075# (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 expense. Management believes EBITDA assists investors in comparing Jazz's 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 on cash flows.
Distributable cash is a non-GAAP measure generally used by Canadian open-ended trusts as an indication of financial performance. It should not been seen as a measurement of liquidity or a substitute for comparable measurements prepared in accordance with GAAP. Distributable cash may differ from similar calculations as reported by other entities and, accordingly, may not be comparable to distributable cash as reported by such entities. Readers should refer to Jazz's and Jazz Air Fund's Management Discussion and Analysis for a reconciliation of distributable cash to cash provided by operating activities.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This news release should be read in conjunction with the Fund's audited consolidated financial statements for the year ended December 31, 2009 and MD&A dated December 31, 2009, filed with Canadian Securities regulatory authorities (available at www.sedar.com).
Certain statements in this news release may contain statements which are forward-looking statements. 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'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, changes in laws, adverse regulatory developments or proceedings, pending and future litigation and actions by third parties, as well as the factors identified in the Risk Factors section of the Fund's MD&A dated December 31, 2009. The forward-looking statements contained in this discussion represent the expectations of the Fund and Jazz as of February 9, 2010, and are subject to change after such date. However, the Fund and Jazz disclaim 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 Jazz Air Income Fund
The Fund is an unincorporated, open-ended trust established under the laws of the Province of Ontario, created to indirectly acquire and hold an interest in the outstanding limited partnership units of Jazz.
Jazz is the largest regional airline and the second largest airline in Canada based on fleet size and the number of routes operated. Jazz operates more flights and flies to more Canadian destinations than any other Canadian carrier. Jazz forms an integral part of Air Canada's domestic and transborder market presence and strategy.
Jazz is not a typical airline. The airline has a commercial agreement with Air Canada (the "CPA") that is the core of its business. Under the CPA, Air Canada currently purchases substantially all of Jazz's fleet capacity based on predetermined rates. The CPA provides commercial flexibility, low trip costs and connecting network traffic to Air Canada.