Jazz is sole operator of Air Canada Express flights
- 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 capped at $20 million per year, improving working capital; +/- $2.0 million exposure is unchanged.
- All other material components of the CPA are unchanged.
HALIFAX, NS, March 15, 2021 /CNW/ – Chorus Aviation Inc. (TSX: CHR) (‘Chorus’), parent company of Jazz Aviation LP (‘Jazz’), today confirmed the condition precedent to the revisions of the capacity purchase agreement (‘CPA’) between Jazz and Air Canada announced on March 1, 2021 has been met. As a result, the amended CPA is effective on a retroactive basis to January 1, 2021. The newly ratified agreement with Jazz pilots, as represented by the Air line Pilots Association International, will run until December 31, 2035.
"I extend my gratitude to our Jazz pilots and the leadership team of the Air Line Pilots Association International for securing Jazz’s place within the Air Canada Express network. This is very good news for our employees and our stakeholders," stated Joe Randell, President and Chief Executive Officer, Chorus. "As the sole operator of Air Canada Express services, we look forward to integrating the Embraer 175s into our fleet and further expanding our wide portfolio of regional aviation capabilities and services."
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 is the exclusive Air Canada Express operator of 70+ seat aircraft until the end of 2025.
- Fixed fees 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 estimates the carrying value of these aircraft to be approximately $65.0 million, and can sell, lease, or convert them for cargo operations.
Controllable Cost Guardrail Receivable
- The controllable cost guardrail receivable is capped to a maximum of $20.0 million annually and is reconciled on a quarterly basis and paid in the following quarter. This will avoid the accumulation of a receivable in excess of the agreed maximum. The +/-$2.0 million controllable cost guardrail exposure is unchanged.
As a result of these revisions to the CPA, Chorus anticipates one-time costs, charges, and other fees to range between $100.0 million and $110.0 million, with approximately half of this range being non-cash in nature, and the cash portion paid over several years. The non-cash component includes an estimated $45.0 million impairment provision on the Dash 8-300s and supporting inventory, and a non-cash defined benefit pension curtailment expense related to the number and demographics of pilots opting for early retirement estimated to be between $10.0 and $15.0 million. Approximately $49.0 million in one-time cash costs are anticipated on account of cash payments to incentivize the early departure of Jazz senior pilots enrolled in the defined benefit pension plan, as well as a contract fee payable to Air Canada related to the transfer and integration of the E175 fleet.
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 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. The forward-looking information contained in this news release represents Chorus’ expectations as of the date of this news release (or as of the date otherwise stated) and is subject to change after such date. Chorus disclaims any intention or obligation to update or revise any forward-looking information except as required under applicable securities laws.
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.