Enhancing Jazz's position within Air Canada's
network
- 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 to be capped at
$20 million per year, improving
working capital.
- All other material components of the CPA are
unchanged.
HALIFAX, NS, March 1, 2021 /CNW/ - Chorus Aviation Inc. ('TSX:
CHR) ('Chorus'), parent company of Jazz Aviation LP ('Jazz'), today
announced an agreement to revise the capacity purchase agreement
('CPA') between Jazz and Air Canada. The agreement addresses the
dramatic and sustained reduction in air travel demand caused by the
COVID-19 pandemic by optimizing the Jazz fleet. The revisions to
the CPA are conditional on Jazz reaching an agreement with the Air
Line Pilots Association, International which represents Jazz
pilots. If this condition is satisfied, the CPA will be amended on
a retroactive basis to January 1,
2021.
Chorus and Air Canada have a successful history of working
together to adjust the terms of the CPA for mutual benefit. These
proposed changes relate primarily to the Covered Aircraft,
enhancing Jazz's position in Air Canada's network as the sole
regional partner for 70+ seat regional aircraft until 2025 while
providing Air Canada with greater cost efficiency and
flexibility.
"The COVID-19 pandemic continues to challenge the aviation
industry. With the Jazz fleet operating at a fraction of the
capacity it flew a year ago, now is the time to update the CPA to
help preserve regional flying and Jazz's place within it,"
commented Joe Randell, President and
Chief Executive Officer, Chorus.
"The Jazz fleet is up-gauging to larger regional jet aircraft
and replacing smaller turboprop fleet sooner than contemplated in
the previous fleet plan. Bringing the Embraer 175 aircraft into the
Jazz Covered Aircraft fleet makes Jazz the exclusive Air Canada
Express operator of 70+ seat aircraft until 2025 and is a
demonstration of our cost competitiveness and strong relationship
with Air Canada. Further, quarterly reconciliation of the
controllable cost guardrail receivable provides greater certainty
in the timing of cash flows and improves our liquidity by
eliminating potentially significant draws on working capital,"
concluded Mr. Randell.
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 will become the exclusive Air Canada Express operator of
70+ seat aircraft until the end of 2025.
- Fixed fees will 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 has the ability to sell or lease
these aircraft or convert them for cargo operations.
Controllable Cost Guardrail Receivable
- Uncertainty in the flying schedule caused by the pandemic
resulted in the accumulation of a $44.2
million controllable cost guardrail receivable from Air
Canada at December 31, 2020.
- The revisions to the CPA will cap the controllable cost
guardrail receivable to a maximum of $20.0
million annually and provide for quarterly reconciliations
to avoid the accumulation of a receivable in excess of the agreed
maximum.
- The 2020 guardrail receivable has been paid; however, without
the proposed changes to the guardrail, the 2021 CPA guardrail
receivable could be as high as $45
million.
- Quarterly reconciliations against the new guardrail receivable
cap will reduce Chorus' financial exposure by capping the guardrail
receivable and minimize draws on Chorus' available working
capital.
As a result of these revisions to the CPA, Chorus anticipates
one-time costs, charges, and other fees to range between
$90.0 million and $110.0 million, with approximately half of this
range being non-cash in nature, and the cash portion paid over
several years.
All other material components of the CPA are unchanged,
including:
- Contract expiring on December 31,
2035.
- Minimum fleet guarantee of 105 aircraft until 2025, and 80
aircraft from 2026 and beyond.
- Performance incentive compensation.
- Pilot mobility program.
Upon becoming effective, these revisions to the CPA optimizes
the Jazz fleet for Air Canada and makes it the exclusive provider
70+ seat regional capacity in the Air Canada Express network until
2025, while providing significant cost savings and network
planning flexibility for Air Canada.
Forward-Looking Information
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 failure of the CPA amendments described herein to become
effective due to the non-satisfaction of the condition precedent or
otherwise, 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.
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.