Earnings per share of $0.30
Consistent quarterly profitability since 2006
HALIFAX, Nov. 13, 2012 /CNW/ - Chorus Aviation Inc. ("Chorus") (TSX: CHR.B CHR.A CHR.DB) today announced its third quarter 2012 earnings, with net income of
$37.2 million, or $0.30 per basic share, and adjusted net income1 of $27.1 million or $0.22 per basic share.
Q3 2012 HIGHLIGHTS
Operating revenue of $435.6 million.
Free Cash Flow1 of $37.8 million, or $0.31 per basic share.
Operating income of $36.7 million.
Net income of $37.2 million, or $0.30 per basic share.
Adjusted net income1 of $27.1 million, or $0.22 per basic share.
Billable Block Hours of 104,393.
"I'm very pleased with our third quarter financial and operational
performance," said Joseph Randell, President and Chief Executive
Officer, Chorus. "Cash flow remains strong, and Jazz employees'
continued efforts to deliver solid customer service resulted in a $1.1
million increase in performance incentives over the same period last
"In the third quarter we were also pleased to achieve new collective
agreements with Jazz's Flight Dispatchers and Maintenance and
Engineering employees, and I thank all involved for their commitment
and hard work," continued Mr. Randell. "Jazz was also honoured to be
recognized by Canada's Top Employers as one of Canada's Top Employers
for Young People in 2012. This special designation recognizes employers
that offer the nation's best benefits for younger workers and are
Canada's leaders in attracting and retaining younger employees to their
"We appreciate the delay in obtaining a resolution to the 2009 benchmark
exercise is a concern," commented Mr. Randell. "The outstanding
clarifications required on certain adjustments to the controllable cost
data to ensure a fair and reasonable comparison to the defined group of
regional operators are key in this benchmark exercise, regardless of
the methodology applied. We are of the view that a proper application
of Air Canada's methodology, with the appropriate adjustments directed
by the arbitration panel in their initial decision, should not result
in an adjustment to the Controllable Mark-Up. We anticipate having all
matters settled in this arbitration no later than the first quarter of
2013. We remain focused on reaching a resolution while strengthening
our foundation, improving our cost competitiveness and building value
for all our stakeholders."
Financial Performance - Third Quarter 2012 Compared to Third Quarter
Operating revenue increased from $411.7 million to $435.6 million,
representing an increase of $24.0 million or 5.8%. Passenger revenue,
excluding pass-through costs, increased by $19.0 million or 7.6%
primarily as a result of a 1.9% increase in Billable Block Hours, rate
increases made pursuant to the Capacity Purchase Agreement ('CPA') with
Air Canada, a higher US dollar exchange rate, and a $1.1 million
increase in incentives earned under the CPA. Pass-through costs
increased from $160.8 million to $166.1 million, or $5.3 million or
3.3% which included $1.5 million related to fuel. Other revenue
decreased by $0.3 million.
Operating expenses increased from $380.6 million to $399.0 million, an
increase of $18.4 million or 4.8%. Controllable Costs increased by
$13.1 million, or 6.0%. Controllable operating expenses were impacted
by the changes in the fleet ownership structure for the Q400 aircraft.
CRJ-100 aircraft, previously reported under operating leases, are being
replaced by owned Q400 aircraft. Related ownership costs are comprised
of depreciation (an operating expense), and interest (a non-operating
expense). The Q400 aircraft lease revenue under the CPA is reflected in
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 $3.3 million, of
which $3.1 million is 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 $4.0 million, with increased
costs of $0.8 million arising as a result of increased Block Hours, the
effect of the increase in the US-dollar exchange rate on certain
material purchases of $0.3 million, increased other maintenance costs
of $1.4 million, and an increase in engine maintenance activity of $1.5
Salaries, wages and benefits increased by $7.4 million as a result of
wage and scale increases under new collective agreements, increased
Block Hours, increased incentive compensation expense, increased
pension expense resulting from a revised actuarial valuation and lower
capitalized salaries and wages related to major maintenance overhauls;
offset by a 3.7% reduction in the number of full time equivalent
Other expenses decreased by $0.7 million primarily due to decreased
professional fees and general overhead expenses; offset by increased
crew expenses increased due to increased activity and rates.
Non-operating income increased $19.8 million. This change was mainly
attributable to a foreign exchange gain of $10.7 million (of which
$10.0 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
EBITDA1 was $51.8 million compared to $43.0 million in 2011, an increase of
$8.8 million or 20.7%, producing an EBITDA margin of 11.9%. Free Cash
Flow was $37.8 million, an increase of $8.7 million or 30.0% from $29.1
Operating income of $36.7 million for the three months ended September
30, 2012, was up $5.6 million or 17.9% over third quarter 2011 from
Net income for the third quarter of 2012 was $37.2 million or $0.30 per
basic share, an increase of $23.3 million or 167.1% from $13.9 million
or $0.19 per basic share.
Benchmarking Arbitration (Refer to Section 14 of Chorus' Third Quarter 2012 MD&A for additional
As communicated on October 3 and 4, 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 ('CUCD') methodology put forward by Air Canada was the
appropriate methodology to use in the 2009 Benchmark to compare Jazz's
Unit Costs to the stage length adjusted median controllable unit costs
of the Comparable Operators. However, the Panel also agreed with Jazz
that a number of the additional adjustments proposed by Jazz were also
required to be made (the "Adjustments").The Panel also agreed with Jazz
that fleet age impacts the rate at which maintenance costs increase.
The Panel directed Air Canada and Jazz to negotiate a further
adjustment that would account for the impact of fleet age, failing
which the parties will submit new proposals and analysis to the Panel.
There remain disputes between the parties with respect to the
interpretation and application of the Award and its impact on the
Controllable Mark-Up. Jazz is of the view that, applying the CUCD
methodology, and based on the proper application of the Adjustments
that the Panel has found are required to be made, the result of the
2009 Benchmark is that Jazz is not required to repay Air Canada any
amounts in respect of payments made since January 1, 2010, and that its
Controllable Mark-Up will remain at 12.50% going forward until at least
the 2015 Benchmark.
Air Canada, on the other hand, has asserted to Jazz its view that the
impact of the Adjustments that the Panel found were required to be made
would reduce the Controllable Mark-Up to 11.41%. However, this does not
account for any impact that the fleet age adjustment described above
would have on the Controllable Mark-Up. Air Canada took the position at
the hearing that there should be no such fleet age adjustment. Jazz is
of the view that, given its older fleet relative to those of the
relevant comparable operators, any fleet age adjustment would result
in a Controllable Mark-Up higher than 11.41%, even if the Panel were to
otherwise accept Air Canada's position concerning the impact of each of
the various other Adjustments which the Panel indicated must be made.
The parties have 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. As a
consequence, the impact, if any, to the Controllable Mark-Up on Jazz's
Controllable Costs cannot be stated at this time with reasonable
certainty. Chorus anticipates having all matters settled no later than
the first quarter of 2013.
No amounts have been recorded in the accounts of Chorus in 2010, 2011 or
2012 related to this claim as management has determined that it is not
probable that the Air Canada claim will be successful, and it is not
practicable to determine an estimate of the possible financial effect,
if any, with sufficient reliability.
Chorus Aviation Inc.'s unaudited interim condensed consolidated
financial statements for the three months ended September 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 Wednesday, November
14, 2012 to discuss the third 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/1054487/1146141 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' Investor
Relations website at www.chorusaviation.ca. A playback of the call can also be accessed until midnight ET,
November 21, 2012, by dialing (416) 849-0833 or toll-free 1-
855-859-2056, and passcode 50106348# (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
third quarter of 2012, Chorus recorded a $10.0 million gain in
unrealized foreign exchange on long-term debt and finance leases. This
adjustment more clearly reflects earnings from an operating
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 September 30, 2012 and MD&A dated November 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
November 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
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).
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 third
quarter of 2012, Jazz operated scheduled passenger service on behalf of
Air Canada with approximately 827 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.