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 income(1) of
$27.1 million or $0.22 per basic share.
Q3 2012 HIGHLIGHTS
-- Operating revenue of $435.6 million.
-- Free Cash Flow(1) 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 income(1) of $27.1 million, or $0.22 per basic
-- 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 year."
"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 organizations."
"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 2011
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 million.
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 employees.
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 $1.8 million.
EBITDA(1) 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 million.
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 $31.1 million.
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
Benchmarking Arbitration (Refer to Section 14 of Chorus' Third Quarter 2012
MD&A for additional information)
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
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: firstname.lastname@example.org
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 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
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 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).
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
For more information, visit www.flyjazz.ca.
Media Contacts: Debra Williams (519) 457-8071 London, Ontario
Analyst Contact: Nathalie Megann(902) 873-5094 Halifax, Nova
SOURCE: CHORUS AVIATION INC.
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