Chorus Aviation Announces Fourth Quarter and Year-End 2019 Financial Results

Editor -

Q4 2019 Financial Highlights and Accomplishments

  • Net income of $36.6 million, or $0.23 per basic share, a period-over-period increase of $34.4 million.
  • Adjusted net income1 of $23.3 million, or $0.15 per basic share, a decrease of $12.0 million due to expected reductions resulting from the 2019 amendments to the Capacity Purchase Agreement ('CPA') (the '2019 CPA Amendments') offset by growth in the Regional Aircraft Leasing segment.
  • Adjusted EBITDA1 of $88.6 million, a decrease of $3.4 million.
  • Increased the committed leased fleet to 64 aircraft, representing growth of 60% year-over-year.
  • Added new aircraft type through a sale leaseback transaction with airBaltic for five new Airbus A220-300s.
  • Added Croatia Airlines as a new airline customer to the leasing portfolio.
  • Extended three aircraft lease agreements with Aeromexico Connect and completed an additional sale leaseback transaction with IndiGo for two new aircraft.
  • Completed the Extended Service Program ('ESP') on three additional Dash 8-300s, bringing the total number of ESP aircraft generating leasing revenue under the CPA to 13.
  • Established a regional aircraft parts depot in Dubai, UAE, enhancing Chorus' ability to market its parts provisioning and sales offering internationally.

Full-Year 2019 Financial Highlights and Accomplishments

  • Net income of $133.2 million, or $0.85 per basic share, a period-over-period increase of $65.7 million.
  • Adjusted net income1 of $96.2 million, or $0.61 per basic share, a decrease of $26.1 million due to expected reductions resulting from the 2019 CPA Amendments offset by growth in the Regional Aircraft Leasing segment.
  • Adjusted EBITDA1 of $341.7 million, an increase of $1.2 million.
  • Increased adjusted EBT1 in the Regional Aircraft Leasing segment to 22% of overall adjusted EBT.
  • Amended and extended the CPA with Air Canada to December 31, 2035.
  • Jazz pilots ratified their collective agreement with no strike or lockout provisions for the extended term of the CPA.
  • Completed Air Canada investment for gross proceeds of $97.26 million and raised gross proceeds of $86.3 million through a public offering of 5.75% Unsecured Debentures to support the growth of Chorus.
  • Executed a purchase agreement for nine CRJ900s that will earn leasing revenue under the CPA starting in 2020.
  • Completed the first sale of three leased Dash 8-400s, generating net proceeds, after debt repayment, of US $25.0 million for reinvestment in the Regional Aircraft Leasing segment.
  • Received numerous awards as a top employer in Canada, and named among Canada's Safest Employers 2019, taking gold in the Transportation category.

HALIFAX, Feb. 12, 2020 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced fourth quarter and year-end 2019 financial results.

"2019 was a transformative year for Chorus creating significant value for all of our stakeholders. On total revenues of $1.4 billion, we generated adjusted EBITDA of $341.7 million.

We secured and strengthened our partnership with Air Canada by amending and extending the CPA for a further 17 years, providing a minimum of $2.5 billion in contracted revenues with opportunities to increase further. This was a critical accomplishment as it laid a strong, long-term foundation from which we continue to build and diversify our company. Air Canada's $97.26 million investment in Chorus equity, which included a five-year hold period, further aligns our organizations and is a strong endorsement of our growth and diversification strategy.

Our group of companies performed very well, and most importantly, did so safely and with operational integrity. We carried just under 11 million passengers under the Air Canada Express brand, secured new contracted flying missions in several international markets, and established an aircraft parts depot in Dubai.

We made significant advancements in maturing our business to become a worldwide provider of regional aviation solutions. We successfully raised $183.5 million in capital and secured a US $300 million warehouse facility to support our expansion in regional aircraft leasing. We now have a committed portfolio of 64 aircraft, a 60% increase over 2018, placed with 16 customers. We're pleased with the returns we're generating in our leasing business, which is delivering strong and consistent margins. Together with the aircraft we have leased under the CPA our committed portfolio comprises 1352,3 aircraft with approximately US $2.1 billion2,3,4 in future contracted lease revenue, making Chorus one of the world's largest regional aircraft lessors.

We remain confident that we can expand our leasing portfolio by up to 20 aircraft per year funded through a combination of debt and cash from operations. The timing of these future transactions will not occur on a consistent basis; however, we expect the majority will be executed in the second half of this year. The expected growth in aircraft leasing will more than offset planned fixed fee reductions in the CPA in 2020 and beyond.

I extend my thanks and gratitude to the Chorus team for making 2019 a standout year in our history, and I look forward to the many new, exciting milestones we'll achieve together," stated Joe Randell, President and Chief Executive Officer, Chorus.

1.

Refer to footnote 1- Non-GAAP Measures

2.

As of February 12, 2020, there were 64 committed aircraft, four of which are pending transactions, in the Regional Aircraft Leasing segment. All pending transactions and lease commitments are subject to satisfaction of customary conditions precedent to closing.

3.

Regional Aviation Services segment's commitments include: nine CRJ900s to be received in 2020, five Dash 8-300s that will undergo the ESP that are planned for between 2020 and 2022, and five 75-78 seat aircraft to be delivered in 2025, all of which will earn leasing revenue under the CPA. All pending acquisitions and lease commitments are subject to satisfaction of customary conditions precedent to closing.

4.

The estimates are based on agreed lease rates in the CPA and certain assumptions and estimates for future market lease rates related to new and extended leases under the CPA as at January 1, 2019. A foreign exchange rate of $1.3000 (based on the long-term average historical rate which is reviewed and adjusted annually) was used in the calculation of the estimates. The Regional Aircraft Leasing segment's estimates are based on agreed lease rates and assumes no default by lessees.

Fourth Quarter Summary

In the fourth quarter of 2019, Chorus reported adjusted EBITDA of $88.6 million, a decrease of $3.4 million or 3.7% relative to the fourth quarter of 2018.

The Regional Aircraft Leasing segment's adjusted EBITDA increased by $12.3 million primarily related to the growth in aircraft earning leasing revenue. The sale of three Dash 8-400s resulted in net cash proceeds of US $25.0 million and produced a strong internal rate of return since the acquisition of these aircraft. This disposal also produced an accounting loss related to the wind-up of the special purpose entities that lowered adjusted EBITDA and adjusted net income by $3.4 million and $1.3 million, respectively.

In line with expectations, the Regional Aviation Services segment's adjusted EBITDA decreased $15.8 million. The decrease reflects the 2019 CPA Amendments which reduced the Fixed Margin and Performance Incentive revenue when Chorus moved to market-based compensation rates. Beyond the changes related to the 2019 CPA amendments, fourth quarter results were impacted by:

  • increased stock-based compensation of $6.0 million due to the change in the share price inclusive of the reduction related to the change in fair value of the Total Return Swap which was implemented in the fourth quarter of 2019: and
  • decreased capitalization of major maintenance overhauls on owned CPA aircraft over the previous period of $1.2 million.

Adjusted net income was $23.3 million for the quarter, a decrease of $12.0 million due to:

  • the $3.4 million decrease in adjusted EBITDA previously described;
  • an increase in depreciation of $6.6 million primarily related to additional aircraft in the Regional Aircraft Leasing segment;
  • an increase in net interest costs of $5.3 million primarily related to additional aircraft debt in the Regional Aircraft Leasing segment; and
  • an increase in non-operating costs of $2.5 million primarily related to the loss on disposal of an engine of $1.2 million and a change in foreign exchange losses of $0.8 million; offset by
  • a $5.7 million decrease in income tax expense resulting from lower adjusted EBT.

Net income increased $34.3 million primarily due to the change in net unrealized foreign exchange gains on long-term debt of $46.2 million offset by the previously noted $12.0 million decrease in adjusted net income.

Year-End Summary

Chorus reported adjusted EBITDA of $341.7 million for 2019, an increase of $1.2 million over 2018.

The Regional Aircraft Leasing segment's adjusted EBITDA increased by $42.4 million was primarily due to the growth in aircraft earning leasing revenue.

In line with expectations, the Regional Aviation Services segment's adjusted EBITDA decreased by $41.3 million, which reflect the 2019 CPA Amendments which reduced the Fixed Margin and Performance Incentive revenue when Chorus moved to market-based compensation rates. These reductions were partially offset by the implementation of the Controllable Cost Guardrail that mitigated the expected CPA margin shortfall resulting from reduced fees. Beyond the changes related to the 2019 CPA Amendments, 2019 results were impacted by:

  • increased stock-based compensation of $15.0 million due to the change in the share price inclusive of the reduction related to the change in fair value of the Total Return Swap which was implemented in the fourth quarter of 2019;
  • decreased capitalization of major maintenance overhauls on owned CPA aircraft of $1.9 million over the previous period; offset by
  • increased aircraft leasing under the CPA.

Adjusted net income of $96.2 million, decreased over 2018 by $26.1 million due to:

  • an increase in depreciation of $18.5 million primarily related to additional aircraft in the Regional Aircraft Leasing segment;
  • an increase in net interest costs of $15.5 million primarily related to additional aircraft debt in the Regional Aircraft Leasing segment; and
  • an increase in non-operating costs of $5.6 million primarily related to foreign exchange losses of $4.2 million in addition to a loss on disposal of property and equipment of $0.5 million; partially offset by
  • the $1.2 million increase in adjusted EBITDA previously described; and
  • a decrease in income tax expense of $12.2 million resulting from lower adjusted EBT.

Net income increased $65.7 million over 2018 due to the change in net unrealized foreign exchange gains on long-term debt of $90.8 million and decreased employee separation program costs of $3.1 million; offset by the previously noted decrease of $26.1 million in adjusted net income and increased signing bonuses of $2.0 million related to the Jazz pilot collective agreement.