Chorus Aviation announces fourth quarter and year-end earnings

Selected Q4 2018 information:

Net income of $2.0 million, or $0.01 per basic share, inclusive of an unrealized foreign exchange loss of $32.9 million.
Adjusted net income1 of $35.1 million, or $0.25 per basic share, in increase of $11.5 million.
Adjusted EBITDA1 of $92.6 million, an increase of $9.7 million or 11.7% primarily due to increased earnings from the regional aircraft leasing segment.
Signed agreements to place seven aircraft with three lessees.
Completed the eighth Extended Service Program ('ESP') on a Dash 8-300 aircraft.
Selected annual 2018 information:

Net income of $67.0 million, or $0.49 per basic share, inclusive of an unrealized foreign exchange loss of $49.5 million.
Adjusted net income1 of $121.8 million, or $0.89 per basic share, an increase of $6.4 million.
Adjusted EBITDA1 of $342.7 million, an increase of $55.8 million or 19.4% primarily due to increased earnings from the regional aircraft leasing segment.
Diversified and grew leased fleet to 40 regional aircraft valued at approximately $1.1 billion1, inclusive of nine transactions pending completion. All pending transactions are subject to customary conditions precedent to closing.
2019 Year-to-Date Accomplishments:

Amended and extended the capacity purchase agreement ('CPA') with Air Canada, securing Jazz's position in Air Canada's regional network for the next 17 years.
Completed a $97.26 million equity investment by Air Canada to fund new, larger gauge aircraft at Jazz and further growth in regional aircraft leasing.
Entered into a firm purchase agreement with Bombardier for nine CRJ900s as part of Jazz's fleet modernization plan.
Achieved an unprecedented 17-year collective agreement with Jazz pilots and enhanced the pilot mobility program to access pilot careers at Air Canada.
Secured US $300 million credit facility to support growth of regional aircraft leasing business.
Reached an agreement to acquire a portfolio of six aircraft with leases attached: two ATR72-600s on lease to Azul of Brazil, and four Q400s on lease with two other existing customers.
Jazz named one of Canada's Top Employers for Young People for the seventh year and one of Atlantic Canada's Top Employers for the eighth consecutive year.

1 Includes aircraft for which an agreement to lease has been signed but the aircraft have yet to be delivered.

HALIFAX, Feb. 22, 2019 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced fourth quarter and year-end financial results for fiscal year ended December 31, 2018.

"I'm very pleased with our start to 2019 as we build upon the positive momentum of 2018. Our growth and diversification strategy took further hold in 2018 generating $342.7 million in adjusted EBITDA and adjusted net earnings per basic share of $0.25, increases over 2017 of 11.7%. and 19.4% respectively.

Our group of companies performed well and reached important milestones that strengthened our company. These successes helped advance our vision to transform into a worldwide provider of regional aviation services. To date, we've grown our fleet to 40 aircraft, inclusive of nine transactions pending completion, valued at approximately $1.1 billion. The pipeline of opportunities for additional transactions is strong. With the establishment of our new US $300 million credit facility and the capital we have on hand, we're maturing and building scale as a worldwide lessor.

Our strategic partnership with Air Canada and the value we've created through the amended and extended CPA will benefit our shareholders, employees and other stakeholders for the long term. We are well positioned to take advantage of new opportunities for growth and to effectively compete in an ever-changing industry. I extend my sincere thanks and gratitude to the Chorus team for these significant accomplishments," said Joe Randell, President and Chief Executive Officer, Chorus.

FOURTH QUARTER 2018 SUMMARY

Financial Performance – fourth quarter 2018 compared to fourth quarter 2017

In the fourth quarter of 2018, Chorus reported adjusted EBITDA of $92.6 million versus $82.9 million in 2017, an increase of $9.7 million or 11.7% due primarily to:

a $10.4 million increase due to growth in the regional aircraft leasing segment; offset by:
a net decrease in the regional aviation services segment of $0.7 million resulting from declines in incentive and other revenue and an increase in certain operating costs; offset by increased aircraft leasing under the CPA of $2.4 million.
Adjusted net income was $35.1 million for the period, an increase from 2017 of $11.5 million, or 48.6% due to:

the $9.7 million increase in adjusted EBITDA previously described;
lower foreign exchange losses on working capital which amounted to $4.7 million; and
a decrease of $0.4 million in depreciation; offset by:
an increase in interest costs of $1.2 million related to additional aircraft debt; and
an increase in income tax expense of $2.1 million.
Net income was $2.0 million for the period, a decrease of $18.0 million or 89.9% from the same period of 2017. The decrease was primarily due to a quarter-over-quarter change in unrealized foreign exchange losses on long-term debt of $30.5 million; offset by the previously noted $11.5 million increase in the adjusted net income and decreased employee separation program costs of $1.0 million.

YEAR-END 2018 SUMMARY

Financial Performance – Year end 2018 compared to year end 2017

For the year ended December 31, 2018, Chorus reported adjusted EBITDA of $342.7 million versus $286.9 million in 2017, an increase of $55.8 million or 19.4% due to:

a $47.3 million increase in the regional aircraft leasing segment; and
increased earnings in the regional aviation services segment of $8.5 million due primarily to increased aircraft leasing income under the CPA.
Adjusted net income was $121.8 million for the year, an increase from 2017 of $6.4 million, or 5.5% due to:

the $55.8 million increase in adjusted EBITDA previously described;
lower foreign exchange losses on working capital which amounted to $1.6 million; offset by:
increased income taxes of $20.5 million. In 2017 adjusted net income was impacted by changes in tax rates which were recorded in the third quarter of 2017. This change had the impact of lowering income taxes, and therefore increased adjusted net income for the twelve months ended December 31, 2017;
an additional $17.4 million in depreciation primarily related to new aircraft;
an increase in interest costs of $12.8 million related to additional aircraft debt and convertible units; and
an increase in other expenses of $0.3 million.
Net income was $67.0 million for the year, a decrease of $100.3 million from the same period of 2017. The decrease was primarily due to a year-over-year change in unrealized foreign exchange losses on long-term debt of $110.4 million and foreign exchange gain on cash held for deposit of $1.6 million; offset by decreased employee separation program costs of $5.3 million and the previously noted $6.4 million increase in the adjusted net income.

2019 OUTLOOK

(See cautionary statement regarding forward-looking information below)

On February 4, 2019, the amendments to the CPA first announced on January 14, 2019 (the '2019 CPA Amendments') became effective on a retroactive basis to January 1, 2019.

The 2019 CPA Amendments result in a near-term reduction in fixed fees starting in 2019, as Chorus accelerates its transition to market-based rates. The reduction was implemented by eliminating the Infrastructure Fee per Covered Aircraft and the Fixed Margin per Covered Aircraft (each as defined in the CPA) and replacing them with a single 'Fixed Margin'. As a result, Fixed Fee revenue in each of 2019 and 2020 is anticipated to be $75.5 million per year as compared to $111.3 million in 2018. In addition, the maximum future available performance incentives reduce from $23.4 million in 2019 and 2020, to an annual average maximum available amount of $3.4 million for the full term of the CPA. The near-term reductions are more than offset over the term of the CPA by incremental contracted revenue secured with the extension of the agreement including fixed fees and aircraft leasing.

In 2017, Chorus launched Chorus Aviation Capital, with the support of a $200.0 million investment in the Corporation from Fairfax. In 2018, Chorus raised further gross proceeds of $112.0 million, primarily for investment in its leasing business, through a public offering of Shares*. On February 4, 2019, the Air Canada investment was completed, providing further gross proceeds of $97.26 million, approximately 40% of which is to be invested in the leasing business carried on by Chorus Aviation Capital.

Since the start of 2017 Chorus has raised net proceeds of CAD $401.0 million in capital from both the issuance of convertible debt units and share capital, which if levered at 3:1, provides approximately $1.6 billion of investment capital. As at February 21, 2019, approximately three quarters of this capital has been committed including deposits on future commitments. Chorus anticipates committing the remaining balance by early 2020 in new to mid-life aircraft with long-term leases to a diverse group of high-quality customers around the world.

Capital expenditures for 2019, excluding those for the acquisition of aircraft and the ESP, and including capitalized major maintenance overhauls, are expected to be between $36.0 million and $42.0 million. Aircraft related acquisitions and the extended service program capital expenditures in 2019 are expected to be between $299.0 million and $302.0 million.