Regional aircraft leasing portfolio reaches 56 aircraft
Delivering regional aviation to the world
Q2 Financial Highlights and Year-to-Date Accomplishments
Net income of $38.9 million, or $0.25 per basic share, inclusive of an unrealized foreign exchange gain of $16.1 million, an increase of $22.6 million.
Adjusted net income1 of $24.7 million, or $0.19 per basic share, a decrease of $4.9 million.
Adjusted EBITDA1 of $85.7 million, an increase of $1.6 million.
Regional Aircraft Leasing fleet commitments grew to 56* aircraft valued at US $1.1 billion with future contracted leasing revenue of approximately US $815.0 million.
Halifax, August 13, 2019 – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced second quarter 2019 financial results and provided an update on the progress of its regional aircraft leasing business.
“I’m immensely pleased with our performance in the second quarter and particularly with the traction we’re gaining in the regional aircraft leasing space, having announced commitments on 11 additional aircraft in the period. Since the launch of Chorus Aviation Capital in early 2017, we have built our portfolio to an impressive 56 aircraft,13 of which we expect will deliver in the third quarter, two in the fourth quarter with the remaining aircraft by the end of 2020. When combined with the aircraft lease commitments under the CPA, our fleet of leased aircraft reaches a value of over US $2.0** billion with US $2.0** billion in future contracted lease revenue,” said Joe Randell, President and Chief Executive Officer, Chorus.
“We had earlier communicated our intention to commit our leasing growth capital by early 2020 and I am pleased to report we have delivered on this milestone almost a full year in advance - a strong indicator of the opportunities that exist in this sector. Since the launch of the business, we have grown the regional aircraft leasing segment by an average of approximately 20 aircraft per year. In the near term, we have the capacity to continue with a similar rate of growth through a combination of additional debt and internally generated cash flows to fund the equity portion of the aircraft acquisitions.”
“We are committed to creating additional value for our stakeholders and are well positioned for the future. I extend my sincere thanks to the Chorus team for another solid quarter,” concluded Mr. Randell.
- Of the 16 pending Regional Aircraft Leasing transactions, eight aircraft were received prior to August 12, 2019. Future Regional Aviation Services commitments include nine CRJ900s to be received in 2020 and 10 ESPs that are planned for completion between 2019 and 2022.
**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 $1.2600 (based on the long-term average historical rate) was used in the calculation of the estimates.
SECOND QUARTER 2019 SUMMARY
In the second quarter, Chorus reported adjusted EBITDA of $85.7 million, an increase of $1.6 million or 1.9% relative to the second quarter of 2018.
The Regional Aircraft Leasing segment’s adjusted EBITDA increased by $10.4 million due to the growth in aircraft earning leasing revenue.
The Regional Aviation Services segment's adjusted EBITDA decreased $8.8 million; offsetting the previously described increase. The Regional Aviation Services segment results are as expected and reflect the 2019 amendments to the Capacity Purchase Agreement (‘CPA’), which reduced the Fixed Margin and Performance Incentive revenue when Chorus moved to market-based compensation rates earlier than originally planned. These reductions were partially offset by the implementation of the Controllable Cost Guardrail that mitigated the expected second quarter CPA margin shortfall related to reduced fees. Beyond the changes related to the amended CPA, the second quarter results were impacted by:
• increased stock-based compensation of $3.5 million due to the strengthening of the Share price; offset by
• increased aircraft leasing under the CPA; and
• increased capitalization of major maintenance overhauls on owned CPA aircraft over the previous period.
Adjusted net income was $24.7 million for the quarter, a decrease from 2018 of $4.9 million or 16.5% due to:
• an increase in depreciation of $4.2 million primarily related to additional aircraft in the Regional Aircraft Leasing segment;
• an increase in interest costs of $4.5 million primarily related to additional aircraft debt in the Regional Aircraft Leasing segment; and
• an increase in other costs of $2.2 million related to foreign exchange losses on working capital; offset by a gain on disposal of property and equipment; offset by
• the $1.6 million increase in adjusted EBITDA previously described; and
• a $4.4 million decrease in income tax expense related to lower adjusted EBT.
Net income was $38.9 million, an increase of $22.6 million over the 2018 period. The increase was primarily due to the quarter-over-quarter change in unrealized foreign exchange gains on long-term debt of $28.7 million; offset by the previously noted $4.9 million decrease in adjusted net income and increased employee separation program costs of $1.2 million.
Year-to-date Summary
Chorus reported adjusted EBITDA of $160.4 million, a decrease of $1.2 million over the 2018 period.
The Regional Aviation Leasing segment’s adjusted EBITDA increased by $16.9 million due to the growth in aircraft earning leasing revenue.
The Regional Aviation Services Segment’s adjusted EBITDA decreased by $18.1 million; offsetting the previously described increase. The Regional Aviation Services segment’s results are as expected and reflect the 2019 amendments to the CPA which reduced the Fixed Margin and Performance Incentive revenue when Chorus moved to market-based compensation rates earlier than originally planned. These reductions were offset by the implementation of the Controllable Cost Guardrail that mitigated the expected CPA margin shortfall related to reduced fees. Beyond the changes related to the amended CPA, the year-to-date results were impacted by:
• increased stock-based compensation of $11.1 million due to the strengthening of the Share price;
• decreased capitalization of major maintenance overhauls on owned CPA aircraft over the previous period; offset by
• increased aircraft leasing under the CPA.
Year-to-date adjusted net income was $43.7 million, a decrease from 2018 of $12.5 million or 22.2% due to the $1.2 million decrease in adjusted EBITDA previously described and:
• an increase in depreciation of $7.3 million primarily related to additional aircraft in the Regional Aircraft Leasing segment;
• an increase in interest costs of $6.4 million primarily related to additional aircraft debt in the Regional Aircraft Leasing segment; and
• an increase in other of $2.9 million related to foreign exchange losses on working capital; offset by a gain on disposal of property and equipment; offset by
• a decrease in income tax expense of $5.3 million related to lower adjusted EBT.
Year-to-date net income was $72.4 million, an increase of $50.8 million over the 2018 period. The increase was primarily due to the period-over-period change in unrealized foreign exchange gains on long-term debt of $63.4 million and decreased employee separation program costs of $1.9 million; offset by the previously noted $12.5 million decrease in adjusted net income and one-time signing bonuses of $2.0 million related to the Jazz pilot collective agreement.
2019 OUTLOOK
(See cautionary statement regarding forward-looking information below)
On February 4, 2019, the 2019 CPA amendments became effective on a retroactive basis to January 1, 2019. Further information concerning the 2019 CPA amendments and Air Canada’s investment in Chorus is contained in Chorus’ Material Change Reports dated January 24, 2019 and February 13, 2019, which are available on SEDAR at www.sedar.com. The 2019 CPA amendments resulted in a near-term reduction in fixed fees starting in 2019, as Chorus accelerated 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 which were replaced 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. Aircraft leasing revenue under the CPA, which is included in the Regional Aviation Services segment, is expected to grow with the delivery of nine CRJ900s in 2020 and 10 ESPs to be completed between 2019 and 2022.
Capital expenditures for 2019, including capitalized major maintenance overhauls but excluding expenditures for the acquisition of aircraft and the ESP, are expected to be between $38.0 million and $44.0 million. Aircraft related acquisitions and the ESP capital expenditures in 2019 are expected to be between $630.0 million and $640.0 million. This excludes any potential additional investments in third-party aircraft beyond what has been announced to date. As a result of the fleet changes associated with the 2019 CPA Amendments and the loss of a Dash 8-300 in the second quarter due to ground damage, the eight ESPs planned for 2019 has reduced to four and the remaining six ESPs will be completed by 2022. As a result, the total number of ESPs has been reduced from 19 to 18 Dash 8-300s. The insurance proceeds from the damaged Dash 8-300 aircraft will be pledged as security for the Debentures in place of that aircraft.
Capitalized terms used but not defined in the Outlook section have the meanings given to them in Management’s Discussion and Analysis (the ‘MD&A’) dated August 12, 2019, which is available on Chorus’ website (www.chorusaviation.com) and SEDAR (www.sedar.com).
**Shares refers to Chorus’ Class A Variable Voting Shares and Class B Voting Shares