Momentum in new regional aircraft leasing transactions continues
- Net income of $43.7 million, or $0.31 per basic share, inclusive of an unrealized foreign exchange gain of $14.0 million.
- Adjusted net income1 of $30.8 million, or $0.22 per basic share, a decrease of $18.0 million, of which $12.6 million was driven by changes in tax rates in 2017.
- Adjusted EBITDA1 of $87.1 million, an increase of $3.4 million or 4.0% primarily due to increased earnings from aircraft leasing.
- Continued execution on aircraft leasing strategy with the addition of three new customers and growth in third-party fleet to 33 aircraft, of which five will be delivered over the course of 2019.
- Expanded maintenance, repair and overhaul (‘MRO’) certifications to include Embraer 135 and 145 aircraft.
- Added airBaltic as a third-party airframe maintenance customer.
- Diversified parts provisioning offerings with the addition of Q400 inventory.
- Completed the eighth Extended Service Program (‘ESP’) on a Dash 8-300 aircraft.
Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced third quarter financial results for the period ended September 30, 2018.
“Our business delivered solid performance in the third quarter of this year,” said Joe Randell, President and Chief Executive Officer, Chorus. “Our financial performance in the third quarter generated over $87.0 million in adjusted EBITDA, a $3.4 million or 4.0% increase over third quarter 2017 due primarily to growth in aircraft leasing. Net income per basic share was $0.31.”
“The Chorus team executed on our diversification strategy securing leasing and maintenance, repair and overhaul contracts with new international customers,” continued Mr. Randell.“The addition of Philippine Airlines, Lion Air and JamboJet extends our aircraft leasing customer base into 13 countries and marks our first transactions in Southeast Asia, a market we believe has good potential for additional aircraft placements.”
“Once these recently announced transactions are completed, we will have acquired aircraft valued at approximately $730.0 million USD to date, excluding the CPA aircraft, and secured additional, long-term lease revenue streams,” remarked Mr. Randell.
“We also gained traction on the MRO front,” commented Mr. Randell. “We were very pleased to welcome airBaltic to our portfolio of third-party maintenance customers to conduct airframe maintenance on 12 Q400s. Further, we obtained Transport Canada certification to perform MRO work on Embraer 135 and 145 aircraft diversifying our capabilities beyond Bombardier products. This, in addition to expanding our parts provisioning inventory to now include highly marketable Q400 parts, supports our mission to provide a complete suite of support services to regional operators worldwide.”
“I’m confident in our pipeline for future growth opportunities, and I extend my gratitude to our team of exceptional professionals for embracing our vision,” concluded Mr. Randell.
THIRD QUARTER 2018 SUMMARY
Financial Performance – third quarter 2018 compared to third quarter 2017
In the third quarter of 2018, Chorus reported adjusted EBITDA of $87.1 million versus $83.7 million in 2017, an increase of $3.4 million or 4.0%. Adjusted EBITDA came in below Management’s expectations due to added CPA costs related to increased component repair maintenance, primarily on the classic Dash 8 fleet, and CPA on-time performance challenges. Rate performance varies quarter to quarter depending on a number of factors. From a year to date perspective, Chorus’ rate performance on controllable costs is consistent with the same period of 2017.
There were also several one-time adjustments that impacted the quarter-over-quarter comparisons.
The third quarter of 2017 other cost category was $1.5 million lower due to a one-time reduction in contingent consideration payable. The third quarter of 2018 other cost category increased by $1.2 million related to a one-time adjustment to the supplemental defined benefit pension plan.
Removing the impact of these items resulted in a $6.1 million positive variance due to:
an $8.6 million increase in third-party regional aircraft leasing; and
a $2.5 million increase in aircraft leasing earnings under the CPA; offset by
increased CPA costs of $5.0 million which resulted from increased maintenance costs of $3.0 million mainly related to classic Dash 8 aircraft, and $2.0 million in additional costs associated with CPA on-time performance challenges.
Adjusted net income was $30.8 million for the period, a decrease from 2017 of $18.0 million, or 36.9%. Adjusted net income in the third quarter of 2017 was impacted by a change in tax rates which was recorded in this quarter and relates to the nine months ended September 30, 2017 results. This change had the effect of lowering income taxes, and therefore increased adjusted net income for the third quarter of 2017 by $12.6 million. The third quarter of 2018 was also negatively impacted by foreign exchange losses on debt and working capital which amounted to $3.3 million.
Removing the impact of these items, adjusted net income was $2.1 million lower quarter-over-quarter due to:
an additional $2.8 million in depreciation, primarily related to new aircraft; and
an increase in interest costs of $2.4 million related to additional aircraft debt; offset by
the $3.4 million increase in adjusted EBITDA previously described.
Net income was $43.7 million for the period, a decrease of $35.6 million or 44.9% from the same period of 2017. The decrease was primarily due to a quarter-over-quarter change in foreign exchange of $17.1 million, the previously noted $18.0 million decrease in the adjusted net income and increased employee separation program costs of $0.5 million.
YEAR TO DATE 2018 SUMMARY
Year to date 2018 compared to year to date 2017
For the nine months ended September 30, 2018, Chorus reported adjusted EBITDA of $249.7 million versus $204.0 million in 2017, an increase of $45.7 million or 22.4%. The 2017 other cost category was $1.5 million lower due to a one-time reduction in contingent consideration payable. The 2018 other costs were increased by a $1.2 million one-time adjustment related to the supplemental defined benefit pension plan.
Removing the impact for these items resulted in a $48.4 million positive variance year-over-year due to:
a $36.8 million increase in third-party regional aircraft leasing;
a $6.2 million increase in aircraft leasing earnings under the CPA;
decreased stock-based compensation of $4.0 million;
decreased other costs of $5.2 million, mainly driven by reduced general overhead including the impact of the change in stock price on deferred share units; offset by
decreased contract flying contribution of $3.8 million mainly related to reduced revenue from international flying and a decrease in incentive revenue.
Adjusted net income was $86.7 million for the period, a decrease from 2017 of $5.1 million, or 5.6%. Adjusted net income was impacted by a change in tax rates which was recorded in the third quarter of 2017 and related to the nine months ended September 30, 2017 results. This change had the impact of lowering income taxes, and therefore increased adjusted net income for the nine months ended September 30, 2017 by approximately $18.4 million. The 2018 year to date figure was also negatively impacted by foreign exchange losses on debt and working capital which amounted to $3.1 million.
Removing the impact for these items resulted in a $16.6 million increase year-over-year due to:
the $45.7 million increase in adjusted EBITDA previously described: offset by
an additional $17.8 million in depreciation primarily related to new aircraft; and
an increase in interest costs of $11.3 million related to additional aircraft debt and convertible debentures.
Net income was $65.0 million for the period, a decrease of $82.4 million or 55.9% from the same period of 2017. The decrease was primarily due to a year-over-year change in foreign exchange of $79.8 million and the previously noted $5.1 million decrease in the adjusted net income; offset by decreased employee separation program costs of $4.2 million.
(See cautionary statement regarding forward-looking information below)
Since the start of last year, Chorus has realized net proceeds of $303.0 million from the issuance of Convertible Units in March 2017 and the issuance of Common Shares* in March 2018. Approximately 30% of this capital is uncommitted and Chorus anticipates committing the balance by mid-2019 in new to mid-life aircraft with long-term leases to a diverse group of high quality customers located around the world.
Based on the 2017-2018 winter schedule, the 2018 summer schedule and updated planning assumptions received from Air Canada, Billable Block Hours for 2018 are expected to be between 364,000 and 370,000 hours based on 116 Covered Aircraft as at December 31, 2018. The actual number of Billable Block Hours for 2018 may vary from this anticipated range due to various factors.
Capital expenditures for 2018, excluding those for the acquisition of aircraft and ESP, and including capitalized major maintenance overhauls, are expected to be between $41.0 million and $48.0 million.
- ‘Common shares’ refers to Chorus’ Class A Variable Voting Shares and Class B Voting Shares