Friday, 16 February 2018

Chorus Aviation announces solid year-end 2017 and fourth quarter earnings

Chorus Aviation announced yesterday, solid year-end and fourth quarter financial results for fiscal year ended December 31, 2017.

"I'm very pleased with the significant progress made in 2017 towards our vision of delivering regional aviation to the world," said Joe Randell, President and Chief Executive Officer, Chorus.  "The successful launch of Chorus Aviation Capital and its rapid build to a global business has propelled the value of Chorus' portfolio of leased aircraft to over one billion dollars and demonstrated the strength of our growth and diversification strategy. We have been methodical and deliberate in deploying the $200 million gross proceeds from our convertible debt unit financing with Fairfax Financial. Within a relatively short period of time we've concluded leasing agreements with eight well-established regional carriers in eight countries located on six continents. We have strong momentum.



"Our expertise in aircraft engineering, maintenance, repair and overhaul coupled with our experience in all other areas of regional operations is what differentiates us from the competition. We're demonstrating our ability to leverage and capitalize on the entire lifecycle of an aircraft – from its origination, to conducting modifications and engineering to accommodate customer needs, including life extension programs on aircraft – to repurposing aircraft and marketing them for flying contracts or disassembly for parts provisioning.

"From a financial point of view, our contract flying and maintenance, repair and overhaul businesses performed according to our expectations and contributed to increases in all key financial metrics including growth in adjusted EBITDA and adjusted net earnings of 15 and 12 percent respectively year over year. I am grateful to our employees for their hard work and for recognizing the power of our vision.

"We finished 2017 on a very positive note when we returned to the S&P/TSX Composite Index – a strong endorsement of our strategy to transform our organization to a worldwide leader in providing regional aviation services. The focus in 2018 will be relatively consistent with 2017 – to execute on our foundational businesses in Jazz and Voyageur, and to leverage our industry relationships and expertise as we continue to build Chorus Aviation Capital," concluded Mr. Randell. 

2017 Strategic Accomplishments

The Chorus group of companies accomplished several strategic initiatives in support of its corporate objectives to grow and diversify the business, and improve its cost competitiveness. Highlights of 2017 included:

Regional Aircraft Leasing

By the end of 2017, Chorus Aviation Capital completed the acquisition of 21 aircraft and leased them to brand name regional carriers based in eight countries on six continents. These aircraft have an average age of less than three years and have an average leasing term greater than seven years. Together with the 43 aircraft leased under the Capacity Purchase Agreement ('CPA') with Air Canada, Chorus' leased fleet of 64 aircraft is worth over one billion dollars.
To date CAC has acquired:

four CRJ1000s leased to Air Nostrum;
three ATR 72-600s leased to Flybe:
three ATR 72-600s leased to Virgin Australia;
three Bombardier Q400s leased to Falcon Aviation Services;
one Embraer 190 leased to KLM Cityhopper;
three Embraer 190s leased to Aeromexico Connect;
two Embraer 195s leased to Azul Brazilian Airlines; and
two Q400 aircraft leased to Ethiopian Airlines.
Aircraft leasing under the CPA increased by $16.9 million or 17.1% with the addition of five new CRJ900s, five Q400s and four Dash 8-300s (post completion of an extended service program).
Contract Flying

Operated over 230,000 Air Canada Express flights carrying just under 11 million passengers on behalf of Air Canada.
Commenced new contract flying missions in Sweden, Denmark and Aruba.
Transitioned a significant portion of the workforce to new industry competitive wage scales; currently 52% of Jazz pilots are operating under the new collective agreement.
Added 10 efficient aircraft (five CRJ900s, five Q400s) and removed six less efficient aircraft (three CRJ200s, three Dash 8-100s). Available seat miles increased by approximately 3% over 2016.
MRO

Completed the world's first Extended Service Program ('ESP') on a Dash 8-300 aircraft. The ESP extends the life of the aircraft by approximately 15 years. Four ESPs were conducted and a minimum of 12 additional aircraft are scheduled to undergo the program by the end of 2019.
Became an Authorized Service Facility for Bombardier Commercial Aircraft at the MRO base in Halifax.
Executed on third-party maintenance contracts and increased the number of heavy maintenance lines at the Halifax facility from three to five lines.
Engineered a Supplemental Type Certificate and converted two former Jazz Dash 8-100 aircraft to Package Freighters and leased them to a third party. This conversion was the first of its kind with a Dash 8-100.
Parted out seven aircraft to support strong market demand for part sales.
Demonstrated strong technical capabilities through maintenance and engineering contracts including inflight entertainment and wireless GOGO installations, cabin seat reconfigurations of CRJ705 and Q400 aircraft, and the refurbishment of certain aircraft interiors.
Dividend Reinvestment Program ('DRIP')

Effective February 1, 2018 Chorus implemented a DRIP that allows Chorus to offer a discount of up to 5% from the average market price for shares purchased under the DRIP. Chorus is currently offering a discount of 4%. Details are provided at http://chorusaviation.ca/dividend-reinvestment-plan.

The DRIP provides shareholders who are resident in Canada the opportunity to purchase additional Chorus shares using cash dividends paid on shares enrolled in the DRIP. All shares purchased under the DRIP are newly issued by the Corporation from treasury, and the proceeds received by Chorus are used for general corporate purposes. Some of the benefits of participating in the DRIP include the current discount of 4%, the convenience of automatic reinvestment, savings from not having to pay brokerage fees or other service charges for shares purchased under the DRIP, and the ability to acquire fractional shares.

2017 ANNUAL RESULTS
Financial performance – year-end 2017 compared to year-end 2016

For the year ended December 31, 2017, Chorus reported adjusted EBITDA of $285.6 million versus $248.1 million in 2016; an increase of $37.5 million or 15.1%. 

The $37.5 million increase in adjusted EBITDA was primarily driven by:

a $26.0 million increase related to incremental margin mainly attributed to non-CPA aircraft leasing and maintenance, repair and overhaul;
increased aircraft leasing under the CPA of $16.9 million;
decreased operating costs related to a $3.7 million increase in capitalized labour and maintenance costs on owned aircraft for major maintenance overhauls; and
the absence of fleet transition costs of $1.7 million which occurred in 2016.
These increases were partially offset by:

a decline of $6.4 million in CPA performance incentive revenue;
an increase of $2.5 million in stock-based compensation expense; and
an increase of $1.9 million in other expenses.
Adjusted net income was $114.5 million for the year, an increase from 2016 of $12.5 million, or 12.2%. The change was a result of the $37.5 million increase in adjusted EBITDA previously described, plus a $16.3 million decrease in income taxes and a year-over-year decrease of $2.0 million in foreign exchange losses related to working capital; partially offset by:

$21.4 million of interest costs related to increased aircraft debt and convertible units; and
$21.9 million of additional depreciation primarily related to new aircraft.
Net income was $166.3 million for the year, an increase of $54.6 million, or 48.8% from the same period of 2016. The increase was due primarily to the previously noted $12.5 million increase in adjusted net income plus:

an increase of $35.9 million in unrealized foreign exchange gains on long-term debt;
the absence of signing bonuses in 2017, compared to $5.5 million in signing bonuses in the same period of 2016;
the absence of strategic advisory fees in 2017, compared to $3.7 million in strategic advisory fees in the same period of 2016; and
foreign exchange gains of $1.6 million on US dollar denominated cash held on deposit for investment in the regional aircraft leasing business.
This was offset partially by a $4.6 million increase in employee separation program costs in 2017 over 2016.

FOURTH QUARTER 2017

Financial Performance - fourth quarter 2017 compared to fourth quarter 2016

In the fourth quarter of 2017, Chorus reported adjusted EBITDA of $82.6 million versus $69.3 million in 2016; an increase of $13.2 million or 19.0%. 

The $13.2 million increase in adjusted EBITDA was primarily driven by:

a $10.3 million increase related to incremental margin mainly attributed to non-CPA aircraft leasing and maintenance, repair and overhaul;
increased aircraft leasing under the CPA of $2.7 million;
the absence of fleet transition costs of $1.7 million which occurred in 2016; and
decreased operating costs related to a $2.6 million increase in capitalized labour and maintenance costs on owned aircraft for major maintenance overhauls.
These increases were partially offset by:

a decline of $0.8 million in CPA performance incentive revenue; and
an increase of $3.3 million in other expenses.
Adjusted net income was $23.4 million for the quarter, a decrease from the fourth quarter of 2016 of $7.8 million, or 25.1%. The change was a result of the $13.2 million increase in adjusted EBITDA previously described, partially offset by:

$7.2 million of interest costs related to increased aircraft debt and Convertible Units;
a $1.3 million increase in income taxes;
$9.9 million of additional depreciation primarily related to new aircraft; and
a $2.6 million increase in foreign exchange losses related to working capital.
Net income was $19.7 million for the quarter, an increase of $7.1 million from the fourth quarter of 2016. The increase was due primarily to a $10.2 million reduction in unrealized foreign exchange losses on long-term debt, a $1.0 million decrease in employee separation program costs and the absence of strategic advisory fees of $3.7 million incurred in 2016; offset by the previously noted $7.8 million decrease in adjusted net income.

2018 OUTLOOK

(See cautionary statement regarding forward-looking information below)

Chorus intends to continue growing its regional aircraft leasing business through CAC by leveraging the proceeds from the private placement of convertible debt units to acquire aircraft for lease to regional aircraft operators. CAC has invested approximately 70% of that capital to date and intends to deploy the balance by mid-2018 leveraging the remaining capital with further debt financing at a ratio ranging between three and four to one, to acquire new to mid-life regional aircraft for lease. Chorus is currently examining options for future financing arrangements to sustain the growth in the leasing business.

Based on 2017-2018 winter schedule, the 2018 summer schedule and updated planning assumptions from Air Canada, Billable Block Hours under the CPA for 2018 are expected to be between 350,000 and 375,000 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 a number of factors, see Section 9 - Risk Factors. The CPA fleet transition to larger aircraft will generate approximately 3% more available seat miles in fiscal 2018 over the same period in 2017.

Capital expenditures for 2018, excluding those for the acquisition of aircraft and the ESP, and including capitalized major maintenance overhauls, are expected to be between $44.0 million and $50.0 million.

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