Q4 2022 Financial Highlights
- Net income of $45.9 million, a quarter-over-quarter increase of $35.7 million.
- Adjusted earnings available to Common Shareholders of $22.3 million, or $0.11 per Common Share, an increase of $0.8 million quarter-over-quarter, net of dividends declared on the Preferred Shares and non-controlling interest.
- Adjusted net income of $31.8 million, an increase of $10.4 million quarter-over-quarter primarily related to Falko’s earnings and increased lease revenue from CACIL’s re-leased aircraft.
- Adjusted EBITDA of $129.5 million, an increase of $39.1 million quarter-over-quarter.
Annual Financial Highlights:
- Net income of $51.9 million, a year-over-year increase of $72.4 million.
- Adjusted earnings available to Common Shareholders of $92.9 million, or $0.48 per Common Share, an increase of $29.0 million year-over-year, net of dividends declared on the Preferred Shares and non-controlling interest.
- Adjusted net income of $118.8 million, an increase of $55.0 million year-over-year primarily due to eight months of Falko’s earnings in 2022.
- Adjusted EBITDA of $441.0 million, an increase of $111.6 million year-over-year.
Annual Highlights:
- Completed the Falko Acquisition for US $843.7 million in the second quarter of 2022, establishing Chorus as the world’s largest asset manager and aircraft lessor focused solely on regional aircraft leasing.
- Issued US $300.0 million of Series 1 Preferred Shares and US $74.0 million of Common Shares and Common Share purchase warrants to an affiliate of Brookfield Special Investments Fund L.P. in connection with the Falko Acquisition.
- Began transitioning to an asset light leasing model with opportunistic asset sales that generated proceeds, net of related debt repayments, of USD $152.3 million.
- Generated Free Cash Flow (formerly described as Adjusted Cash Provided by Operating Activities) of $371.3 million for the year ended December 31, 2022, an increase of $208.6 million from the prior year primarily related to strong operating cash flows due to Falko’s earnings and improvement in RAS’ operating income, and net proceeds on asset sales which was partially offset by capital expenditures.
- Repurchased and cancelled 1,718,972 Common Shares to December 31, 2022 under Chorus’ Normal Course Issuer Bid which commenced on November 14, 2022.
- Improved leverage to 4.4 at December 31, 2022 from 5.4 at December 31, 2021, the second consecutive quarter of improved leverage.
HALIFAX, NS, Feb. 15, 2023 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced fourth quarter and year-end 2022 financial results.
“The 2022 year was truly transformational for Chorus. With the acquisition of Falko, Chorus became the world’s largest aircraft lessor focused on regional aviation and further diversified its earnings through the addition of asset management services, including fund management on behalf of third-party investors. Falko provides a proven aircraft trading platform which enables us to more readily monetize our on-balance sheet assets. Fund management is a far more efficient strategy for our leasing business and allows Chorus to deleverage its balance sheet and free up embedded capital. Brookfield’s investment in Chorus is an endorsement of our strategy,” said Joe Randell, President and CEO, Chorus Aviation.
“Our transition to an asset light leasing model continued in the fourth quarter as we executed on several opportunistic aircraft sales. The incremental cash flows generated from the aircraft dispositions allowed us to complete the early redemption of $115 million in the 6.00% Debentures to accelerate our deleveraging. In the fourth quarter we announced a Normal Course Issuer Bid allowing the purchase for cancellation of up to 10% of the public float of Common Shares with over 1.7 million shares being purchased and cancelled at year-end.”
“The aviation industry recovery is evident and continuing as we see the return of strong travel demand world-wide. Jazz increased flying activity in 2022 throughout Canada and the U.S. on behalf of Air Canada and Voyageur continued to grow its specialty aviation offerings. The Falko team also did an exemplary job capitalizing on the strengthening environment to place aircraft and trade assets. Our team has delivered and our culture is strong” continued Mr. Randell.
“Over the past few months, I have worked closely with Colin Copp to transition the CEO duties and the process has progressed smoothly. Colin’s depth of knowledge across all aspects of our business is impressive and will serve him very well as he capably leads Chorus through 2023 and beyond.”
“I offer my sincere appreciation to all employees for their continued hard work and dedication. Chorus is extremely well positioned for the future,” concluded Mr. Randell.
Fourth Quarter Summary
In the fourth quarter of 2022, Chorus reported Adjusted EBITDA of $129.5 million, an increase of $39.1 million over the fourth quarter of 2021.
The RAL segment’s Adjusted EBITDA was $67.5 million, an increase of $36.3 million primarily due to Falko’s earnings inclusive of the net gain on sale of assets as well as increased lease revenue from CACIL’s re-leased aircraft.
The RAS segment’s Adjusted EBITDA was $67.5 million, an increase of $4.6 million. Fourth quarter results were impacted by:
- an increase in other revenue of $5.5 million due to an increase in parts sales and contract flying partially offset by a decrease in third-party MRO activity; and
- an increase in aircraft leasing revenue under the CPA of $2.7 million primarily due to a higher US dollar exchange rate; offset by
- a decrease in capitalization of major maintenance overhauls on owned aircraft of $0.4 million; and
- an increase in general administrative expenses attributable to increased operations.
In the fourth quarter of 2022, Chorus began disclosing corporate head-office expenses separate from RAS, enabling a clearer assessment of RAS’ operating performance. Corporate Adjusted EBITDA or net expenses of $5.4 million was higher than the fourth quarter 2021 by $1.8 million, due to:
- an increase in general administrative expenses related to professional fees associated with the Falko Acquisition, higher salaries, wages and benefits and travel expenses than the prior quarter year due to the impact of COVID-19 in 2021; offset by
- a decrease in stock-based compensation of $0.4 million due to the change in fair value of the Total Return Swap offset by an increase in the Common Share price.
Adjusted net income was $31.8 million for the quarter, an increase of $10.4 million over the fourth quarter of 2021 due to:
- a $39.1 million increase in Adjusted EBITDA as previously described; partially offset by
- an increase in depreciation expense of $14.9 million primarily attributable to Falko;
- an increase of $7.4 million in income tax expense;
- an increase in net interest costs of $4.2 million primarily related to interest on long-term debt assumed as part of the Falko Acquisition, partially offset by the repayment of certain aircraft financings and the partial redemption of the 6.00% Debentures in December 2021; and
- a change in net foreign exchange of $1.3 million.
Net income increased $35.7 million over the fourth quarter of 2021 primarily due to:
- the previously noted increase in Adjusted net income of $10.4 million;
- an increase in net unrealized foreign exchange gains of $14.6 million;
- a decrease in impairment provision of $14.6 million; and
- a decrease in inventory provision of $1.0 million; partially offset by
- an increase in lease repossession costs of $2.5 million; and
- a decrease in income tax recoveries on adjusted items of $2.1 million.
Annual Summary
Chorus reported Adjusted EBITDA of $441.0 million for 2022, an increase of $111.6 million over the same prior year period.
The RAL segment’s Adjusted EBITDA was $219.5 million, an increase of $108.2 million primarily due to the inclusion of eight months of earnings from Falko, net gain on sale of assets, the claims recoveries in the Virgin Australia and Aeromexico bankruptcies and increased lease revenue from CACIL’s re-leased aircraft.
The RAS segment’s Adjusted EBITDA was $248.8 million an increase of $14.0 million due to:
- an increase in other revenue of $15.2 million due to an increase in parts sales and contract flying and the sale of four Dash 8-100s that were held for resale partially offset by a decrease in third-party MRO activity;
- an increase in aircraft leasing revenue under the CPA of $5.6 million primarily due to a higher US dollar exchange rate; and
- an increase in capitalization of major maintenance overhauls on owned aircraft of $2.0 million; partially offset by
- an increase in general administrative expenses attributable to increased operations.
The Corporate Adjusted EBITDA or net expenses of $27.2 million was higher than the 2021 by $10.6 million due to:
- an increase in stock-based compensation of $6.4 million due to one-time restructuring grants and an increase in the Common Share price, offset by the change in fair value of the Total Return Swap; and
- an increase in general administrative expenses related to professional fees associated with the Falko Acquisition, higher salaries, wages and benefits and higher travel expenses due to the impact of COVID-19 in 2021.
Adjusted net income of $118.8 million, an increase of $55.0 million over the same prior year period primarily due to:
- a $111.6 million increase in Adjusted EBITDA as previously described; partially offset by
- an increase in depreciation expense of $35.6 million primarily attributable to Falko;
- a $13.2 million increase in income tax expense offset by lower income tax recoveries on adjusted items;
- an increase in net interest costs of $4.5 million primarily related to interest on long-term debt assumed as part of the Falko Acquisition and interest on the Series B Debentures and Series C Debentures partially offset by the repayment of certain aircraft financings and the partial redemption of the 6.00% Debentures in December 2021;
- a decrease in gain on property and equipment of $1.6 million; and
- a loss on fair value of investments of $1.1 million.
Net income of $51.9 million, an increase of $72.4 million over the same prior year period primarily due to:
- the previously noted increase in Adjusted net income of $55.0 million; and
- one-time restructuring costs of $80.7 million in 2021 related to the 2021 CPA Amendments; offset by
- an increase in lease repossession costs of $19.1 million;
- a decrease in income tax recoveries on adjusted items of $16.1 million;
- an increase in restructuring credit loss provision of $10.4 million;
- a change in net foreign exchange of $8.7 million;
- strategic advisory fees related to the Falko Acquisition of $8.5 million;
- an increase in impairment provisions of $2.1 million in the RAL segment; and
- an increase in employee separation program costs, exclusive of the cost attributable to the pilot early retirement program and signing bonuses, of $1.9 million.
Outlook
Chorus has the key elements to successfully execute on its strategy to transition to an asset light leasing model while growing its contractual fund management business and its RAS segment. The key elements include:
- Strong and predictable core earnings from the RAS segment, with the potential to expand into adjacent and complementary business lines;
- Significant wholly-owned or majority-owned aviation assets that can be monetized to reduce debt and return capital to Common Shareholders while also providing funding to improve the growth and return profile of the business over time through accretive investments; and
- Growing the Falko series of funds from which Chorus can generate attractive returns via asset management fees, co-investment returns and incentive payments.
The asset light leasing model will enable Chorus to achieve greater scale in its leasing business by co-investing alongside third-party equity investors in Falko-managed funds, while decreasing risk to Chorus by reducing the use of recourse debt financing. As Chorus transitions to an asset light leasing model, asset sales will generate Free Cash Flow that can be deployed to pursue accretive investment opportunities and/or return capital to Common Shareholders. As part of this asset light transformation, Chorus is targeting:
- Aircraft asset sales: Chorus intends to opportunistically trade RAL’s wholly-owned or majority-owned aircraft including in connection with the expected windup of its 67.45% ownership in Ravelin Holdings LP by its tenth anniversary in 2025. As of December 31, 2022, Ravelin Holdings LP held an interest in 39 aircraft with a net book value of US $405.4 million and secured debt of US $228.6 million. As asset sales occur, the related leasing revenues in RAL will decrease, which will be partially offset by lower depreciation and debt servicing costs and earnings from Falko managed funds.
- Reduced leverage: Chorus anticipates its Leverage Ratio will be between 2.5 to 3.5 by December 31, 2024, given the contractual nature of Chorus’ earnings, amortizing debt repayments, and the expectation for asset sales. Deleveraging amounts will vary from quarter-to-quarter depending on the timing and quantum of asset sales.
- Growth: The expansion of Falko managed funds and the RAS business into adjacent and complimentary specialty aviation business lines.
About Chorus Aviation Inc.
Chorus’ vision is to deliver regional aviation to the world. Headquartered in Halifax, Nova Scotia, Chorus is an integrated provider of regional aviation solutions, including asset management services. Its principal subsidiaries are: Falko Regional Aircraft, the world’s largest asset manager and aircraft lessor focused solely on the regional aircraft leasing segment; Jazz Aviation, the sole provider of regional air services under the Air Canada Express brand; and Voyageur Aviation, a provider of specialty air charter, aircraft modification, and parts provisioning services to regional aviation customers around the world. Together, Chorus’ subsidiaries provide support services that encompass every stage of a regional aircraft’s lifecycle, including: aircraft acquisition and leasing; aircraft refurbishment, engineering, modification, repurposing and transition; contract flying; aircraft and component maintenance, disassembly, and parts provisioning. www.chorusaviation.com.