Q1 2021 Key Metrics
- Net loss of $38.1 million, or $0.24 per basic share; a period-over-period decrease of $20.8 million due to one-time restructuring costs related to the 2021 capacity purchase agreement (‘CPA’) amendments of $81.8 million as outlined below, offset by the changes in unrealized foreign exchange of $45.4 million and income taxes.
- Adjusted net income1 of $15.7 million, or $0.10 per basic share; a decrease of $8.1 million quarter-over-quarter primarily due to the impact of COVID-19.
- Adjusted EBITDA1 of $84.0 million; a decrease of $4.5 million over first quarter 2020.
- Liquidity of $171.3 million.
- Collected approximately 62% of lease revenue billed in the first quarter consistent with fourth quarter 2020 collections.
Year-to-date Highlights
- Revised CPA with Air Canada, enhancing Jazz’s position as the exclusive Air Canada Express operator of 70-78 seat regional capacity until the end of 2025 and is currently the sole provider of Air Canada Express services.
- Completed a public offering and concurrent private placement for gross proceeds of $145.1 million.
- Remarketed three Dash 8-400s to two new leasing customers, Sky Alps of Italy (two aircraft) and one Dash 8-400 to National Jet Express, a subsidiary of Australian aviation operator, Cobham Aviation Services.
- Secured a three-year contract with Purolator for air cargo charter services, executing on Chorus’ growing capabilities in this market segment.
- Awarded a 3-year contract to upgrade and modify Transport Canada’s National Aerial Surveillance Program fleet of Dash 8-100 and Dash 7 aircraft with new surveillance equipment.
- Awarded a new five-year contract to provide fixed-wing air ambulance service for Ambulance New Brunswick further extending its 25-year relationship.
HALIFAX, NS, May 12, 2021 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced first quarter 2021 financial results and an update on the impact of COVID-19.
“I am proud and encouraged by our accomplishments so far this year,” commented Joe Randell, President and Chief Executive Officer, Chorus. “While our industry continues to be challenged by the negative effects of COVID-19, we have made considerable progress towards ensuring we emerge from the pandemic in the strongest position possible.”
“In March we revised our CPA with Air Canada to our mutual benefit. The two primary highlights are the transfer of 25 Embraer 175 aircraft to Jazz, and the introduction of a cap on the controllable cost guardrail receivable. With the transfer of the aircraft, Jazz is currently the sole operator of Air Canada Express flights and has the exclusive right to operate 70 – 78 seat regional capacity until 2025. As our work with Air Canada on recovery plans continues, these revisions further strengthen our relationship and provides significant network efficiencies and planning flexibility – elements that are vital as service resumptions are implemented. The new cap on the controllable cost guardrail reduces our financial exposure and minimizes draws on our working capital. Finally, the recent support of the Canadian government to Air Canada was a welcomed announcement as it helped preserve regional services across our nation.”
“While there remains uncertainty, our industry is starting to experience some encouraging signs of renewed travel demand, most particularly in regional and short-haul markets. This was evidenced by our recent long-term lease agreements with two new leasing customers, Sky Alps of Italy, and Cobham Aviation Services of Australia. The aircraft, three Dash 8-400s, were repossessed by Chorus in 2020 and underwent reconfiguration and return-to-service work at Voyageur and Jazz Technical Services. This is what differentiates Chorus from the competition – not only are we an airline operator, we offer a broad range of solutions to remarket aircraft in the midst of one of the most challenging periods in aviation history.”
“Although we paused our growth and diversification strategy in 2020 to focus on liquidity, it remains a corporate priority. Our capital raise in April was over-subscribed and generated gross proceeds of $145.1 million, thus enabling us to improve our balance sheet and prudently seek growth opportunities.”
“The recent contracts awarded to Voyageur by Purolator, Transport Canada and Ambulance New Brunswick are a testament to the incredible skill and ingenuity of the team and clearly position us as a premiere special mission service provider. We are pleased to grow our relationships with these important customers and are very excited to be expanding our capabilities to include cargo contract flying on behalf of Purolator. We view the cargo market as a growth opportunity that is benefiting from the successes of e-commerce and look forward to participating in this evolving sector.”
“We are proud of the way we are managing through this pandemic and have centered our attention on the future. I’m very grateful to our employees for delivering terrific accomplishments despite all the challenges associated with the global pandemic. We are well positioned to take advantage of future opportunities,” concluded Mr. Randell.
Liquidity
As of March 31, 2021, Chorus’ liquidity was $171.3 million including cash of $136.0 million and $35.3 million of available room on its operating credit facility. Liquidity decreased from the fourth quarter of 2020 by $29.7 million primarily due to certain payments related to the 2021 CPA amendments of approximately $17.0 million and debt repayments of $56.0 million, offset by the collection of the 2020 Controllable Cost Guardrail receivable of $44.2 million.
On April 6, 2021, Chorus completed a concurrent public offering and private placement of Equity Units and 6.00% Unsecured Convertible Debentures for gross proceeds of $145.1 million. The net proceeds, after transaction costs, were $138.0 million.
In connection with the issuance of the 6.00% Unsecured Convertible Debentures, Chorus repaid deferred amounts outstanding under secured aircraft loans in the amount of $33.9 million.
First Quarter Summary
In the first quarter of 2021, Chorus reported adjusted EBITDA of $84.0 million, a decrease of $4.5 million relative to the first quarter of 2020.
The Regional Aircraft Leasing segment’s adjusted EBITDA decreased by $9.5 million primarily due to lower lease margins attributable to off-lease aircraft, a $2.5 million expected credit loss provision and a lower US dollar exchange rate partially offset by additional aircraft earning leasing revenue.
The Regional Aviation Services segment’s adjusted EBITDA increased by $4.9 million. The first quarter results were impacted by:
- a decrease in stock-based compensation of $7.1 million due to the change in the share price inclusive of the change in fair value of the Total Return Swap;
- an increase in aircraft leasing revenue under the CPA of $2.5 million primarily due to nine incremental CRJ900s, partially offset by the removal of the Dash 8-300s and a lower US dollar exchange rate;
- an increase in other revenue due to an increase in third-party maintenance, repair and overhaul activity and contract flying; and
- a decrease in general administrative expenses; offset by
- a decrease in fixed margin of $2.4 million in accordance with the CPA contract; and
- a decrease in capitalization of major maintenance overhauls on owned aircraft operated under the CPA of $2.4 million.
Adjusted net income was $15.7 million for the quarter, a decrease of $8.1 million due to:
- a $4.5 million decrease in adjusted EBITDA as previously described;
- an increase in net interest costs of $4.6 million primarily related to new credit facilities added in April 2020 and additional aircraft debt; and
- an increase of $1.2 million in realized foreign exchange and unrealized foreign exchange losses on working capital; offset by
- a $2.0 million decrease in adjusted income tax expense resulting from a reduction in EBT of $23.3 million offset by tax recovery on adjusted items of $21.3 million; and
- a decrease in depreciation of $0.3 million.
Net loss increased $20.8 million due to the previously noted decrease in Adjusted net income of $8.1 million, one-time restructuring costs related to the 2021 CPA Amendments of $81.8 million and a change in net lease repossession costs of $7.0 million; offset by the change in net unrealized foreign exchange on long-term debt of $45.4 million, tax recovery on adjusted items of $21.3 million, decreased impairment of $5.9 million in the RAL segment and decreased employee separation program costs of $3.5 million, exclusive of the cost attributable to the pilot early retirement program.
One-time restructuring costs related to the 2021 CPA amendments of $81.8 million are as follows:
- Non-cash impairment and inventory provisions on the Dash 8-300s of $42.8 million;
- Early retirement program costs of $26.3 million to incentivize early departure of senior Jazz pilots enrolled in the defined benefit pension plan;
- Non-cash defined benefit pension plan curtailment provision of $10.0 million;
- Integration and E175 aircraft related transition costs of $2.0 million; and a
- Signing bonuses of $0.7 million for Jazz pilots.
Outlook
(See cautionary statement regarding forward-looking information below)
The COVID-19 pandemic and resulting government restrictions have created unprecedented challenges for the passenger aviation industry around the world. Although, Chorus’ business model does not directly expose it to the market risks ordinarily faced by airlines, substantially all its source revenue is derived from airline customers, through its CPA and its leasing of aircraft to airline customers globally. The full extent of the duration and therefore the impact of this pandemic are unknown. Chorus continues to work with Air Canada and its leasing customers to help them manage the economic pressures they are facing as a consequence of the sustained reduction in demand for passenger air travel.
Regional Aviation Services:
On March 15, 2021, Jazz amended the CPA with Air Canada on a retroactive basis to January 1, 2021. The principal changes include:
- 25 E175s will be added to the Covered Aircraft fleet in 2021, increasing the Fixed Margin over the remaining term of the CPA by $46.0 million;
- Jazz will be the exclusive Air Canada Express operator of 70 – 78 seat regional capacity until the end of 2025;
- 19 Dash 8-300s were removed from the Covered Aircraft fleet effective January 1, 2021, thereby reducing aircraft leasing revenue under the CPA by $56.0 million over the remaining term of the CPA; and
- The Controllable Cost Guardrail receivable is now capped at $20.0 million, improving working capital with no change to the $2.0 million Controllable Cost Guardrail exposure.
All other material components of the CPA, including the December 31, 2035 expiry date, are unchanged.
The Fixed Margin under the CPA for 2021 is based on the number of Covered Aircraft which will be no less than $65.7 million.
Chorus estimates the carrying value of the owned Dash 8-300sto be approximately $65.0 million, and can sell, lease, or convert them for cargo operations.
In the first quarter of 2021, Jazz operated approximately 15% of its first quarter 2019 pre-COVID-19 flying levels. In the second quarter of 2021, Jazz expects to operate approximately 20% to 25% of its second quarter pre-COVID-19 flying levels.
Voyageur continues to perform overseas humanitarian flights and cargo services, and the air ambulance operation in New Brunswick. Voyageur’s contract flying, charter sales and MRO services revenues all improved over the fourth quarter of 2020 and the momentum is expected to be sustained in 2021.
Regional Aircraft Leasing:
Chorus has received requests from substantially all its Regional Aircraft Leasing segment customers for some form of temporary rent relief, as they cope with an unprecedented reduction in demand for passenger air travel. In connection with the rent relief arrangements, that include lease term extensions, the repayment terms vary but typically coincide with the lease term extensions.
Chorus Aviation Capital’s gross lease receivable was $67.7 million (US $53.8 million) as of March 31, 2021 (December 31, 2020 – $56.3 million; US $44.2 million). The gross receivable may increase to approximately $75.0 million (US $60.0 million) by the end of 2021. The increase over previous estimates is due to additional and anticipated rent relief requests from certain customers resulting from continued travel restrictions as the number of COVID-19 variants and cases continue to climb.
The net lease receivable, after the expected credit loss provision, was $57.4 million (US $45.6 million) as at March 31, 2021 (December 31, 2020 $48.3 million (US $38.0 million). CAC’s lease deferral receivable exposure is also partially mitigated by security packages held of approximately $24.0 million (US $19.0 million). The net lease receivable, after the expected credit loss provision, is $57.3 million (US $45.6 million) as at March 31, 2021 (December 31, 2020 million $7.9 million (US $6.2 million). Chorus collected approximately 62% of lease revenue billed in the first quarter from its lessees, excluding repossessed aircraft which is consistent with fourth quarter 2020 collections. Consistent with market norms, these leases are generally for a fixed term, contain an absolute payment obligation on the part of the lessee, and cannot be terminated early for convenience.
Capital:
On April 6, 2021, Chorus completed a concurrent public offering and private placement of Equity Units and 6.00% Unsecured Convertible Debentures for aggregate gross proceeds of $145.1 million. A portion of the net proceeds has been used to pay down secured indebtedness.
In connection with the issuance of the 6.00% Unsecured Convertible Debentures, Chorus repaid deferred amounts outstanding under secured aircraft loans in the amount of $33.9 million. Chorus also plans to pay down additional secured indebtedness by approximately $75.0 million. Repayment on these secured debt facilities will bring the carrying value of CAC’s unencumbered fleet to approximately $140.0 million (US $110.0 million) and will also reduce Chorus’ restricted cash requirements by approximately $10.0 million.
The remaining net proceeds will be used to position Chorus to prudently pursue growth opportunities (including purchasing additional aircraft to continue expanding Chorus’ regional aircraft leasing business and expanding into additional contracted flying operations), provide additional balance sheet flexibility, and for general corporate purposes.