Chorus Aviation Announces Second Quarter 2022 Financial Results

Q2 2022 Financial Highlights

• Net loss of $40.4 million, a quarter-over-quarter decrease of $61.9 million primarily due to anticipated aircraft repossessions and lease restructurings resulting in provisions of $45.6 million on CACIL’s aircraft portfolio, unrealized foreign exchange losses of $34.3 million and strategic advisory fees of $5.7 million, offset by an increase in Adjusted net income of $16.2 million.
• Net loss available to Common Shareholders of $46.3 million, or $0.24 loss per basic Common Share, inclusive of dividends declared on Preferred Shares and non-controlling interest.
• Adjusted net income available to Common Shareholders of $21.7 million, or $0.11 per Common Share an increase of $10.3 million quarter-over-quarter inclusive of dividends declared on Preferred Shares and non-controlling interest.
• Adjusted net income of $27.6 million, an increase of $16.2 million quarter-over-quarter primarily due to an increase in earnings in the RAL segment related to the Falko Business.
• Adjusted EBITDA of $104.9 million, an increase of $28.0 million quarter-over-quarter.

Accomplishments

• Completed the Falko acquisition for US $843.7 million, inclusive of assumed debt.
• Second quarter results included two months of earnings from the Falko Business, increasing net income by $5.7 million and Adjusted EBT by $9.5 million.
• Integration of the Falko Business progressing as anticipated.
• Expanded owned, managed and/or operated fleet to 381 aircraft (including 35 aircraft in a servicing capacity).

HALIFAX, NS, Aug. 4, 2022 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced second quarter 2022 financial results.

“With our first quarter since the Falko acquisition now complete, I am happy to see Falko delivering the expected results. In addition, the integration of Falko is progressing very well as both organizations share similar leadership styles and cultures. 

We have already begun to see the Falko asset management platform demonstrate its contribution to the diversification and flexibility of our business.  In June we announced the addition of 35 turboprop aircraft in a servicing capacity on behalf of a syndicate of banks further expanding our asset management business and demonstrating Falko’s ability to broaden its customer base,” stated Joe Randell, President and Chief Executive Officer, Chorus.

Mr. Randell continued: “The Falko acquisition has made Chorus a market leading regional aircraft asset manager and the world’s largest aircraft lessor focused solely on the regional aircraft leasing space thereby significantly advancing our growth and diversification strategy. We now expect to derive approximately 50% of our 2022 annual Adjusted EBITDA from the Regional Aviation Leasing (RAL) segment of our business. We have begun the process of launching Falko’s next fund and are pleased with the early response. We will continue to transition our focus to an asset light model and will opportunistically explore asset sales, where appropriate, to create additional shareholder value through paying down debt and generating incremental cash flows.”

“In the second quarter we recorded a $45.6 million provision related to anticipated aircraft repossessions and lease restructurings. All our other customers are operating in compliance with lease agreements. This provision does not impact our longer-term outlook for the business,” added Mr. Randell.

“I sincerely thank the Chorus group of employees for all their hard work and dedication, and in particular our frontline employees, for their continued focus on the safety and well-being of passengers in what has been a challenging environment. Our Jazz operation continues to ramp up, and Voyageur’s parts provisioning and sales continue to hit new milestones as larger contracts won in 2021 progress as planned. We remain optimistic that these trends will continue to build momentum and we are very well positioned to execute on new growth opportunities that will deliver positive returns to our shareholders, fund investors, customers, and employees,” Mr. Randell concluded.

Second Quarter Summary

In the second quarter of 2022, Chorus reported Adjusted EBITDA of $104.9 million, an increase of $28.0 million over the second quarter of 2021.

The RAL segment’s Adjusted EBITDA increased by $25.4 million due to the inclusion of two months of earnings from the Falko Business as well as increased lease revenue from re-leased aircraft in CACIL’s aircraft portfolio.

The RAS segment’s Adjusted EBITDA increased by $2.6 million. Second quarter results were impacted by:

• an increase in other revenue due to an increase in parts sales and contract flying partially offset by a decrease in third-party MRO activity;
• an increase in capitalization of major maintenance overhauls on owned aircraft of $3.2 million; and
• an increase in aircraft leasing revenue under the CPA of $1.3 million primarily due to a higher US dollar exchange rate; offset by
• an increase in general administrative expenses attributable to increased operations.

Adjusted net income was $27.6 million for the quarter, an increase of $16.2 million over the second quarter of 2021 due to:

• a $28.0 million increase in Adjusted EBITDA as previously described; and
• a decrease of $1.9 million primarily due to unrealized foreign exchange changes on working capital; partially offset by
• an increase in depreciation expense of $9.3 million primarily attributable to the Falko Business;
• an increase of $0.9 million in income tax expense on adjusted items;
• a decrease in gain on property and equipment of $1.6 million;
• an increase in net interest costs of $1.1 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; and
• a loss on fair value of investments of $0.8 million.

Net loss increased $61.9 million over the second quarter of 2021 due to:

• an increase in impairment provision of $20.5 million;
• an increase in net unrealized foreign exchange losses primarily on long-term debt of $34.3 million;
• a restructuring expected credit loss provision of $10.4 million;
• an increase in lease repossession costs of $12.0 million;
• strategic advisory fees related to the Falko Acquisition of $5.7 million; and
• an increase in employee separation program costs of $1.7 million; partially offset by
• the previously noted increase in Adjusted net income of $16.2 million; and
• an increase in income tax recoveries on adjusted items of $7.5 million.

Year-to-Date Summary

Chorus reported Adjusted EBITDA of $188.2 million for 2022, an increase of $27.3 million over the same prior year period.

The RAL segment’s Adjusted EBITDA increased by $28.3 million primarily due to the inclusion of two months of earnings related to the Falko Business, the recognition of the expected recovery of Chorus’ claim in the Aeromexico bankruptcy and increased lease revenue from re-leased aircraft partially in CACIL’s aircraft portfolio.

The RAS segment’s Adjusted EBITDA decreased by $1.0 million due to:

• an increase in general administrative expenses attributable to increased operations; and
• an increase in stock-based compensation of $4.4 million due to a decrease in the Common Share price inclusive of the change in fair value of the Total Return Swap; partially offset by
• an increase in capitalization of major maintenance overhauls on owned aircraft of $4.6 million;
• an increase in other revenue due to an increase in parts sales and contract flying partially offset by third-party MRO activity; and
• an increase in aircraft leasing revenue under the CPA of $1.6 million primarily due to a higher US dollar exchange rate.

Adjusted net income of $45.3 million an increase of $18.2 million over 2021 due to:

• a $27.3 million increase in Adjusted EBITDA as previously described;
• a decrease in net interest costs of $3.7 million primarily related to the repayment of certain aircraft financing and the partial redemption of the 6.00% Debentures partially offset by interest on long-term debt assumed as part of the Falko Acquisition and interest on the Series B Debentures and Series C Debentures; and
• a decrease of $0.9 million in realized foreign exchange losses and increased unrealized foreign exchange gains on working capital; partially offset by
• an increase in depreciation expense of $8.2 million primarily attributable to the Falko Business;
• a $3.2 million increase in income tax expense on adjusted items;
• a decrease in gain on property and equipment of $1.6 million; and
• a loss on fair value of investments of $0.8 million.

Net loss of $17.5 million, an increase of $0.9 million over the prior period due to:

• an increase in impairment provisions of $20.5 million in the RAL segment;
• a change in net unrealized foreign exchange primarily on long-term debt of $33.7 million;
• an increase in lease repossession costs of $11.6 million;
• an increase in restructuring credit loss provision of $10.4 million;
• a decrease in income tax recoveries on adjusted items of $14.0 million;
• strategic advisory fees related to the Falko Acquisition of $8.4 million; and
• an increase in employee separation program costs, exclusive of the cost attributable to the pilot early retirement program and signing bonuses of $1.2 million; offset by
• the previously noted increase in Adjusted net income of $18.2 million; and
• one-time restructuring costs of $80.7 million in 2021 related to the 2021 CPA Amendments.

Regional Aircraft Leasing

Following the onset of the COVID-19 pandemic, RAL received requests from many of its customers for some form of temporary rent relief, as they coped with an unprecedented reduction in demand for passenger air travel. Under rent relief arrangements, certain of which include lease term extensions, the repayment of the deferred amounts typically coincides with the lease term extensions. RAL collected approximately 88% of lease revenue billed in the second quarter of 2022. The gross lease receivable may decrease to approximately $119.0 million (US $92.3 million) (June 30, 2022 $122.0 million (US $94.6 million)) by the end of 2022 due to rent relief arrangements and repayment expectations.

RAL’s lease deferral receivable exposure is also partially mitigated by security packages held of approximately $23.4 million (US $18.2 million) (December 31, 2021 – $26.8 million (US $21.1 million)).

Capital Expenditures

Capital expenditures in 2022, including capitalized major maintenance overhauls but excluding expenditures for the acquisition of aircraft are expected to be between $21.0 million and $33.0 million. Aircraft acquisitions and improvements in 2022 are expected to be between $22.0 million and $27.0 million.

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 to Air Canada; 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.