Chorus Aviation Announces Third Quarter 2021 Financial Results

Q3 2021 Key Metrics

• Net loss of $14.1 million, or $0.08 per basic share; a quarter-over-quarter decrease of $34.5 million primarily due to higher unrealized foreign exchange losses of $40.8 million and the capacity purchase agreement (‘CPA’) amendments.
• Adjusted net income¹ of $15.3 million, or $0.09 per basic share; an increase of $4.4 million quarter-over-quarter primarily due to a reduction in interest expense resulting from the early repayment on amortizing term loans under certain aircraft financings and lower depreciation expense.
• Adjusted EBITDA¹ of $78.1 million; a decrease of $7.8 million over third quarter 2020.
• Collected approximately 77% (67% in Q2’21) of the Regional Aircraft Leasing segment’s lease revenue recognized in the third quarter.
• Liquidity of $258.1 million.

Recent Accomplishments

• Executed long-term leasing agreements with new customer, Emerald Airlines of Dublin, Ireland, for six ATR 72-600s.
• Executed long-term leasing agreements with new customer, Waltzing Matilda Aviation of Boston, Massachusetts, doing business as Connect Airlines, for two Dash 8-400s.
• Remarketed 11 of 13 off-lease aircraft repossessed by Chorus Aviation Capital since the onset of the COVID-19 pandemic.
• Established new three-year $75.0 million revolving committed credit facility, plus a $25.0 million uncommitted accordion.

HALIFAX, NS, Nov. 10, 2021 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced third quarter 2021 financial results.

“I am encouraged by our accomplishments as the regional aviation sector leads the recovery of domestic air transportation in many parts of the world. As vaccination rates increase and travel restrictions are lifted, we expect progress to continue,” stated Joe Randell, President and Chief Executive Officer, Chorus Aviation Inc.  “Improving market conditions are evidenced this quarter by the significant increases in fleet utilization in both our Air Canada Express operation and our leasing segment’s portfolio of aircraft.”

This quarter, we carried more than double the number of passengers under the CPA than we did in the first half of the year.  For the balance of this year, we are projected to operate approximately 75% to 80% of our fourth quarter 2019 flying activity. We’re very pleased to have welcomed back substantially all our frontline and administrative employees and are currently recruiting additional team members.”

“Positive signs of recovery were also evident in our regional aircraft leasing division whereby leasing revenue collections increased by 10 percentage points over the previous quarter to 77%, and agreements were executed to lease eight off-lease aircraft with two new customers.  Excluding off-lease aircraft, our portfolio of leased aircraft operated at approximately 75% of their pre-pandemic average flying hours in the third quarter 2021 over 2019 – a remarkable improvement given the industry was essentially grounded at the height of the pandemic.”

“Later this month we will be fully operating under the new Purolator agreement with two aircraft as announced last May. The team is executing well on our recently announced new contracts and we see additional opportunity.”

“We’re cautiously optimistic these positive developments indicate the worst of the pandemic is behind us and that we’re at an important inflection point. The good work we’ve done throughout this crisis provides a solid foundation that will deliver value to our stakeholders. I’m very grateful to our employees for their steadfast commitment to safety, the well-being of our customers, company and one another,” concluded Mr. Randell.

Liquidity

As of September 30, 2021, Chorus’ liquidity was $258.1 million including cash of $223.2 million and $34.9 million of available room on its operating credit facility.  Liquidity increased from the second quarter of 2021 by $80.2 million primarily due to the issuance of the Series C Debentures for net proceeds of $80.9 million ($29.8 million of which is currently held in a restricted cash account established in exchange for a conditional waiver of the 35% repayment obligation under the Unsecured Revolving Credit Facility).  The net proceeds from the issuance will be used primarily to partially redeem or repay existing indebtedness, including the 6.00% Debentures which may be redeemed by Chorus on or after December 31, 2021.

Excluding the net proceeds from the Series C Debentures and the related restricted cash, liquidity increased by $29.1 million over the second quarter of 2021 primarily due to:

• positive operating cash flows of $82.8 million; offset by
• scheduled debt repayments of $45.5 million; and
• additions to property and equipment of $9.0 million.

In October 2021, Chorus repaid $30.0 million under its operating credit facility and subsequently entered into a new three-year committed operating credit facility on October 14, 2021. The facility provides Chorus with a committed limit of $75.0 million plus a $25.0 million uncommitted accordion.

Third Quarter Summary

In the third quarter of 2021, Chorus reported adjusted EBITDA of $78.1 million, a decrease of $7.8 million relative to the third quarter of 2020.

The Regional Aircraft Leasing (‘RAL’) segment’s adjusted EBITDA was essentially unchanged from the prior quarter due to additional aircraft earning lease revenue offset by lower lease revenue attributable to negotiated amendments to certain lease agreements including extensions and lower earnings due to a lower US dollar exchange rate.

The Regional Aviation Services (‘RAS’) segment’s adjusted EBITDA decreased by $7.7 million. The third quarter results were impacted by:

• a decrease in Fixed Margin of $2.4 million in accordance with the CPA;
• an increase in stock-based compensation of $1.5 million due to a change in the fair value of the Total Return Swap offset by a decrease in the Share price;
• an increase in general administrative expenses attributable to increased operations; and
• a decrease in incentive revenue of $0.6 million; offset by
• an increase in capitalization of major maintenance overhauls on owned aircraft of $2.1 million;
• an increase in other revenue due to an increase in third-party maintenance, repair and overhaul (‘MRO’) activity and part sales; and
• an increase in aircraft leasing revenue under the CPA of $0.3 million primarily due to six incremental CRJ900s offset by the removal of the Dash 8-300 fleet and lower earnings of $1.8 million due to a lower US dollar exchange rate.

Adjusted net income was $15.3 million for the quarter, an increase of $4.4 million due to:

• a decrease of $5.7 million due to decreased realized foreign exchange losses and increased unrealized foreign exchange gains on working capital;
• a reduction in net interest costs of $2.8 million primarily related to the repayment of certain aircraft financing; offset by interest on the Series B Debentures and Series C Debentures;
• a decrease in depreciation expense of $2.1 million;
• a $1.3 million decrease in adjusted income tax expense; and
• an increase in gain on property and equipment of $0.2 million; offset by
• a $7.8 million decrease in adjusted EBITDA as previously described.

Net income decreased $34.5 million over the prior period due to:

• an increase in net unrealized foreign exchange losses primarily on long-term debt of $40.8 million;
• an increase in lease repossession costs of $2.8 million primarily related to aircraft refurbishments; and
• a decrease in income tax recoveries on adjusted items of $0.3 million; offset by
• a decrease in impairment provisions of $4.8 million in the RAL segment; and
• the previously noted increase in adjusted net income of $4.4 million.

Year-to-date Summary

Chorus reported adjusted EBITDA of $239.0 million for 2021, a decrease of $26.5 million relative to the same prior year period.

The RAL segment’s adjusted EBITDA decreased by $18.9 million primarily due to lower lease revenue attributable to off-lease aircraft, negotiated amendments to certain lease agreements including extensions, and lower earnings due to a lower US dollar exchange rate partially offset by additional aircraft earning lease revenue.

The RAS segment’s adjusted EBITDA decreased by $7.6 million. The period-over-period results were impacted by:

• a decrease in Fixed Margin of $7.1 million in accordance with the CPA;
• an increase in general administrative expenses attributable to increased operations; and
• a decrease in capitalization of major maintenance overhauls on owned aircraft of $0.9 million; partially offset by;
• a decrease in stock-based compensation of $5.4 million due to a decrease 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 $3.0 million primarily due to incremental CRJ900s, partially offset by the removal of the Dash 8-300 fleet and lower earnings of $7.4 million due to a lower US dollar exchange rate; and
• an increase in other revenue due to an increase in third-party MRO activity, part sales and contract flying.

Adjusted net income was $42.4 million year-to-date, a decrease over 2020 of $13.9 million due to:

• a $26.5 million decrease in adjusted EBITDA as previously described; and
• an increase in net interest costs of $4.5 million primarily related to the Series B Debentures, the Series C Debentures, increased indebtedness under credit facilities added in the second quarter of 2020 and additional debt related to aircraft purchased since the second quarter of 2020; offset by
• a decrease of $6.7 million in realized foreign exchange losses and increased unrealized foreign exchange gains on working capital;
• a decrease in depreciation expense of $6.1 million;
• an increase in gain on property and equipment of $2.3 million; and
• a $1.9 million decrease in adjusted income tax expense.

Net income decreased by $63.0 million over the prior period due to:

• the previously noted decrease in adjusted net income of $13.9 million;
• one-time restructuring costs of $80.7 million related to the 2021 CPA amendments;
• a change in net unrealized foreign exchange primarily on long-term debt of $6.1 million; and
• an increase in lease repossession costs of $4.5 million primarily related to aircraft refurbishments; offset by
• a decrease in impairment provisions of $20.3 million in the RAL segment;
• an increase in income tax recoveries on adjusted items of $18.0 million; and
• a decrease in employee separation program costs of $3.9 million, exclusive of the cost attributable to the pilot early retirement program.

Outlook
(See cautionary statement regarding forward-looking information below)

Chorus’ business model does not directly expose it to the market risks ordinarily faced by airlines; however, substantially all its source revenue is derived from airline customers, through its CPA and its leasing of aircraft to airline customers globally. Although the COVID-19 pandemic continues to impact airlines, demand for passenger air travel is starting to show signs of recovery.

Regional Aviation Services:

Jazz earns a Fixed Margin under the CPA based on the number of Covered Aircraft, subject to a minimum of $65.6 million for 2021. The Fixed Margin does not vary based on flight activity.

In the third quarter of 2021, Jazz operated at approximately 55% of its third quarter 2019 (pre-COVID-19) flying levels. Provided the spread of COVID-19 continues to subside, Jazz’s flying is expected to increase in the fourth quarter of 2021 to operate between approximately 75% to 80% of its fourth quarter 2019 (pre-COVID-19) flying levels. Jazz has recalled substantially all its front-line and administrative employees as operations increased.

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 in the second and third quarters of 2021 improved over the first quarter of 2021. The momentum is expected to be sustained with the impact of the four new long-term contracts which will begin to positively impact Voyageur’s earnings throughout the fourth quarter of 2021 and beyond. Voyageur represents less than 10% of Chorus’ consolidated revenue and net income.

Regional Aircraft Leasing:

In August 2021, Chorus Aviation Capital (‘CAC’) executed long-term leases for six ATR72-600s to Emerald Airlines of Dublin, Ireland. The first aircraft was delivered in the third quarter of 2021 and a second aircraft was delivered in October 2021, with the remaining deliveries expected over the next 12 months. CAC also executed long-term leases for two Dash 8-400s to Waltzing Matilda Aviation of Boston, Massachusetts, doing business as Connect Airlines. The first aircraft was delivered to Waltzing Matilda Aviation in October 2021, and the second aircraft is scheduled to be delivered before the end of 2021.

Since the onset of the COVID-19 pandemic, CAC has received requests from substantially all its 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. As of September 30, 2021, CAC’s gross lease receivable was $79.4 million (US $62.3 million) (December 31, 2020 – $56.3 million (US $44.2 million)). The gross lease receivable may increase to approximately $85.0 million (US $65.0 million) by the end of 2021 due to potential delays in payments.

As of September 30, 2021, the net lease receivable, after an expected credit loss provision, was $72.2 million (US $56.7 million) (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 $27.0 million (US $21.0 million).

Chorus collected approximately 77% of its lease revenue recognized in the third quarter from its lessees. 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 expenditures in 2021, including capitalized major maintenance overhauls but excluding expenditures for the acquisition of aircraft and the ESP, are expected to be between $19.0 million and $29.0 million. Aircraft related acquisitions and ESP capital expenditures in 2021 are expected to be between $42.0 million and $50.0 million.

With the current recovery in passenger demand for air travel and further improvement expected in 2022, Chorus plans to invest between $300.0 million and $400.0 million in aircraft acquisitions in 2022 financed through existing cash resources, capital raises, secured debt financing or a combination thereof.

About Chorus Aviation Inc.

Chorus is a global provider of integrated regional aviation solutions. Chorus’ vision is to deliver regional aviation to the world. Headquartered in Halifax, Nova Scotia, Chorus is comprised of Chorus Aviation Capital a leading, global lessor of regional aircraft, and Jazz Aviation and Voyageur Aviation – companies that have long histories of safe operations with excellent customer service. Chorus provides a full suite of regional aviation support services that encompassesevery stage of an aircraft’s lifecycle, including aircraft acquisitions and leasing; aircraft refurbishment, engineering, modification, repurposing and preparation; contract flying; aircraft and component maintenance, disassembly, and parts provisioning.

Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol ‘CHR’. Chorus 6.00% Senior Debentures, 5.75% Senior Unsecured Debentures, and 6.00% Convertible Senior Unsecured Debentures trade on the Toronto Stock Exchange under the trading symbols ‘CHR.DB’, ‘CHR.DB.A’, ‘CHR.DB.B’,’CHR.DB.C’ respectively.  www.chorusaviation.com