Q3 2022 Financial Highlights
- Net income of $23.6 million, a quarter-over-quarter increase of $37.6 million due to the impact of Falko’s earnings and decreased unrealized foreign exchange losses of $10.4 million.
- Adjusted net income of $41.7 million, an increase of $26.4 million quarter-over-quarter.
- Earnings available to Common Shareholders of $13.1 million, or $0.06 per basic Common Share, inclusive of dividends declared on the Preferred Shares and non-controlling interest.
- Adjusted earnings available to Common Shareholders of $31.2 million, or $0.15 per Common Share an increase of $15.9 million quarter-over-quarter inclusive of dividends declared on the Preferred Shares and non-controlling interest.
- Adjusted EBITDA of $123.4 million, an increase of $45.3 million quarter-over-quarter.
Accomplishments
- Chorus continued to generate strong cash flows and execute on its strategy to transition to an asset light leasing model in the quarter.
- Chorus generated $100.9 million of cash during the third quarter 2022, largely due to asset sales net of debt repayments and the release of security over previously restricted cash. Chorus had cash flows from operations of $91.3 million in the third quarter, an increase of $8.5 million over third quarter 2021.
- Chorus repaid $219.7 million of debt in the third quarter of 2022, which included scheduled repayments of $81.1 million, $112.0 million of repayments on loans related to the eight CRJ900s sold in the quarter and a $26.6 million discretionary repayment on the Operating Credit Facility. On October 6, 2022, Chorus repaid the remaining balance on its Operating Credit Facility of US $19.0 million.
- As a result of increased earnings and significantly lower debt balances, Chorus’ leverage ratio (Net debt to trailing 12-month Adjusted EBITDA) improved to 5.1 from 6.4 as at June 30, 2022.
HALIFAX, NS, Nov. 9, 2022 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR) today announced third quarter 2022 financial results.
“With our first full quarter since the Falko acquisition now complete, I am pleased to report both the continued seamless integration of our leasing business under Falko and the achievement of its expected financial performance,” said Joe Randell, President and Chief Executive Officer, Chorus.
“We will continue to transition to an asset light model and will opportunistically explore asset sales, thereby creating additional shareholder value by generating incremental cash flows and paying down debt. In addition, we look forward to the closing of Falko’s next fund in the first half of 2023.”
“With the announcement of my planned retirement, I am working actively with incoming President and Chief Executive Officer, Colin Copp, to ensure a smooth transition in the first quarter of 2023. Colin has been an integral member of the Chorus leadership team for over two decades and his depth of knowledge across all aspects of our business will serve him well as he leads Chorus through 2023 and beyond.”
“I’d like to express my appreciation to all our employees for their tireless efforts as the aviation industry continued to rebuild capacity and I am confident that we are very well positioned to execute on new growth opportunities that will deliver positive returns to our shareholders and fund investors, and make Chorus an even more attractive company for customers, partners and employees,” concluded Mr. Randell.
Third Quarter Summary
In the third quarter of 2022, Chorus reported Adjusted EBITDA of $123.4 million, an increase of $45.3 million over the third quarter of 2021.
The RAL segment’s Adjusted EBITDA was $69.8 million, an increase of $43.7 million primarily due to Falko’s earnings, the recovered claims in the Virgin Australia bankruptcy, 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 $53.5 million, an increase of $1.6 million. Third quarter results were impacted by:
- an increase in other revenue due to the sale of four Dash 8-100s that were held for resale and 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 $1.2 million primarily due to a higher US dollar exchange rate; offset by
- a decrease in capitalization of major maintenance overhauls on owned aircraft of $2.2 million;
- an increase in stock-based compensation of $1.8 million due to the change in fair value of the Total Return Swap and one-time restructuring grants offset by a decrease in the Common Share price; and
- an increase in general administrative expenses attributable to increased operations.
Adjusted net income was $41.7 million for the quarter, an increase of $26.4 million over the third quarter of 2021 due to:
- a $45.3 million increase in Adjusted EBITDA as previously described; partially offset by
- an increase in depreciation expense of $12.5 million primarily attributable to Falko;
- an increase of $2.7 million in income tax expense; and
- an increase in net interest costs of $4.0 million primarily related to interest on long-term debt assumed as part of the Falko Acquisition and interest on the Series C Debentures partially offset by the repayment of certain aircraft financings and the partial redemption of the 6.00% Debentures in December 2021.
Net income increased $37.6 million over the third quarter of 2021 due to:
- the previously noted increase in Adjusted net income of $26.4 million;
- a decrease in net unrealized foreign exchange losses of $10.4 million; and
- a decrease in impairment provision of $6.3 million; partially offset by
- an increase in lease repossession costs of $4.9 million; and
- an increase in employee separation program costs of $0.4 million.
Year-to-Date Summary
Chorus reported Adjusted EBITDA of $311.5 million for 2022, an increase of $72.5 million over the same prior year period.
The RAL segment’s Adjusted EBITDA was $152.0 million, an increase of $71.9 million primarily due to the inclusion of five months of earnings from Falko, the recovered claims in the Virgin Australia and Aeromexico bankruptcies, net gain on sale of assets and increased lease revenue from CACIL’s re-leased aircraft.
The RAS segment’s Adjusted EBITDA was $159.5 million an increase of $0.6 million due to:
- an increase in other revenue due to the sale of four Dash 8-100s that were held for resale and an increase in parts sales and contract flying partially offset by a decrease in third-party MRO activity;
- an increase in aircraft leasing revenue under the CPA of $2.9 million primarily due to a higher US dollar exchange rate; and
- an increase in capitalization of major maintenance overhauls on owned aircraft of $2.4 million; partially offset by
- an increase in stock-based compensation of $6.2 million due to the change in fair value of the Total Return Swap and one-time restructuring grants offset by a decrease in the Common Share price; and
- an increase in general administrative expenses attributable to increased operations.
Adjusted net income of $87.0 million, an increase of $44.6 million over the same prior year period due to:
- a $72.5 million increase in Adjusted EBITDA as previously described; partially offset by
- an increase in depreciation expense of $20.6 million primarily attributable to Falko;
- a $5.9 million increase in income tax expense offset by lower income tax recoveries on adjusted items;
- a decrease in gain on property and equipment of $1.6 million; and
- a loss on fair value of investments of $0.6 million.
Net income of $6.1 million, an increase of $36.7 million over the same prior year period due to:
- the previously noted increase in Adjusted net income of $44.6 million; and
- one-time restructuring costs of $80.7 million in 2021 related to the 2021 CPA Amendments; offset by
- a change in net unrealized foreign exchange of $23.2 million;
- an increase in lease repossession costs of $16.6 million;
- an increase in impairment provisions of $14.2 million in the RAL segment;
- a decrease in income tax recoveries on adjusted items of $14.0 million;
- an increase in restructuring credit loss provision of $10.4 million;
- strategic advisory fees related to the Falko Acquisition of $8.5 million; and
- an increase in employee separation program costs, exclusive of the cost attributable to the pilot early retirement program and signing bonuses of $1.7 million.
Outlook
Chorus completed the Falko Acquisition in the second quarter of 2022. This transformative transaction creates new opportunities for growth, through increased access to growth capital and a differentiated business model to maximize returns on aircraft assets.
Key Economic Assumptions:
- The forecast assumes the launch in the first half of 2023 of a new investment fund managed by Falko with (i) a minimum of US $500.0 million in capital commitments and (ii) management fees and economic terms commensurate with those in Falko’s prior funds.
- The forecast revenue is based on current contracted lease revenue and forecasted revenues for leased aircraft and asset management fees. Aircraft leasing revenue under the CPA and Fixed Margin revenue is expected to be US $114.7 million and $66.3 million, respectively in 2022.
- The forecast uses weighted average statutory tax rates for each of the individual entities based on the jurisdiction in which the entity is taxable. The forecast uses a weighted average income tax rate of 20.0% based on average statutory tax rates of 26.5%, 12.5% and 19.0% in Canada, Ireland and United Kingdom, respectively. The actual weighted average income tax rates may vary due to the actual income in each country and foreign exchange rates.
- The forecast assumes no disposals in 2022 of aircraft leased under the CPA and no disposals in the RAL segment in the fourth quarter of 2022.
- The forecast uses a foreign exchange rate of 1.35 for the fourth quarter of 2022 to translate USD to CAD revenue and expenses.
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. The gross lease receivable may decrease from the September 30, 2022 balance of US $97.4 million to approximately US $91.3 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 US $19.0 million (December 31, 2021 – US $21.1 million).
More information can be found at chorusaviation.com/chorus-aviation-announces-third-quarter-2022-financial-results/
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.