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Air Canada $97.3M investment in Chorus

Chorus Aviation Inc, parent company of Jazz Aviation LP, today announced an agreement to extend the capacity purchase agreement (CPA) between Jazz and Air Canada. This announcement also includes a $97.26 million equity investment by Air Canada in Chorus.


January 14, 2019
By Wings Staff
Chorus plans to use around 60 per cent of the Air Canada investment to purchase nine larger-gauge CRJ900 (76-seat) aircraft to modernize Jazz’s fleet. (Photo: Jazz Aviation)

The agreement will extend the CPA between the companies to 2035, which creates the longest-term strategic partnership to date between Jazz and Air Canada. “Our solid track record of finding solutions for the long-term benefit of Chorus stakeholders has once again delivered an even stronger relationship with Air Canada for the next 17 years,” said Joe Randell, president and CEO, Chorus.

Four years after the last amendment to the CPA, the two parties explain they are again taking steps to ensure the long-term competitiveness and strength of their alliance. This newest amendment, according to the parties, will address increased domestic and international competition, changing market demand, and fluctuating fuel prices, through significant changes that will modernize and up-gauge the fleet.

Chorus states it will use approximately 60 per cent of the investment proceeds to purchase nine additional new larger-gauge CRJ900 (76-seat) aircraft to modernize Jazz’s fleet and generate additional lease revenue under the CPA. Five CRJ900s sourced by Air Canada will initiate the fleet changes with deliveries expected to begin in the first half of 2019.

“Air Canada is deepening its partnership with Chorus through an improved CPA agreement for Jazz flying and our equity investment in Chorus… enabling us to modernize our regional fleet and respond more nimbly to evolving market conditions and to remain ahead of our competitors,” said Calin Rovinescu, president and chief executive of Air Canada.

The agreement secures Jazz’s place in Air Canada’s regional network under what the companies, in part, describe as the following key terms:

– Chorus and Air Canada become true allies in the aviation industry and reinforce their strategic partnership through a $97.26 million equity investment in Chorus by Air Canada;

– Chorus will use approximately 60 per cent of the investment proceeds to purchase nine additional new larger-gauge CRJ900 (76-seat) aircraft to modernize Jazz’s fleet and generate additional lease revenue under the CPA. Chorus has conditionally secured the ability to purchase the CRJ900s.The remaining balance will be deployed by Chorus to acquire and lease aircraft outside of the CPA;

– Air Canada will have a seat on Chorus’ board and will nominate Michael Rousseau, Air Canada’s deputy CEO and CFO to the position;

– In total, the 17-year contract will provide $2.5 billion in minimum contracted revenues of which $1.6 billion, or 65 per cent, will be generated from aircraft leasing revenue, supporting the continued transformation of Chorus’ business through the migration of CPA earnings to aircraft leasing;

– The amended CPA will provide for total incremental contracted revenue of $940 million; $310 million in fixed fees and $630 million in aircraft leasing under the CPA;

– Incremental fleet acquisitions will provide Chorus significant tax shield and cash tax deferrals through increased tax depreciation deductions;

– Air Canada will achieve cost savings related to fixed fee reductions, predominantly occurring in 2019 and 2020 with a $36 million decrease in each year, as Chorus reduces its above-market fixed fee rates, carried over from its legacy agreement;

– Air Canada will consolidate more of its overall regional capacity into Jazz’s footprint, thereby further securing Jazz’s place in Air Canada’s regional network;

– The minimum Covered Fleet of 105 aircraft to 2025 and a minimum of 80 75-seat aircraft between 2026 and 2035 will provide a predictable minimum contracted revenue stream for 17 years;

– Five CRJ900s sourced by Air Canada will initiate the fleet changes with deliveries expected to begin in the first half of 2019;

– Chorus will secure preferred partner status on the operation of aircraft with up to 50 seats through a right to match third-party offers, thus enhancing growth opportunities; and

– Enhanced pilot mobility agreement that will provide Jazz pilots with access to pilot careers at Air Canada.