Chorus Aviation announce strong year-end earnings
By Chorus Aviation
Chorus Aviation Inc. has announced strong fourth quarter and year-end 2015 earnings.
By Chorus Aviation
“I am extremely pleased with our accomplishments and financial performance in 2015; it was truly a transformational year,” said Joe Randell, President and Chief Executive Officer, Chorus. “Our amended agreement with Air Canada and our acquisition of Voyageur delivered strong returns, and significantly strengthened our organization and competitive position. For the year ended December 31, 2015 we experienced increases in operating income, adjusted EBITDA1 and adjusted earnings per share1 of 8.4%, 2.6% and 1.3% respectively. The Chorus team remains focused on ensuring safe and profitable growth as we continue to increase value for our shareholders.”
YEAR-END 2015 HIGHLIGHTS
- Adjusted EBITDA1 of $209.2 million.
- Adjusted net income1 of $96.3 million.
- Adjusted net income1 per basic share of $0.79.
- Net income of $25.5 million.
- Net income per basic share of $0.21.
Q4 2015 HIGHLIGHTS
- Adjusted EBITDA1 of $64.1 million.
- Adjusted net income1 of $32.1 million.
- Adjusted net income1 per basic share of $0.26.
- Net income of $12.5 million.
- Net income per basic share of $0.10.
In the fourth quarter of 2015, Chorus generated adjusted EBITDA of $64.1 million, a $14.3 million increase over the fourth quarter of 2014. This increase was primarily driven by a $13.5 million increase in operating income, and a net $0.8 million increase in depreciation and amortization expense compared to the fourth quarter of 2014. The increase in operating income was from the $6.3 million contribution generated by the Voyageur operation which included the return of previously expensed maintenance reserve deposits associated with the purchase of five CRJ200s that had been under operating leases prior to their purchase by Voyageur. Leasing operations under the CPA generated $5.2 million due to the addition of new Q400s in the fourth quarter, and a change in the US dollar exchange rate also contributed to the increase in operating income. The remaining net increase of $2.0 million in operating income was attributable to more labour and maintenance costs being capitalized on owned aircraft for major maintenance overhauls, and other reductions. These increases were offset by higher stock-based compensation and the absence in the quarter of the compensating mark-up.
For reporting purposes, at each quarter end, Chorus converts its US dollar denominated aircraft debt into equivalent Canadian dollars based on the prevailing exchange rate. Chorus manages its exposure to currency risk on such long-term debt by billing related lease payments under the CPA with Air Canada in the underlying currency (US dollars) related to the aircraft debt. As a result of this conversion, in the fourth quarter of 2015, Chorus had an unrealized foreign exchange loss of $19.6 million versus an unrealized foreign exchange loss of $12.4 million in the same period of 2014.
Financial Performance – Fourth Quarter 2015 Compared to Fourth Quarter 2014
Operating revenue decreased from $401.3 million to $357.4 million, representing a decrease of $43.9 million, or 10.9%.
Controllable revenue decreased by $13.2 million or 6.1%. Under the amended CPA, certain items provided to Chorus by Air Canada, such as ground handling at the major hubs, have been removed from controllable revenue. Other items, such as third party ground handling, have been re-classified as pass-through costs and removed from controllable revenue. The controllable revenue reduction related to these changes was $24.3 million. Rate decreases under the CPA resulted in a $1.3 million decrease in the quarter, and decreased CPA billable block hours accounted for a further decrease of approximately $0.1 million. These decreases were offset by a change in the US dollar exchange rate that resulted in a $12.5 million increase in the quarter.
Aircraft leasing revenue under the CPA increased by $5.2 million to $19.9 million. The increase was related to a change in the US dollar exchange rate of $2.6 million and $2.6 million generated from the addition of five new Q400 aircraft to the CPA covered fleet. As of December 31, 2015, aircraft leasing revenue under the CPA was generated from 26 Q400 aircraft and four Q400 engines owned by Chorus, compared to 21 Q400 aircraft and four Q400s engines owned by Chorus as of December 31, 2014. Annually these aircraft and engines generate a cash margin of approximately 20% after consideration of debt servicing charges.
Under the amended CPA, Chorus’ compensation is based on fixed fees for the term of the agreement. The annual fixed fee compensation for 2015 was contractually set at $109.7 million or $27.4 million quarterly.
In the fourth quarter, Chorus earned $5.6 million in performance incentives, or 96.7% of the maximum incentive payment available under the CPA, compared to $5.7 million or 96.5% in the fourth quarter of 2014.
CPA pass-through revenue decreased by $48.7 million or 36.5%, from $133.4 million to $84.7 million. Compensation for aircraft fuel (effective November 1, 2015), deicing and certain other costs provided to Chorus by Air Canada are no longer billed. Other costs, such as third party ground handling, have been removed from controllable costs and re-classified as pass-through costs. As such, these changes decreased pass-through revenue by $42.6 million. In addition, a decline in jet fuel prices prior to the transition on November 1, 2015 decreased pass-through revenue by $7.9 million. These decreases were offset by a change in the US dollar exchange rate resulted in a $1.5 million increase in the quarter.
Charter and other contract flying revenue increased by $8.7 million. Contract flight revenue from the Voyageur operation accounted for $9.4 million; offset by decreased Jazz charter revenue of $0.7 million.
Other revenue increased by $5.1 million primarily related to the addition of the Voyageur operation, which includes leasing, and maintenance repair and overhaul.
Operating expenses decreased from $368.3 million to $310.9 million, a decrease of $57.4 million or 15.6%.
Salaries, wages and benefits increased to $107.2 million from $99.2 million. Adjusted salaries, wages and benefits increased by $9.1 million primarily as a result of the addition of the Voyageur operation, and increased pension costs. Stock-based compensation increased primarily as a result of fluctuations in Chorus’ share price. Employee separation program costs incurred during the fourth quarter were $1.6 million compared to $1.3 million in the same period of 2014. Salaries and wages were also affected by more labour costs being capitalized on owned aircraft for major maintenance overhauls of $1.6 million quarter-over-quarter.
Aircraft maintenance expense decreased by $1.6 million, from $45.0 million to $43.4 million. The Voyageur operation accounted for a $3.3 million decrease (includes $6.1 million related to the return of previously expensed maintenance reserve deposits associated with the purchase of five CJR200s which had been under operating lease by Voyageur). In addition, other maintenance costs decreased by $4.3 million, and since more maintenance costs were capitalized as a result of increased major maintenance overhauls, this accounted for a further decrease of $1.1 million. These decreases were offset by $5.5 million due to a change in the US dollar exchange rate on certain maintenance material purchases, and increased engine overhauls of $1.6 million.
Other expenses increased by $5.2 million from $28.7 million to $33.9 million. This increase was generated by $3.5 million from the addition of the Voyageur operation, $2.4 million in increased crew costs related to training and travel, and $2.0 million in general overhead. Costs for certain services to Chorus provided by Air Canada are no longer billed. These Air Canada costs were $nil in the fourth quarter compared to $2.7 million in the same period last year.
Non-operating expenses increased by $9.2 million from $13.6 million to $22.8 million. Net interest expense increased by $1.4 million. Interest expense related to long-term debt increased by $0.9 million as a result of a change in the US dollar exchange rate, and $0.3 million related to interest on consideration payable. The weakening of the Canadian dollar in the quarter contributed to a foreign exchange loss of $18.6 million, compared to a foreign exchange loss of $10.6 million in the previous year.
Operating income of $46.5 million increased by $13.5 million from $33.0 million.
Adjusted EBITDA was $64.1 million compared to $49.8 million in 2014, an increase of $14.3 million.
Adjusted net income for the fourth quarter 2015 was $32.1 million or $0.26 per basic share compared to $23.7 million or $0.20 per basic share for the same period 2014. Net income in the quarter was $12.5 million or $0.10 per basic share compared to 2014 net income of $11.3 million or $0.09 per basic share.
A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in Chorus’ Management’s Discussion and Analysis dated February 18, 2016.