Chorus Aviation lays off 3,000, suspends dividend
Chorus Aviation Inc. on April 6 announced it would be temporarily laying off approximately 3,000 employees in a statement describing its response to the coronavirus pandemic. In addition to the temporary layoffs noted above, Joe Randell, president and CEO of Chorus, will forgo 70 per cent of his salary, members of the executive team will forgo up to 50 per cent of their salary, and the board of directors has taken a 25 per cent reduction in fees.
The company notes that while its business model does not directly expose it to the market risks ordinarily faced by airlines, substantially all its source revenue is derived from airline customers, through its Capacity Purchase Agreement (CPA) with Air Canada and its leasing of aircraft to airline customers globally. Chorus points to the International Air Transport Association currently estimating a US$252 billion year-on-year loss in passenger revenue worldwide.
“Our industry is facing its worst crisis in history. The world situation is unstable and there are no signs of a near-term recovery,” said Joe Randell, president and CEO, Chorus Aviation. “We entered this predicament from our strongest position ever, and it’s devastating to be sending approximately 3,000 employees home, given the successes we’ve achieved together.”
Describing the rapid and dramatic impact of this pandemic as astounding, Randell continues to explain Chorus is taking all measures to ensure the safety of its employees, mitigate costs, bolster liquidity and strengthen relationships with customers. “We’re prudently and responsibly managing our financial resources to secure our future and eliminating all discretionary cash outflows thus requiring a suspension of our dividend,” he said.
Chorus explains it is suspending its dividend following payment of the previously declared dividend payable on April 17, 2020, to shareholders of record on March 31, 2020. In an effort to preserve cash to strengthen its position through the crisis, no further dividends will be paid until further notice and its dividend reinvestment program (DRIP) will also be suspended.
In addition, Chorus has executed a letter of offer with Export Development Canada to provide an unsecured US$100 million revolving credit facility – repayable in two years – to be used for general corporate purposes, in an effort to bolster its liquidity position. The company is also in the process of raising approximately US$30 to US$50 million in financing to be secured by up to four unencumbered aircraft.
Chorus’ Air Canada Express flying has been reduced by approximately 90 per cent for April and May, in line with an earlier announcement from Air Canada that it is implementing a second quarter, network-wide capacity reduction of approximately 85 to 90 per cent.
Bombardier, with the temporary suspension of its production line, has notified Chorus of a temporary delay in the production of its order of nine Bombardier CRJ900 aircraft that were originally scheduled for delivery in 2020. As such, Chorus expects a corresponding delay in anticipated leasing revenue under the CPA for these aircraft. No timeline has been provided for the future delivery of the aircraft for which deposits were previously paid.
Chorus also notes, that as with many leasing companies, it has received requests from substantially all of its Regional Aircraft Leasing segment customers for some form of temporary rent relief. The period of relief most commonly spans three months. Chorus also had pending transactions involving the delivery of three ATR 72-600 aircraft and three Airbus A220-300 aircraft in 2020. Chorus expects all these deliveries will be deferred.
The company’s Voyageur subsidiary, which represents less than 10 per cent of Chorus’ consolidated revenue and net income, provides specialty contract flying, primarily for international organizations engaged in humanitarian missions, and specialty maintenance, repair, overhaul (MRO) and parts sales. Voyageur is experiencing continued demand overseas, explains Chorus, to support humanitarian efforts, contracted flying for cargo services, and there has been no interruption to the air ambulance operation in New Brunswick. Chorus also notes Voyageur’s MRO operation continues in servicing essential aviation customer requirements.