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Chorus Aviation shares jump following arbitration win

Nov. 26, 2013, Halifax - Shares in Chorus Aviation Inc. jumped by nearly 30% in early morning trading Tuesday after the company said it won its protracted battle with Air Canada over how much it is paid to perform regional flying on behalf of the country’s largest carrier.


November 26, 2013
By The Financial Post

The news is a welcomed relief for the parent company of Jazz Aviation.

 

The dispute has been tied up for years, weighed heavily on Chorus’
shares throughout, and even caused a precautionary move that cut its
annual dividend in half last May.

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Chorus’ shares fell nearly 40% in the aftermath of the dividend cut.
They had pared some of those losses, but were still down nearly 25%
prior to the announcement Tuesday.

 

“We are pleased that the arbitration panel has ruled in favour of
Jazz and that we can now move forward with certainty,” said Joseph
Randell, Chorus chief executive, said in a statement.

He added that Chorus was committed to maintaining its 30 cent per share
annual dividend. But given its strong cash flow and liquidity position
due to the favourable ruling the board would be exploring “all
alternatives to further enhance shareholder value.”

At the heart of the dispute was how much Chorus is paid over and
above its controllable cost through its long-standing partnership with
Air Canada.

 

Air Canada argued the mark up rate should be in the range of 7% to 10% while Chorus maintained it should remain at 12.5%.

 

In a worse-case scenario if the arbitration panel sided with Air
Canada,  this could have triggered back payments of up to $157-million
from Chorus dating back to 2010 when the dispute arose.

Chorus said Tuesday the arbitration panel reviewing matter found no
justification for changing the rate from 12.5%, putting an end to the
dispute.

 

“Our long-term partnership with Air Canada continues to be a core
component of our business, and we believe this ruling provides us with
additional flexibility to continue to operate as an industry leader and
deliver value for all our stakeholders,” Mr. Randell said.

 

Mr. Randell also said the company has developed a framework for
addressing its cost structure to make it more competitive and win more
work from Air Canada.

 

Air Canada has put several of its U.S. transborder routes that are
currently operated by Jazz out for tender in an effort to reduce its
costs. It has also diversified its regional flying by adding lower-cost
partners like Sky Regional Airlines.

 

“We’ve heard and understand Air Canada’s desire to reduce the cost of
its regional services,” Mr. Randell said. “This framework is based on a
series of win-win propositions that could strengthen Jazz and Air
Canada in the North American market, create additional value for all our
respective stakeholders, and solidify our future in Air Canada’s
network. We look forward to engaging with Air Canada on these
meaningful and achievable initiatives.”