NAV CANADA announces Q2 financial results
NAV CANADA has released its financial results for the three and six months ended February 28, 2017. The results reflect growth in air traffic volumes as measured by weighted charging units of 3.9% over the same period in the prior fiscal year (5.1% excluding the effect of the leap year in fiscal 2016) and demonstrate the Company’s continued success in controlling costs and making strategic investments in its core services while maintaining safe and efficient air navigation.
The Company’s fiscal year runs from September 1 to August 31. In the second quarter of fiscal 2017, the Company had cash of $276 million, a negative free cash flow of $46 million due to seasonally weaker air traffic but strong financial performance as evidenced by its rate stabilization account, which finished the quarter with a positive balance of $179 million which is above its target balance of $101 million.
The Company’s revenue for the second quarter of fiscal 2017 was $296 million, compared to $309 million over the same period in fiscal 2016, mainly due to the lower revised service charges (7.6% on average) that became effective September 1, 2016 partially offset by a 3.9% growth in air traffic volumes.
“Even with the seasonal changes in air traffic volumes we continued to see strong air traffic growth in the second quarter, this increase is being driven primarily by the growth in trans-Atlantic air traffic volumes,” said Neil Wilson, President and CEO.
NAV CANADA continually monitors financial requirements and air traffic, and regularly updates the Company’s financial forecasts to account for changes in the economic environment. “Given the current strength of the rate stabilization account and our positive financial outlook for fiscal 2017, over the next fiscal quarter we will consider changes to our customer service charges that, if enacted, would likely be implemented in September 2017. We will be closely monitoring this situation over the next several months,” concluded Wilson.
Operating expenses for the second quarter of fiscal 2017 were $328 million as compared to $307 million over the same period in fiscal 2016, mainly due to higher pension current service costs and higher compensation costs. The Company uses a regulatory approach to determine the net impact charged to net income (loss) for its pension costs. The objective of this approach is to expense the cost of the Company’s cash going concern and special payment contributions. Going concern pension contributions were lower in the second quarter of fiscal 2017 and this reduction in expense was recorded as a net increase in regulatory deferrals adjustments.
Net other income and expenses for the second quarter of fiscal 2017 were an expense of $15 million as compared to an expense of $25 million over the same period in fiscal 2016, primarily due to higher positive fair value adjustments on the investment in preferred interests of Aireon LLC due to the fourth tranche investment made during the quarter and lower interest expense, partially offset by higher net interest costs related to employee benefits and higher foreign exchange losses.
The Company had a net loss (before net movement in regulatory deferral accounts including rate stabilization) of $52 million in the second quarter of fiscal 2017 as compared to a net loss of $24 million for the second quarter of fiscal 2016.
The Company is subject to legislation that regulates the level of its charges. The timing of the recognition of certain revenue and expenses recovered through charges is recorded through movements in regulatory deferral accounts. The net movement in regulatory deferral accounts for the second quarter of fiscal 2017 was income of $18 million as compared to a loss of $15 million over the same period in fiscal 2016. This change in regulatory deferrals of $33 million as compared to the same period in fiscal 2016 is due to lower deferrals of favourable results through rate stabilization adjustments of $16 million and a $17 million net increase in regulatory deferral adjustments to adjust the accounting recognition of certain transactions to the periods in which they will be considered for rate setting.
During the six months ended February 28, 2017, the Company received the remaining $285 million principal balance of Master Asset Vehicle II Class A-1 and A-2 notes ($212 million was received in the second quarter of fiscal 2017). Neil Wilson stated that “The Company participated in the restructuring of third party sponsored ABCP in Canada as a member of the Pan Canadian Investors Committee and we are gratified to see that the hard work of that committee resulted in a restructuring that occurred as anticipated”. The early partial redemption of the Company’s series MTN 2009-1 General Obligation Notes was financed out of proceeds from the ABCP investments received in the first quarter of fiscal 2017 along with surplus cash.
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