CHORUS AVIATION INC. Recent Highlights
- Net income of
$29.2 million , or$0.18 per basic share; a period-over-period decrease of$9.7 million due to the global economic impact of COVID-19 on its results, partially offset by a change in unrealized foreign exchange of$6.3 million . - Adjusted net income1 of
$21.6 million , or$0.13 per basic share; a decrease of$2.5 million quarter-over-quarter due to the economic impact of COVID-19 noted above. - Adjusted EBITDA1 of
$91.0 million ; an increase of$5.3 million over second quarter 2019 primarily generated by the growth in aircraft leasing. - Liquidity, inclusive of available credit, was
$189.0 million as atJune 30, 2020 . - Aircraft transactions completed post the second quarter further increased liquidity by
$39.0 million , bringing total liquidity to$228.0 million . - Third-party leasing revenue collected in July grew to 38%, up from approximately 28% in
June 2020 .
"The global aviation industry continues to be significantly challenged by the effects of the COVID-19 epidemic. Our focus remains on ensuring the safety of our employees and passengers and maintaining ample liquidity. The team has dramatically reduced costs, curtailed capital investment and raised new funding. With
"The COVID-19 crisis, provincial and federal government-imposed travel restrictions and border closures continue to have a devastating effect on passenger demand for Canadian air travel. While these may have been necessary in the beginning,
"Since the start of this crisis, we've had to make very difficult but necessary decisions, including the reduction to our workforce by approximately 65%, or almost 3,200 employees. At the end of the second quarter, Air Canada announced the discontinuation of 21 Air Canada Express regional routes operated by Jazz, and the closure of eight Jazz-managed stations at regional airports. I am saddened by the impact these service cancellations have on our employees, suppliers and the affected communities many of which have lost their only link to
"While the industry remains challenged and fragile, we are encouraged by some positive signs of a resurgence. As expected, regional aircraft have been affirmed as fundamentally important to most countries' domestic transportation networks. Regional aviation is generally resuming flying earlier and at a quicker pace than long-haul travel. For example, in the second quarter our Air Canada Express operation flew approximately 9% of the block hours flown in the same period last year; however, we expect this to increase to be between 20% and 30% for the balance of this year compared to 2019. Approximately 50% of our third-party leased fleet is now flying with the number of flight hours up from the low points of this past spring."
"The prolonged uncertainty and instability triggered by the pandemic has caused most aircraft lessors around the world to provide rent deferrals to lessees and to review asset valuations. Our assessment of the economic impact of COVID-19 on
"Overall, our portfolio of leased aircraft is holding up well. Approximately 28% of lease revenue was collected in the second quarter and subsequently increased to approximately 38% in July. Although the industry remains under significant stress, we are encouraged by the improving traffic trends and the utilization of regional aircraft when compared with other aircraft types."
"We recognize the revitalization of the regional sector will be protracted, sporadic and will extend well into 2021 and beyond. We are taking all reasonable measures to protect and preserve our company and the value we've created for our shareholders. I extend my gratitude to all our employees who have done tremendous work to ensure we weather this crisis. Their continued commitment, resilience and focus on safety have been critical," concluded
Second Quarter Summary
In the second quarter of 2020, Chorus reported adjusted EBITDA of
The Regional Aviation Services segment's adjusted EBITDA decreased by
- a reduction in other revenue due to a decrease in third-party maintenance, repair and overhaul ('MRO') activity, lower aircraft part sales, and reduced contract flying in Voyageur due to the economic impact of COVID-19;
- decreased capitalization of major maintenance overhauls on owned aircraft operated under the capacity purchase agreement ('CPA') between Jazz and Air Canada of
$2.9 million over the previous period; and - expected credit loss and inventory provisions of
$1.3 million in Voyageur; partially offset by - decreased stock-based compensation of
$2.6 million due to the change in the Share price inclusive of the change in fair value of the Total Return Swap; - increased aircraft leasing under the CPA; and
- decreased general administrative expenses.
Adjusted net income was
- an increase in depreciation of
$5.9 million primarily related to additional aircraft in theRegional Aircraft Leasing segment; - an increase in net interest costs of
$3.2 million primarily related to the 5.75% Unsecured Debentures, the unsecured revolving credit facility and additional aircraft debt in theRegional Aircraft Leasing segment; and - a decrease of
$1.8 million due to a loss of$0.4 million versus a gain of$1.4 million on disposal of property and equipment; partially offset by - a
$5.3 million increase in adjusted EBITDA as previously described; - a
$2.5 million decrease in income tax expense resulting from a reduction in EBT1 combined with a decrease in certain provincial tax rates and non-deductible expenses of$5.0 million offset by a tax recovery on adjusted items of$2.5 million ; and - a decrease of
$0.6 million in realized foreign exchange and unrealized foreign exchange losses on working capital.
Net income decreased
Year-to-date Summary
Chorus reported adjusted EBITDA of
The Regional Aviation Services segment's adjusted EBITDA decreased by
- a reduction in other revenue due to a decrease in third-party MRO activity, lower aircraft part sales, and reduced contract flying in Jazz and Voyageur due to the economic impact of COVID-19;
- decreased capitalization of major maintenance overhauls on owned CPA aircraft of
$1.3 million over the previous period; and - expected credit loss and inventory provisions of
$1.3 million in Voyageur; partially offset by - decreased stock-based compensation of
$5.2 million due to the change in the Share price inclusive of the change in fair value of the Total Return Swap and - increased aircraft leasing under the CPA.
Adjusted net income was
- a
$19.2 million increase in adjusted EBITDA as previously described; - a decrease in income tax expense of
$2.9 million resulting from a reduction in EBT combined with a decrease in certain provincial tax rates and non-deductible expenses of$5.9 million offset by a tax recovery on adjusted items of$3.0 million ; and - a decrease of
$2.0 million in realized foreign exchange and unrealized foreign exchange losses on working capital; partially offset by - an increase in depreciation of
$11.7 million primarily related to additional aircraft in theRegional Aircraft Leasing segment and impairment on aircraft; - an increase in net interest costs of
$7.6 million primarily related to additional aircraft debt in theRegional Aircraft Leasing segment, the 5.75% Unsecured Debentures and the unsecured revolving credit facility; and - a decrease of
$1.8 million due to a loss of$0.4 million versus a gain of$1.4 million on disposal of property and equipment.
Net income decreased
Consolidated Financial Analysis
(unaudited) (expressed in thousands of Canadian dollars) | Three months ended | Six months ended | ||||||||||||||
2020 | 2019 | Change | Change | 2020 | 2019 | Change | Change | |||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||
Operating revenue(1) | 184,214 | 332,520 | (148,306) | (44.6) | 542,238 | 676,387 | (134,149) | (19.8) | ||||||||
Operating expenses(1) | 150,531 | 282,159 | (131,628) | (46.7) | 461,863 | 585,907 | (124,044) | (21.2) | ||||||||
Operating income | 33,683 | 50,361 | (16,678) | (33.1) | 80,375 | 90,480 | (10,105) | (11.2) | ||||||||
Net interest expense | (21,368) | (18,199) | (3,169) | (17.4) | (41,575) | (33,940) | (7,635) | (22.5) | ||||||||
Foreign exchange gain (loss) | 18,467 | 11,576 | 6,891 | (59.5) | (20,965) | 25,826 | (46,791) | 181.2 | ||||||||
Other (loss) gain(2) | (390) | 1,430 | (1,820) | (127.3) | (374) | 1,466 | (1,840) | (125.5) | ||||||||
Earnings before income tax | 30,392 | 45,168 | (14,776) | (32.7) | 17,461 | 83,832 | (66,371) | (79.2) | ||||||||
Income tax expense | (1,227) | (6,227) | 5,000 | 80.3 | (5,590) | (11,444) | 5,854 | 51.2 | ||||||||
Net income | 29,165 | 38,941 | (9,776) | (25.1) | 11,871 | 72,388 | (60,517) | (83.6) | ||||||||
Adjusted EBITDA(1)(3) | 91,042 | 85,720 | 5,322 | 6.2 | 179,622 | 160,444 | 19,178 | 12.0 | ||||||||
Adjusted EBT(3) | 25,914 | 30,880 | (4,966) | (16.1) | 55,152 | 55,146 | 6 | — | ||||||||
Adjusted net income(3) | 21,644 | 24,156 | (2,512) | (10.4) | 45,465 | 42,557 | 2,908 | 6.8 | ||||||||
(1) | Year-to-date and first quarter operating revenue and expense increased by |
(2) | Other includes gain on disposal of property and equipment. |
(3) | These are non-GAAP financial measures. |
Outlook
(See cautionary statement regarding forward-looking information below)
The COVID-19 pandemic and resulting government restrictions have created unprecedented challenges for the aviation industry and global cancellations are impacting airlines around the world. Substantially all Chorus' revenue is derived from airline customers, through its CPA and its leasing of aircraft to airline customers globally; therefore, Chorus is exposed to the challenges facing the air passenger industry. Currently, the full duration and impact of this pandemic on aviation are unknown.
Regional Aviation Services:
Since
Jazz expects to operate between approximately 20% to 30% of its capacity in the third and fourth quarters of 2020 compared to the same periods in 2019.
In accordance with the CPA, the Fixed Margin does not vary with the number of aircraft and is fixed for 2020 based on agreed annual amounts.
As of
Due to the economic impact of COVID-19, Chorus delayed the delivery of six of the nine planned CRJ900 deliveries until
Voyageur continues to provide overseas humanitarian flights and cargo services, and the air ambulance operation in
Chorus has received requests from substantially all its
Subsequent to
Capital expenditures in 2020, including capitalized major maintenance overhauls but excluding expenditures for the acquisition of aircraft and the ESP, are expected to be between
| Actual | ||||
Planned 2020(1) | Six months ended | Year ended | |||
$ | $ | $ | |||
Capital expenditures, excluding aircraft acquisitions and ESP | 16,000 to 19,000 | 7,778 | 31,547 | ||
Capitalized major maintenance overhauls | 7,000 to 10,000 | 4,996 | 14,444 | ||
Aircraft related acquisitions and ESP | 481,000 to 487,000 | 91,361 | 829,710 | ||
504,000 to 516,000 | 104,135 | 875,701 | |||
(1) | The 2020 plan includes two ESPs and nine CRJ900s in the Regional Aviation Services segment as well as two ATR72-600s and three A220-300s for the |
The following table provides the number of closed and pending and/or delayed transactions announced to date:
(unaudited) | Completed Transactions | Pending/Delayed | Committed Transactions | |||||
Customer | 2016 - | Q2 2020 | Total | Q3 2020 | Q4 2020 and | 2016 - | Increase | Total 2016 - |
Aeromexico(3) | 3 | 3 | 3 | 3 | ||||
4 | 4 | 4 | 4 | |||||
airBaltic | 2 | 2 | 1 | 2 | 5 | 5 | ||
5 | 5 | 5 | 5 | |||||
CityJet(4) | 2 | 2 | (2) | 2 | (2) | — | ||
2 | 2 | 2 | 2 | |||||
5 | 5 | 5 | 5 | |||||
Indigo | 8 | 8 | 8 | 8 | ||||
Jambojet | 3 | 3 | 3 | — | 3 | |||
KLM Cityhopper | 1 | 1 | 1 | 1 | ||||
4 | 4 | 4 | 4 | |||||
3 | 3 | 3 | 3 | |||||
SpiceJet | 5 | 5 | 5 | 5 | ||||
Virgin Australia(5) | 3 | 3 | (3) | 3 | (3) | |||
1 | 1 | 1 | — | 1 | ||||
Undisclosed customer | — | — | 2 | 2 | — | 2 | ||
Aircraft to be remarketed | 8 | 8 | 5 | 8 | 5 | 13 | ||
59 | — | 59 | 1 | 4 | 64 | — | 64 | |
Total Regional Aviation Services(6) | 53 | 3 | 56 | — | 15 | 71 | — | 71 |
Chorus Total Aircraft | 112 | 3 | 115 | 1 | 19 | 135 | — | 135 |
(1) | As of |
(2) | Total announced transactions as of |
(3) | On |
(4) | On |
(5) | Virgin Australia entered into voluntary administration on |
(6) | The Regional Aviation Services segment's commitments include the following pending and delayed transactions: six CRJ900s, four Dash 8-300s that will undergo the ESP planned for between 2020 - 2022, and five 75-78 seat aircraft, all of which are intended to earn leasing revenue under the CPA. All pending acquisitions and lease commitments are subject to satisfaction of customary conditions precedent to closing. |
Further, capitalized terms used but not defined in the Outlook section have the meanings given to them in the MD&A which is available on Chorus' website (www.chorusaviation.com) and SEDAR (www.sedar.com).
Investor Conference Call / Audio Webcast
Chorus will hold an analyst call at
https://produceredition.webcasts.com/starthere.jsp?ei=1341447&tp_key=f0bb72e9b3
This is a listen-in only audio webcast.
The conference call webcast will be archived on Chorus' website at www.chorusaviation.com under Investors > Reports > Executive Management Presentations. A playback of the call can also be accessed until
1NON-GAAP FINANCIAL MEASURES
This news release references several non-GAAP financial measures to supplement the analysis of Chorus' results. Chorus uses certain non-GAAP financial measures, described below, to evaluate and assess performance. These non-GAAP measures are generally numerical measures of a company's financial performance, financial position or cash flows, that include or exclude amounts from the most comparable GAAP measure. As such, these measures are not recognized for financial statement presentation under GAAP, do not have a standardized meaning, and are therefore not likely to be comparable to similar measures presented by other public entities.
Due to economic impact of COVID-19 on the global airline industry, Chorus revised its definition of Adjusted net income in the second quarter of 2020 to exclude impairment provisions and lease repossession costs net of security packages recovered and the applicable tax expense (recovery) caused by the pandemic to facilitate transparency and comparability of its results.
A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in the MD&A dated
Adjusted net income and Adjusted net income per Share are used by Chorus to assess performance without the effects of unrealized foreign exchange gains or losses on long-term debt and lease liability related to aircraft, signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages recovered, strategic advisory fees and the applicable tax expense (recovery). Chorus manages its exposure to currency risk on such long-term debt by billing the lease payments within the CPA in the underlying currency (US dollars) related to the aircraft debt. These items are excluded because they affect the comparability of Chorus' financial results, period-over-period, and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring due to ongoing currency fluctuations between the Canadian and US dollar.
Due to economic impact of COVID-19 on the global airline industry, Chorus revised its definition of Adjusted EBT and Adjusted EBITDA in the second quarter of 2020 to include impairment provisions and lease repossession costs net of security packages recovered to facilitate transparency and comparability of its results. Adjusted EBT and EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows, forming part of Chorus' financial statements.
EBT is defined as earnings before income tax. Adjusted EBT (EBT before signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages recovered, strategic advisory fees and other items such as foreign exchange gains and losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes adjusted EBT assists investors in comparing Chorus' performance by excluding items, which it does not believe will reoccur over the longer-term (such as signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages recovered and strategic advisory fees) as well, as items that are non-cash in nature such as foreign exchange gains and losses.
EBITDA is defined as earnings before net interest expense, income taxes, and depreciation and amortization and is a non-GAAP financial measure that is used frequently by companies in the aviation industry as a measure of performance. Adjusted EBITDA (EBITDA before signing bonuses, employee separation program costs, lease repossession costs net of security packages recovered, strategic advisory fees, impairment provisions, and other items such as foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes Adjusted EBITDA assists investors in comparing Chorus' performance by excluding items, which it does not believe will re-occur over the longer-term (such as signing bonuses, employee separation program costs, impairment provisions, lease repossession costs net of security packages recovered, and strategic advisory fees) as well as items that are non-cash in nature such as foreign exchange gains and losses. Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows, forming part of Chorus' financial statements.
Forward-Looking Information
This news release includes 'forward-looking information'. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from those indicated in the forward-looking information. Examples of forward-looking information in this news release include the discussion in the Outlook section, as well as statements regarding expectations as to Chorus' future liquidity and financial strength and contracted revenues, the recovery of domestic air traffic in
About
Chorus is a global provider of integrated regional aviation solutions. Chorus' vision is to deliver regional aviation to the world. Headquartered in
Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the
SOURCE
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