Recent Highlights
- Net income of
$20.5 million , or$0.13 per basic share; a period-over-period decrease of$3.7 million due to the impact of COVID-19 on its results, offset by a change in unrealized foreign exchange of$24.9 million . - Adjusted net income1 of
$10.9 million , or$0.07 per basic share; a decrease of$18.2 million quarter-over-quarter due to the impact of COVID-19 noted above. - Adjusted EBITDA1 of
$85.9 million ; a decrease of$6.8 million over third quarter 2019 primarily due to the impact of COVID-19 on financial results. - Liquidity of approximately
$218.0 million , an increase of approximately$30.0 million over second quarter 2020. - Collected approximately 50.0% of lease revenue billed in the third quarter, excluding repossessed aircraft, a 22-percentage point improvement over second quarter 2020.
- Delivered third of five new Airbus A220-300 aircraft to air
Baltic ofLatvia . - Increased flying under the capacity purchase agreement ('CPA') to approximately 23%* in the third quarter from 10% in the second quarter of 2020.
*These percentages are relative to 2019
"In the quarter, we bolstered our liquidity position to
"Demand for air service will only return when people have confidence that their health and safety are protected, and when the requirement for quarantine is reduced or eliminated. In
"In addition to feeling safe, passengers need affordable regional transportation. In
"I continue to be amazed by the resiliency of our employees and their determination to deliver the best and safest possible service to our customers. I extend my sincerest thanks to our team. We are doing all within our power to preserve what we have and to prepare for whenever this crisis abates. We are encouraged by the public statements made by the Honourable Marc Garneau,
Third Quarter Summary
In the third quarter of 2020, Chorus reported adjusted EBITDA of
The Regional Aviation Services segment's adjusted EBITDA decreased by
- a decrease in capitalization of major maintenance overhauls on owned aircraft operated under the CPA of
$2.7 million over the previous period; and - a reduction in other revenue due to a decrease in third-party MRO activity and reduced contract flying resulting from the economic impact of COVID-19; partially offset by
- a decrease in stock-based compensation of
$1.7 million due to the change in the Share price inclusive of the change in fair value of the Total Return Swap; - an increase in aircraft leasing under the CPA primarily related to additional revenue earned from five incremental Dash 8-300s and three incremental CRJ900s in 2020 versus 2019; and
- a decrease in general administrative expenses.
Adjusted net income was
- a
$6.8 million decrease in adjusted EBITDA as previously described; - an increase in depreciation of
$4.5 million primarily related to additional aircraft in theRegional Aircraft Leasing segment; - an increase in net interest costs of
$7.6 million primarily related to the 5.75% Unsecured Debentures, the unsecured revolving credit facility and additional aircraft debt in theRegional Aircraft Leasing segment; and - an increase of
$3.0 million in realized foreign exchange and unrealized foreign exchange losses on working capital; offset by - a
$3.0 million decrease in adjusted income tax expense resulting from a reduction in EBT and a change in permanent tax differences of$4.4 million offset by tax recovery on adjusted items of$1.5 million ; and - a reduction in loss on the disposal of property and equipment of
$0.6 million over the prior quarter.
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 part sales and reduced contract flying resulting from the economic impact of COVID-19;
- a decrease in capitalization of major maintenance overhauls on owned aircraft operated under the CPA of
$4.0 million over the previous period; and - expected credit loss and inventory provisions of
$1.3 million in Voyageur; partially offset by - a decrease in stock-based compensation of
$6.8 million due to the change in the Share price inclusive of the change in fair value of the Total Return Swap; - an increase in aircraft leasing under the CPA primarily related to additional revenue earned from five incremental Dash 8-300s and three incremental CRJ900s in 2020 versus 2019; and
- a decrease in general administrative expenses.
Adjusted net income was
- an increase in depreciation of
$16.2 million primarily related to additional aircraft in theRegional Aircraft Leasing segment; - an increase in net interest costs of
$15.2 million primarily related to additional aircraft debt in theRegional Aircraft Leasing segment, the 5.75% Unsecured Debentures and the unsecured revolving credit facility; - an increase of
$1.2 million due to a loss of$0.6 million versus a gain of$0.6 million on disposal of property and equipment; and - an increase of
$0.9 million in realized foreign exchange and unrealized foreign exchange losses on working capital; partially offset by - a
$12.4 million increase in adjusted EBITDA as previously described; and - a decrease in adjusted income tax expense of
$5.9 million resulting from a reduction in EBT and a change in permanent tax differences of$10.3 million offset by tax recovery on adjusted items of$4.4 million .
Net income decreased
Consolidated Financial Analysis
(unaudited) (expressed in thousands of Canadian dollars) | Three months ended | Nine months ended | ||||||
2020 | 2019 | Change | Change | 2020 | 2019 | Change | Change | |
$ | $ | $ | % | $ | $ | $ | % | |
Operating revenue | 196,438 | 351,454 | (155,016) | (44.1) | 738,676 | 1,027,841 | (289,165) | (28.1) |
Operating expenses | 161,049 | 292,904 | (131,855) | (45.0) | 622,912 | 878,811 | (255,899) | (29.1) |
Operating income | 35,389 | 58,550 | (23,161) | (39.6) | 115,764 | 149,030 | (33,266) | (22.3) |
Net interest expense | (25,706) | (18,098) | (7,608) | (42.0) | (67,281) | (52,038) | (15,243) | (29.3) |
Foreign exchange gain (loss) | 14,824 | (7,114) | 21,938 | 308.4 | (6,141) | 18,712 | (24,853) | 132.8 |
(Loss) gain on property and equipment | (202) | (849) | 647 | (76.2) | (576) | 617 | (1,193) | (193.4) |
Earnings before income tax | 24,305 | 32,489 | (8,184) | (25.2) | 41,766 | 116,321 | (74,555) | (64.1) |
Income tax expense | (3,847) | (8,294) | 4,447 | 53.6 | (9,437) | (19,738) | 10,301 | 52.2 |
Net income | 20,458 | 24,195 | (3,737) | (15.4) | 32,329 | 96,583 | (64,254) | (66.5) |
Adjusted EBITDA(1) | 85,859 | 92,639 | (6,780) | (7.3) | 265,482 | 253,083 | 12,399 | 4.9 |
Adjusted EBT(1) | 16,264 | 37,471 | (21,207) | (56.6) | 71,417 | 92,617 | (21,200) | (22.9) |
Adjusted net income(1) | 10,908 | 29,154 | (18,246) | (62.6) | 56,374 | 71,711 | (15,337) | (21.4) |
(1) | 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 passenger aviation industry around the world. Even though Chorus' 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 CPA and its leasing of aircraft to airline customers globally. The full extent of the duration and therefore the impact of this pandemic are unknown.
Regional Aviation Services:
Jazz has reduced its furloughed employees from 65% to 45% of its workforce since the end of second quarter 2020 associated with increased operating capacity. Contingent upon qualification, Jazz plans to utilize the CEWS for the remainder of the program, which has been extended into the summer of 2021.
Jazz expects to operate between approximately 20% to 30% of its capacity in the fourth quarter of 2020 and in the first quarter of 2021 compared to the same prior year periods. 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
Chorus purchased and started earning leasing revenue on three CRJ900s delivered under the CPA at the end of
Voyageur continues to perform overseas humanitarian flights and cargo services, and the air ambulance operation in
Chorus has received requests from substantially all its
As of
Chorus collected approximately 50.0% of lease revenue billed in the third quarter from its lessees, excluding repossessed aircraft, a 22-percentage point improvement over second quarter 2020. Consistent with market norms, these leases are generally for a fixed term, contain an absolute payment obligation on the part of the lessee, and cannot be terminated early for convenience.
In
Following voluntary administration on
In the third quarter, CAC repossessed two CRJ900s previously on lease to CityJet pursuant to a negotiated termination agreement. CAC has not recorded an impairment charge on these aircraft due to the realization of its security package. The average remaining lease terms for these aircraft was eight years. As at
Aeromexico filed for voluntary Chapter 11 petitions in
Flybe ceased operating and was placed in administration on
Prior to the third quarter 2020, Chorus generated approximately US
The following table provides the number of closed and pending and/or delayed transactions (1) announced to date:
(unaudited) | Completed Transactions | Pending/Delayed | Committed Transactions | |||||
Customer | 2016 - | Q3 2020 | Total | Q4 2020 | Q1 2021 and | 2016 - | Increase | Total 2016 - |
Aeromexico(3) | 3 | 3 | 3 | 3 | ||||
4 | 4 | 4 | 4 | |||||
airBaltic | 2 | 1 | 3 | 2 | 5 | 5 | ||
5 | 5 | 5 | 5 | |||||
CityJet(4) | 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) | — | ||
1 | 1 | 1 | 1 | |||||
Undisclosed customer | — | — | 2 | 2 | 2 | |||
Aircraft to be remarketed | 8 | 5 | 13 | 8 | 5 | 13 | ||
59 | 1 | 60 | 2 | 2 | 64 | — | 64 | |
Total Regional Aviation Services(6) | 56 | 1 | 57 | 6 | 8 | 71 | — | 71 |
Chorus Total Aircraft | 115 | 2 | 117 | 8 | 10 | 135 | — | 135 |
(1) | All pending acquisitions and lease commitments are subject to satisfaction of customary conditions precedent to closing including receipt of financing for the aircraft. |
(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 transactions: At |
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 | ||
Nine months ended | Year ended | ||
Planned 2020(1) | |||
$ | $ | $ | |
Capital expenditures, excluding aircraft acquisitions and ESP | 10,000 to 13,000 | 9,887 | 31,547 |
Capitalized major maintenance overhauls | 7,000 to 10,000 | 6,038 | 14,444 |
Aircraft related acquisitions and ESP | 417,000 to 426,000 | 161,403 | 829,710 |
434,000 to 449,000 | 177,328 | 875,701 |
(1) | The 2020 plan includes two ESPs and nine CRJ900s in the Regional Aviation Services segment as well as three A220-300s for the |
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=1380506&tp_key=9371884315
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.
Adjusted Net Income, Adjusted EBT and Adjusted EBITDA
Due to the 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 include 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.
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 the 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, depreciation, amortization and impairment 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, strategic advisory fees, impairment provisions, lease repossession costs net of security packages recovered net of security packages recovered 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 is identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Such information may involve but is not limited to comments with respect to strategies, expectations, planned operations or future actions. Forward-looking information relates to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and other uncertain events. Forward-looking information, by its nature, is based on assumptions, including those referenced below, and is subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, among other things, external events, changing market conditions and general uncertainties of the business. Such statements involve 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
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