Q3 2021 Chorus Aviation Inc. Management’s Discussion and Analysis

INTRODUCTION

Section		Page
1	OVERVIEW ..............................................................	3
2	ABOUT CHORUS ....................................................	6
3	STRATEGY...............................................................	8
4	OUTLOOK ................................................................	9
5	FLEET .......................................................................	13
6	CONSOLIDATED FINANCIAL ANALYSIS .........	14
7	SEGMENTED ANALYSIS .....................................	16
8	CAPITAL STRUCTURE .........................................	21
9	LIQUIDITY.................................................................	31
10	RISK FACTORS.......................................................	35
11	ECONOMIC DEPENDENCE ................................	35
12	CRITICAL ACCOUNTING ESTIMATES .............	35

Section
13	CHANGES IN ACCOUNTING STANDARDS......
14	OFF-BALANCE SHEET ARRANGEMENTS.......
15	FAIR VALUE OF FINANCIAL INSTRUMENTS ..
16	RELATED PARTY TRANSACTIONS...................
17	CONTROLS AND PROCEDURES .......................
18	NON-GAAP FINANCIAL MEASURES .................

1. SUMMARY OF QUARTERLY FINANCIAL RESULTS..................................................................
2. REGIONAL AVIATION SERVICES REVENUE ..

1. CONSOLIDATED STATEMENTS OF (LOSS) INCOME ....................................................................
2. ADDITIONAL INFORMATION ...............................
3. GLOSSARY OF TERMS.........................................
4. CAUTION REGARDING FORWARD-LOOKING INFORMATION ........................................................

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In this MD&A, references to Chorus refer, as the context may require, to one or more of Chorus Aviation Inc. and its current and former subsidiaries. Where this MD&A discusses the CPA, references to Chorus are exclusively intended to refer to Jazz. Please refer to Section 23 - Glossary of Terms for definition of capitalized terms and acronyms used in this MD&A.

This MD&A, which presents a discussion of the financial condition and results of operations for Chorus, should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements of Chorus and the notes therein for the three and nine months ended September 30, 2021, the audited consolidated financial statements of Chorus for the year ended December 31, 2020, Chorus' 2020 annual MD&A dated February 18, 2021 and Chorus' 2020 Annual Information Form dated February 18, 2021. All financial information has been prepared in accordance with GAAP, as set out in the CPA Canada Handbook, except for any financial information specifically denoted otherwise. Except as otherwise noted or where the context may otherwise require, this MD&A is prepared as of November 10, 2021.

The earnings and cash flows of Chorus are affected by certain risks. For a description of those risks, please refer to the discussion of specific risks in Section 8 - Capital Structure and Section 10 - Risk Factors.

Except where the context otherwise requires, all amounts are stated in Canadian dollars.

Management's Discussion and Analysis
Third Quarter 2021	2

• OVERVIEW

	Net (Loss) Income			Adjusted Net Income*			Adjusted EBITDA*
	$ (millions)			$ (millions)			$ (millions)
							56.4			239.0	265.5
						42.4
	20.5		32.3
				15.3				78.1	85.9
				10.9
(14.1)
	(30.6)
Q3	Q3	YTD	YTD	Q3	Q3	YTD	YTD	Q3	Q3	YTD	YTD
2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020

* These are non-GAAP financial measures. Refer to Section 18 - Non-GAAP Financial Measures.

Q3 2021 Financial Highlights:

• Net loss of $14.1 million, or $0.08 per basic Share, a quarter-over-quarter decrease of $34.5 million primarily due to higher unrealized foreign exchange losses of $40.8 million and the 2021 CPA Amendments.
• Adjusted net income of $15.3 million, or $0.09 per basic Share, an increase of $4.4 million quarter-over- quarter primarily due to a reduction in interest expense resulting from the early repayment of amortizing term loans under certain aircraft financings and lower depreciation expense.
• Adjusted EBITDA of $78.1 million, a decrease of $7.8 million quarter-over-quarter.

Liquidity

As of September 30, 2021, Chorus' liquidity was $258.1 million including cash of $223.2 million and $34.9 million of available room on its operating credit facility. Liquidity increased from the second quarter of 2021 by $80.2 million primarily due to the issuance of the Series C Debentures for net proceeds of $80.9 million ($29.8 million of which is currently held in a restricted cash account in exchange for a conditional waiver of the 35% repayment obligation under the Unsecured Revolving Credit Facility). The net proceeds from the issuance will be used primarily to partially redeem or repay existing indebtedness, including the 6.00% Debentures which may be redeemed on or after December 31, 2021 (refer to Section 8 - Capital Structure and Section 24 - Caution Regarding Forward- Looking Information).

Liquidity, excluding the net proceeds from the Series C Debentures and the related restricted cash, increased by $29.1 million over the second quarter of 2021 primarily due to:

• positive operating cash flows of $82.8 million; offset by
• scheduled debt repayments of $45.5 million; and
• additions to property and equipment of $9.0 million.

In October 2021, Chorus repaid $30.0 million under its operating credit facility and subsequently entered into a new three-year committed operating credit facility on October 14, 2021 (referred to in this MD&A as the "Operating Credit Facility"). The facility provides Chorus with a committed limit of $75.0 million plus a $25.0 million uncommitted accordion (refer to Section 8 - Capital Structure).

Management's Discussion and Analysis
Third Quarter 2021	3

Q3 Highlights:

• In August 2021, CAC executed long-term leases for six ATR72-600s to Emerald Airlines of Dublin, Ireland. The first aircraft was delivered in the third quarter of 2021 and a second aircraft was delivered in October 2021, with the remaining deliveries expected over the next 12 months. CAC also executed long-term leases for two Dash 8-400s to Waltzing Matilda Aviation of Boston, Massachusetts, doing business as Connect Airlines. The first aircraft was delivered to Waltzing Matilda Aviation in October 2021, and the second aircraft is scheduled to be delivered before the end of 2021.
• CAC recorded an impairment provision of $6.3 million during the quarter related to its two off-lease CRJ900s based on management's assessment of the economic impact of COVID-19.
• CAC collected approximately 77% of lease revenue recognized in the third quarter of 2021.
• On September 3, 2021, Philippine Airlines, Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a pre-arranged restructuring plan. CAC currently has three Dash 8-400s on lease to Philippine Airlines, two of which are expected to be retained under lease on revised terms negotiated by the parties and one of which is expected to be returned by the end of January 2022. CAC will have 24 months to remarket the returned Dash 8-400 under the terms of its loan agreement for this aircraft. The financial impact of the anticipated lease termination and lease restructurings is included in Chorus' general aircraft impairment and expected credit loss provisions.
• On November 4, 2021, Aeromexico and CAC executed amended and restated lease agreements in respect of all three E190s currently leased by CAC to Aeromexico. These agreements, which remain subject to the satisfaction of certain conditions precedent to effectiveness, reflect revised commercial terms negotiated by the parties following Aeromexico's voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code on June 30, 2020.
• Since the onset of the COVID-19 pandemic, CAC has negotiated significant lease extensions with some of its lessees in exchange for reductions to the original lease rates. This which resulted in reduced revenue over the remaining period of the original lease term as they are accounted for as a new lease from the effective date of the amendments, with revenue recognized on a straight-line basis over the remaining term, in accordance with IFRS 16 (refer to Section 4 - Outlook).

Third Quarter Summary

In the third quarter of 2021, Chorus reported Adjusted EBITDA of $78.1 million, a decrease of $7.8 million relative to the third quarter of 2020.

The RAL segment's Adjusted EBITDA was essentially unchanged from the prior quarter due to additional aircraft earning lease revenue offset by lower lease revenue attributable to negotiated amendments to certain lease agreements including extensions and lower earnings due to a lower US dollar exchange rate.

The RAS segment's Adjusted EBITDA decreased by $7.7 million. The third quarter results were impacted by:

• a decrease in Fixed Margin of $2.4 million in accordance with the CPA;
• an increase in stock-based compensation of $1.5 million due to a change in the fair value of the Total Return Swap offset by a decrease in the Share price (refer to Section 8 - Capital Structure - Equity Price Risk);
• an increase in general administrative expenses attributable to increased operations; and
• a decrease in incentive revenue of $0.6 million; offset by
• an increase in capitalization of major maintenance overhauls on owned aircraft of $2.1 million;

Management's Discussion and Analysis
Third Quarter 2021	4

• an increase in other revenue due to an increase in third-party MRO activity and part sales; and
• an increase in aircraft leasing revenue under the CPA of $0.3 million primarily due to six incremental CRJ900s offset by the removal of the Dash 8-300 fleet and lower earnings of $1.8 million due to a lower US dollar exchange rate.

Adjusted net income was $15.3 million for the quarter, an increase of $4.4 million due to:

• a decrease of $5.7 million due to decreased realized foreign exchange losses and increased unrealized foreign exchange gains on working capital;
• a reduction in net interest costs of $2.8 million primarily related to the repayment of certain aircraft financing; offset by interest on Series B Debentures and Series C Debentures;
• a decrease in depreciation expense of $2.1 million;
• a $1.3 million decrease in adjusted income tax expense; and
• an increase in gain on property and equipment of $0.2 million; offset by
• a $7.8 million decrease in Adjusted EBITDA as previously described.

Net income decreased $34.5 million over the prior period due to:

• an increase in net unrealized foreign exchange losses primarily on long-term debt of $40.8 million;
• an increase in lease repossession costs of $2.8 million primarily related to aircraft refurbishments; and
• a decrease in income tax recoveries on adjusted items of $0.3 million; offset by
• a decrease in impairment provisions of $4.8 million in the RAL segment; and
• the previously noted increase in Adjusted net income of $4.4 million.

Year-to-date Summary

Chorus reported Adjusted EBITDA of $239.0 million for 2021, a decrease of $26.5 million relative to the same prior year period.

The RAL segment's Adjusted EBITDA decreased by $18.9 million primarily due to lower lease revenue attributable to off-lease aircraft, negotiated amendments to certain lease agreements including extensions, and lower earnings due to a lower US dollar exchange rate partially offset by additional aircraft earning lease revenue.

The RAS segment's Adjusted EBITDA decreased by $7.6 million. The period-over-period results were impacted by:

• a decrease in Fixed Margin of $7.1 million in accordance with the CPA;
• an increase in general administrative expenses attributable to increased operations; and
• a decrease in capitalization of major maintenance overhauls on owned aircraft of $0.9 million; partially offset by
• a decrease in stock-based compensation of $5.4 million due to a decrease in the Share price inclusive of the change in fair value of the Total Return Swap (refer to Section 8 - Capital Structure - Equity Price Risk);
• an increase in aircraft leasing revenue under the CPA of $3.0 million primarily due to incremental CRJ900s, partially offset by the removal of the Dash 8-300 fleet and lower earnings of $7.4 million due to a lower US dollar exchange rate; and
• an increase in other revenue due to an increase in third-party MRO activity, part sales and contract flying.

Management's Discussion and Analysis
Third Quarter 2021	5