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Chorus-Air Canada agreement revised

Chorus Aviation of Halifax says it is enhancing Jazz's position within Air Canada's network through revisions to a capacity purchase agreement. File - Ryan Taplin - The Chronicle Herald
Chorus Aviation of Halifax says it is enhancing Jazz's position within Air Canada's network through revisions to a capacity purchase agreement. File - Ryan Taplin - The Chronicle Herald

Chorus Aviation Inc., the Halifax parent company of Jazz Aviation LP, is revising an agreement between Jazz and Air Canada to address the reduction in air travel caused by the pandemic by optimizing the Jazz fleet.

Revisions to the capacity purchase agreement will result in Chorus anticipating one-time costs, charges and other fees to range between $90.0 million and $110.0 million, with about half being non-cash in nature and the cash portion to be paid over several years, according to a company news release issued Monday.

The revisions are conditional on Jazz reaching an agreement with the Air Line Pilots Association International, which represents Jazz pilots. If this condition is satisfied, the agreement will be amended on a retroactive basis to Jan. 1.

Chorus said the proposed changes enhance Jazz's position in Air Canada's network as the sole regional partner for 70-plus-seat regional aircraft until 2025 while providing Air Canada with greater cost efficiency and flexibility.

"With the Jazz fleet operating at a fraction of the capacity it flew a year ago, now is the time to update the (capacity purchase agreement) to help preserve regional flying and Jazz's place within it," said Joe Randell, president and CEO of Chorus, in the release.

"The Jazz fleet is up-gauging to larger regional jet aircraft and replacing smaller turboprop fleet sooner than contemplated in the previous fleet plan. Bringing the Embraer 175 aircraft into the Jazz covered aircraft fleet makes Jazz the exclusive Air Canada Express operator of 70-plus-seat aircraft until 2025 and is a demonstration of our cost competitiveness and strong relationship with Air Canada.”

Revisions to the agreement include:

  • Jazz will operate 25 Embraer 175s.
  • Fixed fees will increase by $46.0 million over the term of the agreement, with annual minimum fixed fees increasing by $1.2 million per year from 2021 to 2025, and by about $4.0 million per year from 2026 to 2035.
  • Nineteen Dash 8-300s will be removed from the fleet in 2021, reducing future aircraft leasing revenue under the agreement by about $56.0 million over the remaining term of the contract.

Chorus owns the Dash 8-300s, 15 of which have undergone an extended service program, which the company says prolongs their useful life by about 15 years. Chorus has the ability to sell or lease these aircraft, or convert them for cargo operations.

Uncertainty surrounding flying schedules resulted in the accumulation of a $44.2-million controllable cost guardrail receivable from Air Canada on Dec. 31, 2020. The revisions cap the guardrail receivable to a maximum of $20.0 million annually and provide for quarterly reconciliations to avoid the accumulation of a receivable in excess of the agreed maximum.

Chorus said the 2020 guardrail receivable has been paid. However, without the proposed changes, the 2021 receivable could be as high as $45 million. Quarterly reconciliations against the new cap will reduce Chorus's financial exposure by capping the guardrail receivable and minimize draws on Chorus's available working capital, according to the company.

All other material components of the agreement are unchanged, including:

  • Contract expiring Dec. 31, 2035.
  • Minimum fleet guarantee of 105 aircraft until 2025, and 80 aircraft from 2026 and beyond.
  • Performance incentive compensation.
  • Pilot mobility program.

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