Chorus Aviation Announces Second Quarter 2019 Financial Results

Regional aircraft leasing portfolio reaches 56 aircraft
Delivering regional aviation to the world

Q2 Financial Highlights and Year-to-Date Accomplishments

• Net income of $38.9 million, or $0.25 per basic share, inclusive of an unrealized foreign exchange gain of $16.1 million, an increase of $22.6 million.
• Adjusted net income¹ of $24.7 million, or $0.19 per basic share, a decrease of $4.9 million.
• Adjusted EBITDA¹ of $85.7 million, an increase of $1.6 million.
• Regional Aircraft Leasing fleet commitments grew to 56* aircraft valued at US $1.1 billion with future contracted leasing revenue of approximately US $815.0 million.

HALIFAX, Aug. 13, 2019 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced second quarter 2019 financial results and provided an update on the progress of its regional aircraft leasing business.  

"I'm immensely pleased with our performance in the second quarter and particularly with the traction we're gaining in the regional aircraft leasing space, having announced commitments on 11 additional aircraft in the period. Since the launch of Chorus Aviation Capital in early 2017, we have built our portfolio to an impressive 56 aircraft,13 of which we expect will deliver in the third quarter, two in the fourth quarter with the remaining aircraft by the end of 2020.  When combined with the aircraft lease commitments under the CPA, our fleet of leased aircraft reaches a value of over US $2.0** billion with US $2.0** billion in future contracted lease revenue," said Joe Randell, President and Chief Executive Officer, Chorus.

"We had earlier communicated our intention to commit our leasing growth capital by early 2020 and I am pleased to report we have delivered on this milestone almost a full year in advance - a strong indicator of the opportunities that exist in this sector.  Since the launch of the business, we have grown the regional aircraft leasing segment by an average of approximately 20 aircraft per year.  In the near term, we have the capacity to continue with a similar rate of growth through a combination of additional debt and internally generated cash flows to fund the equity portion of the aircraft acquisitions."

"We are committed to creating additional value for our stakeholders and are well positioned for the future.  I extend my sincere thanks to the Chorus team for another solid quarter," concluded Mr. Randell.

^* Of the 16 pending Regional Aircraft Leasing transactions, eight aircraft were received prior to August 12, 2019. Future Regional Aviation Services commitments include nine CRJ900s to be received in 2020 and 10 ESPs that are planned for completion between 2019 and 2022.

**The estimates are based on agreed lease rates in the CPA and certain assumptions and estimates for future market lease rates related to new and extended leases under the CPA as at January 1, 2019. A foreign exchange rate of $1.2600 (based on the long-term average historical rate) was used in the calculation of the estimates.

SECOND QUARTER 2019 SUMMARY

In the second quarter, Chorus reported adjusted EBITDA of $85.7 million, an increase of $1.6 million or 1.9% relative to the second quarter of 2018.

The Regional Aircraft Leasing segment's adjusted EBITDA increased by $10.4 million due to the growth in aircraft earning leasing revenue.

The Regional Aviation Services segment's adjusted EBITDA decreased $8.8 million; offsetting the previously described increase. The Regional Aviation Services segment results are as expected and reflect the 2019 amendments to the Capacity Purchase Agreement ('CPA'), which reduced the Fixed Margin and Performance Incentive revenue when Chorus moved to market-based compensation rates earlier than originally planned. These reductions were partially offset by the implementation of the Controllable Cost Guardrail that mitigated the expected second quarter CPA margin shortfall related to reduced fees.  Beyond the changes related to the amended CPA, the second quarter results were impacted by:

• increased stock-based compensation of $3.5 million due to the strengthening of the Share price; offset by
• increased aircraft leasing under the CPA; and
• increased capitalization of major maintenance overhauls on owned CPA aircraft over the previous period.

Adjusted net income was $24.7 million for the quarter, a decrease from 2018 of $4.9 million or 16.5% due to:

• an increase in depreciation of $4.2 million primarily related to additional aircraft in the Regional Aircraft Leasing segment;
• an increase in interest costs of $4.5 million primarily related to additional aircraft debt in the Regional Aircraft Leasing segment; and
• an increase in other costs of $2.2 million related to foreign exchange losses on working capital; offset by a gain on disposal of property and equipment; offset by
• the $1.6 million increase in adjusted EBITDA previously described; and
• a $4.4 million decrease in income tax expense related to lower adjusted EBT.

Net income was $38.9 million, an increase of $22.6 million over the 2018 period. The increase was primarily due to the quarter-over-quarter change in unrealized foreign exchange gains on long-term debt of $28.7 million; offset by the previously noted $4.9 million decrease in adjusted net income and increased employee separation program costs of $1.2 million.

Year-to-date Summary

Chorus reported adjusted EBITDA of $160.4 million, a decrease of $1.2 million over the 2018 period.

The Regional Aviation Leasing segment's adjusted EBITDA increased by $16.9 million due to the growth in aircraft earning leasing revenue.

The Regional Aviation Services Segment's adjusted EBITDA decreased by $18.1 million; offsetting the previously described increase. The Regional Aviation Services segment's results are as expected and reflect the 2019 amendments to the CPA which reduced the Fixed Margin and Performance Incentive revenue when Chorus moved to market-based compensation rates earlier than originally planned. These reductions were offset by the implementation of the Controllable Cost Guardrail that mitigated the expected CPA margin shortfall related to reduced fees.  Beyond the changes related to the amended CPA, the year-to-date results were impacted by:

• increased stock-based compensation of $11.1 million due to the strengthening of the Share price;
• decreased capitalization of major maintenance overhauls on owned CPA aircraft over the previous period; offset by
• increased aircraft leasing under the CPA.

Year-to-date adjusted net income was $43.7 million, a decrease from 2018 of $12.5 million or 22.2% due to the $1.2 million decrease in adjusted EBITDA previously described and:

• an increase in depreciation of $7.3 million primarily related to additional aircraft in the Regional Aircraft Leasing segment;
• an increase in interest costs of $6.4 million primarily related to additional aircraft debt in the Regional Aircraft Leasing segment; and
• an increase in other of $2.9 million related to foreign exchange losses on working capital; offset by a gain on disposal of property and equipment; offset by
• a decrease in income tax expense of $5.3 million related to lower adjusted EBT.

Year-to-date net income was $72.4 million, an increase of $50.8 million over the 2018 period. The increase was primarily due to the period-over-period change in unrealized foreign exchange gains on long-term debt of $63.4 million and decreased employee separation program costs of $1.9 million; offset by the previously noted $12.5 million decrease in adjusted net income and one-time signing bonuses of $2.0 million related to the Jazz pilot collective agreement.

Consolidated Financial Analysis
(unaudited) (expressed in thousands of Canadian dollars)	Three months ended June 30,								Six months ended June 30,
	2019		2018		Change		Change		2019		2018		Change		Change
	$		$		$		%		$		$		$		%
Operating Revenue	332,520		353,907		(21,387)		(6.0)		676,387		677,570		(1,183)		(0.2)
Operating Expenses	282,159		299,800		(17,641)		(5.9)		585,907		578,475		7,432		1.3
Operating income	50,361		54,107		(3,746)		(6.9)		90,480		99,095		(8,615)		(8.7)
Net interest expense	(18,199)		(13,695)		(4,504)		(32.9)		(33,940)		(27,534)		(6,406)		(23.3)
Foreign exchange gain (loss)	11,576		(13,963)		25,539		182.9		25,826		(33,756)		59,582		176.5
Other^(1)	1,430		500		930		186.0		1,466		508		958		188.6
Earnings before Income tax	45,168		26,949		18,219		67.6		83,832		38,313		45,519		118.8
Income tax expense	(6,227)		(10,635)		4,408		41.4		(11,444)		(16,769)		5,325		31.8
Net income	38,941		16,314		22,627		138.7		72,388		21,544		50,844		236.0
Adjusted EBITDA^(2)	85,720		84,099		1,621		1.9		160,444		161,652		(1,208)		(0.7)
Adjusted EBT^(2)	30,880		40,160		(9,280)		(23.1)		55,146		72,957		(17,811)		(24.4)
Adjusted Net Income^(2)	24,653		29,525		(4,872)		(16.5)		43,702		56,188		(12,486)		(22.2)

(1) Other includes gain on disposal of property and equipment.

(2) These are non-GAAP financial measures – refer to Section 17in the MD&A for disclosures on Non-GAAP financial measures.

2019 OUTLOOK

(See cautionary statement regarding forward-looking information below)

On February 4, 2019, the 2019 CPA amendments became effective on a retroactive basis to January 1, 2019. Further information concerning the 2019 CPA amendments and Air Canada's investment in Chorus is contained in Chorus' Material Change Reports dated January 24, 2019 and February 13, 2019, which are available on SEDAR at www.sedar.com. The 2019 CPA amendments resulted in a near-term reduction in fixed fees starting in 2019, as Chorus accelerated its transition to market-based rates.  The reduction was implemented by eliminating the Infrastructure Fee per Covered Aircraft and the Fixed Margin per Covered Aircraft which were replaced with a single Fixed Margin. As a result, fixed fee revenue in each of 2019 and 2020 is anticipated to be $75.5 million per year as compared to $111.3 million in 2018. In addition, the maximum future available Performance Incentives reduce from $23.4 million in 2019 and 2020 to an annual average maximum available amount of $3.4 million for the full term of the CPA. The near-term reductions are more than offset over the term of the CPA by incremental contracted revenue secured with the extension of the agreement including fixed fees and aircraft leasing. Aircraft leasing revenue under the CPA, which is included in the Regional Aviation Services segment, is expected to grow with the delivery of nine CRJ900s in 2020 and 10 ESPs to be completed between 2019 and 2022.

Capital expenditures for 2019, including capitalized major maintenance overhauls but excluding expenditures for the acquisition of aircraft and the ESP, are expected to be between $38.0 million and $44.0 million. Aircraft related acquisitions and the ESP capital expenditures in 2019 are expected to be between $630.0 million and $640.0 million. This excludes any potential additional investments in third-party aircraft beyond what has been announced to date. As a result of the fleet changes associated with the 2019 CPA Amendments and the loss of a Dash 8-300 in the second quarter due to ground damage, the eight ESPs planned for 2019 has reduced to four and the remaining six ESPs will be completed by 2022.  As a result, the total number of ESPs has been reduced from 19 to 18 Dash 8-300s.  The insurance proceeds from the damaged Dash 8-300 aircraft will be pledged as security for the Debentures in place of that aircraft.

Capitalized terms used but not defined in the Outlook section have the meanings given to them in Management's Discussion and Analysis (the 'MD&A') dated August 12, 2019, which is available on Chorus' website (www.chorusaviation.com) and SEDAR (www.sedar.com).

**Shares refers to Chorus' Class A Variable Voting Shares and Class B Voting Shares

The following table provides the number of closed and pending transactions for the Regional Aircraft Leasing segment:

(unaudited)	Closed Aircraft			Planned Future Transactions^(1)		Committed Aircraft
Customer	2016 - Q1 2019	Q2 2019	Total	Q3 2019	Q4 2019 or later	2016 - Q1 2019	Increase	Total 2016 - 2019^(2)
Aeromexico	3		3			3		3
Air Nostrum	4		4			4		4
Azul Airlines	5		5			5		5
CityJet	2		2			2		2
Ethiopian Airlines	5		5			5		5
Falcon	3		3			3		3
Flybe	3		3	5		3	5	8
Indigo		1	1	3	2		6	6
Jambojet	2		2	2		4		4
KLM Cityhopper	1		1			1		1
Lion Air Group	1		1	2	1	4		4
Philippine Airlines	3		3			3		3
SpiceJet		4	4	1		5		5
Virgin Australia	3		3			3		3
Total	35	5	40	13	3	45	11	56
Deal value ($000s) USD		$853.0		$264.0			$1,117

(1)	Of the 16 pending transactions eight of these aircraft were delivered prior to August 12, 2019.
(2)	Total transactions as of August 12, 2019.

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 9:00 a.m. ET on Tuesday, August 13, 2019 to discuss the second quarter 2019 financial results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via:
https://event.on24.com/wcc/r/2037981/FAC5C3077BDB3EEAE100957E7421E7EE 
This is a listen-in only audio webcast.  Media Player or Real Player is required to listen to the broadcast; please download well in advance of the call.

The conference call webcast will be archived on Chorus' website at www.chorusaviation.ca under Reports > Executive Management Presentations.  A playback of the call can also be accessed until midnight ET, August 21, 2019 by dialing toll-free 1-855-859-2056, and passcode 5692059#.

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.

A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in the MD&A dated August 12, 2019.

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, foreign exchange gains or losses on cash held on deposit for investment in the regional aircraft leasing business, one-time signing bonuses, employee separation program costs and strategic advisory fees.  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.

EBT is defined as earnings before income tax.  Adjusted EBT (EBT before one-time signing bonuses, employee separation program costs, 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 one-time signing bonuses, employee separation program costs 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 one-time signing bonuses, employee separation program costs, strategic advisory fees 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 one-time signing bonuses, employee separation program costs 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 contains '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", "potential", "project", "will", "would", and similar terms and phrases, including references to assumptions. 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, statements concerning future contracted lease revenues, discussion throughout this news release regarding future growth prospects of Chorus' business, and references to transactions which are contractually committed but have not yet been completed. The material factors used to develop the estimated future contracted lease revenues are set out in the MD&A. Actual results may differ materially from results indicated in forward-looking information for a number of reasons, including those identified in Chorus' public disclosure record available at www.sedar.com and the risk factors identified in Chorus' Annual Information Form dated February 21, 2019. Statements containing forward-looking information in this news release represent Chorus' expectations as of the date of this news release (or as of the date they are otherwise stated to be made) and are subject to change after such date. Chorus disclaims any intention or obligation to update or revise such statements to reflect new information, subsequent events or otherwise, unless required by applicable securities laws.

About Chorus Aviation Inc.

Headquartered in Halifax, Nova Scotia, Chorus was incorporated on September 27, 2010. Chorus' vision is to deliver regional aviation to the world. Chorus has been leasing its owned regional aircraft into Jazz's Air Canada Express operation since 2011, and established Chorus Aviation Capital to become a leading, global provider of regional aircraft leases. Chorus also owns Jazz Aviation LP and Voyageur Aviation Corp. – companies that have long histories of safe and solid operations that deliver excellent customer service in the areas of contract flying operations, engineering, fleet management, and maintenance, repair and overhaul.  Together, the Chorus group of companies can provide a full suite of regional aviation support services. Chorus Class A Variable Voting Shares and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol 'CHR'. www.chorusaviation.com

SOURCE Chorus Aviation Inc.

Chorus Media Contacts: Manon Stuart, Halifax, Nova Scotia, 902.873.5054, [email protected]; Debra Williams, Toronto, Ontario, 905. 671.7769, [email protected]; Chorus Analyst Contact: Nathalie Megann, Halifax, Nova Scotia 902.873.5094, [email protected]

Related Links

www.chorusaviation.ca