Chorus Aviation announces strong fourth quarter and year-end earnings

HALIFAX, Feb. 19, 2015 /CNW/ – Chorus Aviation Inc. (‘Chorus’) (TSX: CHR.B CHR.A) today announced its fourth quarter and year-end 2014 earnings.

Q4 2014 HIGHLIGHTS

Adjusted EBITDA1 of $49.8 million.
Operating income of $33.0 million.
Adjusted net income1 of $23.7 million.
Adjusted net income per share1 of $0.20 per basic share.
Net income of $11.3 million.
Net income per share of $0.09 per basic share.
For the fourth quarter 2014, Chorus reported Adjusted EBITDA of $49.8 million compared to $48.9 million in the same quarter 2013, an increase of $0.9 million. Operating income was $33.0 million, $0.5 million higher than the same period 2013. Adjusted net income of $23.7 million or $0.20 per basic share was up by $2.9 million or $0.03 per basic share over the fourth quarter 2013. Chorus incurred $1.3 million in employee separation program costs in the fourth quarter versus $1.2 million in the same period in 2013. Chorus has invested $21.8 million in employee separation since the inception of this cost savings program in the first quarter of 2013.

“I am pleased with our strong financial and operational results,” said Joseph Randell, President and Chief Executive Officer, Chorus. “Quarter-over-quarter, we experienced increases in our key financial performance measures of operating income, adjusted EBITDA and adjusted net income. Chorus shareholders benefited from adjusted net earnings per share of $0.20, an increase of 17.6% compared to the fourth quarter in 2013. Our operational performance in the quarter was also solid as we ranked second among Canadian airlines for on-time performance as reported by FlightStats Inc. Our Board of Directors has approved an increase in the monthly dividend from the current level of $0.0375 to $0.04 per Class A and Class B share effective with the March dividend for shareholders of record at the close of business on March 31, 2015, and payable on April 17, 2015.”

“We have continued to build upon our strengths and achieved an amended Capacity Purchase Agreement with Air Canada that delivers a long-term and sustainable future for our company,” continued Mr. Randell. “Strong cash flow in 2014 supported the early redemption of the convertible debentures, the repurchase and cancellation of approximately 2.3 million shares, the conversion to a monthly dividend, dividend payments of just under $64.0 million, and the investment of approximately $11.9 million in employee separation programs. These initiatives strengthened the balance sheet as we prepare to take delivery of six new Q400s in 2015. We maintained our position amongst North American regional airlines for on-time performance which contributed to a $1.8 million increase in performance incentives earned over 2013. Thank you to the team for delivering exceptional performance again last year.”

Year end 2014 HIGHLIGHTS

Adjusted EBITDA1 of $204.0 million.
Operating income of $137.9 million.
Adjusted net income1 of $95.2 million.
Adjusted net income per share1 of $0.78 per basic share.
Net income of $64.7 million.
Net income per share of $0.53 per basic share.
For the year ended December 31, 2014, Chorus reported Adjusted EBITDA of $204.0 million compared to $186.9 million in the same period in 2013, an increase of $17.1 million. Operating income was $137.9 million, $13.6 million higher than the same period 2013. Adjusted net income of $95.2 million or $0.78 per basic share was up by $10.5 million or $0.09 per basic share over the same period 2013.

For reporting purposes, at each quarter and year end, Chorus converts its US denominated aircraft debt into equivalent Canadian dollars based on the prevailing exchange rate. Chorus manages its exposure to currency risk on such long-term debt by billing related lease payments under the Capacity Purchase Agreement (‘CPA’) with Air Canada in the underlying currency (US dollars) related to the aircraft debt. In the fourth quarter of 2014, Chorus had an unrealized foreign exchange loss of $12.4 million versus an unrealized foreign exchange loss of $12.1 million in the same period of 2013. For the full year 2014, Chorus recorded an unrealized foreign exchange loss on long-term debt and finance leases of $30.5 million versus $22.8 million in 2013.

Financial Performance – Fourth Quarter 2014 Compared to Fourth Quarter 2013

Operating revenue decreased from $413.2 million to $401.3 million, representing a decrease of $11.9 million or 2.9%.

Flight revenue, including charter revenue, increased by $4.4 million or 2.0%. $3.5 million of this increase resulted from rate increases made pursuant to the CPA. A favourable US dollar exchange rate resulted in a $4.5 million increase in the quarter. These increases were offset by decreased billable block hours of $3.6 million.

Aircraft leasing revenue under the CPA increased by $1.2 million or 8.5%. The increase was related to a favourable US dollar exchange rate. Aircraft leasing revenue under the CPA is generated from the 21 Q400 aircraft and four Q400 engines owned by Chorus.

The Controllable Mark-up, excluding Compensating Mark-up, increased by $0.2 million. A favourable US dollar exchange rate resulted in a $0.6 million increase in the quarter; offset by decreased billable block hours. In 2014, actual Annual Delivered Block Hours were 362,530, which is below the minimum of 367,106 hours. As a result, the Compensating Mark-up formula in the CPA was applied and the Controllable Mark-up was increased to compensate Chorus for its reduced operating margin and increased unit costs resulting from reduced Block Hours. Chorus recorded $1.2 million in Compensating Mark-up in the quarter as an increase in operating revenue.

Incentives earned under the CPA increased by $0.5 million, of which $0.1 million related to a favourable US dollar exchange rate and the remainder to improved operating performance.

Pass-through revenue decreased by $19.6 million or 12.8% from $153.0 million to $133.4 million, which included a decrease of $10.8 million related to decreased fuel costs, and $8.5 million related to reduced airport and navigation fees and terminal handling services. A favourable US dollar exchange rate partially offset these decreases by $1.0 million. Effective January 1, 2014, Air Canada entered into a commercial agreement with the Greater Toronto Airport Authority (‘GTAA’) that encompasses Chorus’ Air Canada Express operations. GTAA costs related to landing, terminal and other airport user fees, which are treated as pass-through costs under the CPA, are now paid directly by Air Canada pursuant to this agreement.

Operating expenses decreased from $380.8 million to $368.3 million, a decrease of $12.4 million. An unfavourable US dollar exchange rate compared to the same period in 2013 increased operating expenses by $5.6 million. Controllable costs increased from $227.8 million to $234.9 million, an increase of $7.1 million or 3.1%. $4.6 million of this controllable cost increase is attributable to an unfavourable US dollar exchange rate. Pass-through costs decreased from $153.0 million to $133.4 million, a decrease of $19.6 million or 12.8%.

Salaries, wages and benefits decreased by $1.2 million from $100.4 million to $99.2 million. Adjusted salaries, wages and benefits (adjusted by removing employee separation program costs and capitalized major maintenance overhaul labour costs), which includes pension, incentive compensation and other employee benefits, decreased by $1.1 million. Employee separation program costs incurred during the three months ended December 31, 2014 were $1.3 million, an increase of $0.1 million over the same period of 2013. Salaries and wages were also affected by more labour costs being capitalized on owned aircraft for major maintenance overhauls of $0.2 million.

Aircraft maintenance expense increased by $5.6 million from $39.4 million to $45.0 million. An unfavourable US dollar exchange rate on certain maintenance material purchases accounted for a $3.0 million increase, and increased other maintenance costs of $3.7 million. These increases were offset by decreased block hours of $0.8 million and higher maintenance costs of $0.3 million being capitalized as a result of major maintenance overhauls accounted for a $0.3 million of the decrease.

Non-operating expenses decreased by $1.1 million from $14.6 million to $13.6 million. The weakening of the Canadian dollar during the quarter contributed to a foreign exchange loss of $10.6 million compared to a foreign exchange loss of $11.2 million in the same period last year. Interest expense related to long-term debt increased by $0.1 million.

Adjusted EBITDA was $49.8 million compared to $48.9 million in 2013, an increase of $0.9 million or 1.8 , producing an Adjusted EBITDA margin of 12.4.

Operating income of $33.0 million was up $0.5 million or 1.6% over fourth quarter 2013 from $32.5 million.

Net income for the fourth quarter of 2014 was $11.3 million or $0.09 per basic share, an increase of $2.6 million from $8.8 million. On an adjusted basis, net income was $23.7 million or $0.20 per basic share, an increase of $2.9 million from $20.8 million. A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in Chorus’ Management’s Discussion and Analysis dated February 18, 2015.