Chorus Aviation Inc. announces second quarter 2012 results

HALIFAX, Aug. 13, 2012, 2012 (Canada NewsWire via COMTEX) — Chorus Aviation Inc. (“Chorus”) (TSX: CHR.B CHR.A CHR.DB) today announced its second quarter 2012 earnings, with net income of $22.9 million or $0.18 per share, and adjusted net income(1) of $27.4 million or $0.22 per share.

Q2 2012 HIGHLIGHTS

— Operating revenue of $426.3 million. — Free Cash Flow(1) of $38.7 million, or $0.31 per share. — Operating income of $36.6 million. — Net income of $22.9 million, or $0.18 per share. — Adjusted net income(1) of $27.4 million, or $0.22 per share.

“I’m pleased with our second quarter performance,” said Joseph Randell, President and Chief Executive Officer, Chorus.“Cash flow remains strong, and we remain focused on strengthening our foundation, improving our cost competitiveness and building value for all our stakeholders.”

“Safety is at the core of all that we do and we were very pleased to take first place for innovation in Aviation Safety Management at the European Safety Management Symposium last May,” stated Mr. Randell. “Jazz was selected from a strong field of inspiring finalists spanning a wide spectrum of aviation organizations from civilian and military sectors. Our selection for this international award was attributed to our success at integrating several existing systems into one safety and business management system. Jazz employees are tremendously proud of the accomplishment and I thank them for their continued commitment to our top priority.”

“The delivery of the last three Q400 aircraft, from the original order of 15, was seamless, and our employees continue to deliver a solid and safe operation,” continued Mr. Randell. “For the summer peak period we’re operating 16 Q400s under the Air Canada Express brand, and we were pleased to announce last month that six additional Q400s will be added to the Jazz fleet by the second quarter of 2013. The rejuvenation of the fleet will deliver benefits to our stakeholders as the replacement of the older regional jets with these efficient, state-of-the-art aircraft will translate into better operating economics and passenger comfort with less environmental impact.”

“In our efforts to further improve our operating efficiencies, we will consolidate our heavy maintenance operations in Halifax by next summer,” said Mr. Randell. “By increasing the number of newer aircraft in the Jazz fleet, the requirement for heavy maintenance work is reduced. While we recognize the impact of this decision is difficult for a number of our employees – it is the right direction to take if we are to become more cost competitive and remain relevant in this industry as the competitive landscape continues to change.”

“We were also very pleased to have successfully negotiated with Air Canada new rates for controllable costs payable by Air Canada under the Capacity Purchase Agreement (‘CPA’) in respect of the years 2012 to 2014 inclusive. I thank the members of the team for their efforts and believe the agreed cost levels are achievable as long as we continue to focus on the solid cost control we’ve exercised to date.”

Financial Performance -Second Quarter 2012 Compared to Second Quarter 2011

Operating revenue increased from $402.0 million to $426.3 million, representing an increase of $24.2 million or 6.0%. Passenger revenue, excluding pass-through costs, increased by $25.7 million or 10.8% primarily as a result of $9.0 million related to the early termination of the Thomas Cook Flight Services Agreement, rate increases made pursuant to the CPA, an adjustment of $1.8 million related to the new rates which were retroactive to January 1, 2012, a higher US dollar exchange rate, and a $1.4 million increase in incentives earned under the CPA with Air Canada; offset by a $1.9 million or 1.2% decrease in pass-through costs from $161.1 million to $159.2 million, which included $5.3 million related to fuel. Other revenue increased by $0.3 million.

Operating expenses increased from $378.1 million to $389.7 million, an increase of $11.6 million or 3.1%. Controllable Costs increased by $13.5 million, or 6.2%; offset by a decrease in pass-through costs of $1.9 million. Controllable operating expenses were impacted by the changes in the fleet ownership structure for the Q400 aircraft. CRJ-100 aircraft, previously under operating leases, are being replaced by owned Q400 aircraft, whose ownership costs are comprised of depreciation under operating expenses, and interest under non-operating expenses. The Q400 aircraft lease revenue under the CPA is captured under operating revenue and is designed to provide compensation to Chorus for both depreciation and interest expense. As interest expense is shown below the operating margin, operating income increased by a similar amount on a quarter over quarter basis.

Depreciation and amortization expense increased by $4.0 million, of which $3.0 million is related to the purchase of Q400 aircraft, with the balance due to the increased major maintenance overhauls and increased capital expenditures on aircraft rotable parts and other equipment; offset by certain assets reaching full amortization.

Aircraft maintenance expense increased by $2.3 million as a result of increased Block Hours of $0.4 million, the effect of the increase in the US-dollar exchange rate on certain material purchases of $1.3 million, and increased other maintenance costs of $2.6 million; offset by a decrease in engine maintenance activity due to the return of CRJ aircraft of $2.0 million.

Salaries, wages and benefits increased by $2.8 million as a result of wage and scale increases under new collective agreements, increased Block Hours, and increased pension expense resulting from a revised actuarial valuation; offset by a reduction in the number of full time equivalent employees.

Other expenses increased by $3.4 million primarily due to increased general overhead expenses (crew expenses increased due to increased activity, rates and training expenses) and professional fees.

Non-operating expenses increased $7.8 million. This change was mainly attributable to a foreign exchange loss of $4.8 million (of which $4.5 million was related to an unrealized foreign exchange loss on long-term debt and finance leases) arising as a result of the change in value of the Canadian dollar relative to the US dollar, and increased interest expense related to the Q400 aircraft financing of $2.1 million.

EBITDA was $50.4 million compared to $33.9 million in 2011, an increase of $16.5 million or 48.9%. Free Cash Flow was $38.7 million, an increase of $15.4 million or 66.5% from $23.3 million.

Operating income of $36.6 million for the three months ended June 30, 2012, was up $12.6 million or 52.6% over second quarter 2011 from $24.0 million.

Net income for the second quarter of 2012 was $22.9 million or $0.18 per share, an increase of $6.0 million or 35.3% from $16.9 million or $0.14 per share.

CPA rate setting negotiations

On August 7, 2012, Jazz and Air Canada finalized an agreement on the establishment of new rates for controllable costs that are payable by Air Canada under the CPA in respect of the years 2012 to 2014 inclusive. This rate review and adjustment is required under the terms of the CPA. The new rates are retroactive to January 1, 2012, and the parties have reconciled the amounts previously paid to the amount owing based on the new rates. The reconciliation is conducted so that the parties will be in the same position they would have been had the new rates been in effect as of January 1, 2012.

Update on investment in South American regional carrier Pluna.

On April 30, 2010, Chorus purchased a 33% non-voting interest in Latin American Regional Aviation Holding Corporation (‘LARAH’). LARAH held an indirect 75% equity interest in Pluna Líneas Aéreas Uruguayas S.A. (‘Pluna’). The remaining 25% equity interest in Pluna was held, indirectly, by the Government of Uruguay.

In the second quarter of 2012, it was announced that Pluna was in financial difficulty, and that the Uruguayan government had taken control of the airline, allowing it to continue operating. All of the shares in Pluna held indirectly by LARAH, including the portion indirectly owned by Chorus, were placed in trust with the Montevideo Stock Exchange in return for certain conditions and indemnities from the Uruguayan government. As a result, Chorus recorded a write-down of $16.4 million to the fair value of the investment through other comprehensive loss, as there is no indication that the LARAH shares hold any current value, and there can be no assurances that a successful recapitalization of Pluna will result in Chorus holding an ownership stake in the resulting entity.

Subsequent to June 30, 2012, Pluna announced that it had ceased operations indefinitely. The situation with Pluna has no effect on Jazz operations or current cash flows.

Chorus Aviation Inc.‘s unaudited interim condensed consolidated financial statements for the three months ended June 30, 2012, and accompanying Management’s Discussion and Analysis (MD&A) are available at www.chorusaviation.ca and at www.sedar.com. A copy may also be obtained on request by contacting Investor Relations at: investorsinfo@chorusaviation.ca or (902) 873-5094.