Chorus Aviation Inc. announces third quarter 2012 results

HALIFAX, Nov. 13, 2012, 2012 (Canada NewsWire via COMTEX) —Earnings per share of $0.30 Consistent quarterly profitability since 2006

Chorus Aviation Inc. (“Chorus”) (TSX: CHR.B CHR.A CHR.DB) today announced its third quarter 2012 earnings, with net income of $37.2 million, or $0.30 per basic share, and adjusted net income(1) of $27.1 million or $0.22 per basic share.

Q3 2012 HIGHLIGHTS

— Operating revenue of $435.6 million. — Free Cash Flow(1) of $37.8 million, or $0.31 per basic share. — Operating income of $36.7 million. — Net income of $37.2 million, or $0.30 per basic share. — Adjusted net income(1) of $27.1 million, or $0.22 per basic share. — Billable Block Hours of 104,393.

“I’m very pleased with our third quarter financial and operational performance,” said Joseph Randell, President and Chief Executive Officer, Chorus.“Cash flow remains strong, and Jazz employees’ continued efforts to deliver solid customer service resulted in a $1.1 million increase in performance incentives over the same period last year.”

“In the third quarter we were also pleased to achieve new collective agreements with Jazz’s Flight Dispatchers and Maintenance and Engineering employees, and I thank all involved for their commitment and hard work,” continued Mr. Randell. “Jazz was also honoured to be recognized by Canada’s Top Employers as one of Canada’s Top Employers for Young People in 2012. This special designation recognizes employers that offer the nation’s best benefits for younger workers and are Canada’s leaders in attracting and retaining younger employees to their organizations.”

“We appreciate the delay in obtaining a resolution to the 2009 benchmark exercise is a concern,” commented Mr. Randell. “The outstanding clarifications required on certain adjustments to the controllable cost data to ensure a fair and reasonable comparison to the defined group of regional operators are key in this benchmark exercise, regardless of the methodology applied. We are of the view that a proper application of Air Canada’s methodology, with the appropriate adjustments directed by the arbitration panel in their initial decision, should not result in an adjustment to the Controllable Mark-Up. We anticipate having all matters settled in this arbitration no later than the first quarter of 2013. We remain focused on reaching a resolution while strengthening our foundation, improving our cost competitiveness and building value for all our stakeholders.”

Financial Performance – Third Quarter 2012 Compared to Third Quarter 2011

Operating revenue increased from $411.7 million to $435.6 million, representing an increase of $24.0 million or 5.8%. Passenger revenue, excluding pass-through costs, increased by $19.0 million or 7.6% primarily as a result of a 1.9% increase in Billable Block Hours, rate increases made pursuant to the Capacity Purchase Agreement (‘CPA’) with Air Canada, a higher US dollar exchange rate, and a $1.1 million increase in incentives earned under the CPA. Pass-through costs increased from $160.8 million to $166.1 million, or $5.3 million or 3.3% which included $1.5 million related to fuel. Other revenue decreased by $0.3 million.

Operating expenses increased from $380.6 million to $399.0 million, an increase of $18.4 million or 4.8%. Controllable Costs increased by $13.1 million, or 6.0%. Controllable operating expenses were impacted by the changes in the fleet ownership structure for the Q400 aircraft. CRJ-100 aircraft, previously reported under operating leases, are being replaced by owned Q400 aircraft. Related ownership costs are comprised of depreciation (an operating expense), and interest (a non-operating expense). The Q400 aircraft lease revenue under the CPA is reflected in 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 $3.3 million, of which $3.1 million is related to the purchase of Q400 aircraft, with the balance due to increased capital expenditures on aircraft rotable parts and other equipment; offset by decreased major maintenance overhauls and certain assets having reached full amortization.

Aircraft maintenance expense increased by $4.0 million, with increased costs of $0.8 million arising as a result of increased Block Hours, the effect of the increase in the US-dollar exchange rate on certain material purchases of $0.3 million, increased other maintenance costs of $1.4 million, and an increase in engine maintenance activity of $1.5 million.

Salaries, wages and benefits increased by $7.4 million as a result of wage and scale increases under new collective agreements, increased Block Hours, increased incentive compensation expense, increased pension expense resulting from a revised actuarial valuation and lower capitalized salaries and wages related to major maintenance overhauls; offset by a 3.7% reduction in the number of full time equivalent employees.

Other expenses decreased by $0.7 million primarily due to decreased professional fees and general overhead expenses; offset by increased crew expenses increased due to increased activity and rates.

Non-operating income increased $19.8 million. This change was mainly attributable to a foreign exchange gain of $10.7 million (of which $10.0 million was related to an unrealized foreign exchange gain 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; offset by increased interest expense related to the Q400 aircraft financing of $1.8 million.

EBITDA was $51.8 million compared to $43.0 million in 2011, an increase of $8.8 million or 20.7%, producing an EBITDA margin of 11.9%. Free Cash Flow was $37.8 million, an increase of $8.7 million or 30.0% from $29.1 million.

Operating income of $36.7 million for the three months ended September 30, 2012, was up $5.6 million or 17.9% over third quarter 2011 from $31.1 million.

Net income for the third quarter of 2012 was $37.2 million or $0.30 per basic share, an increase of $23.3 million or 167.1% from $13.9 million or $0.19 per basic share.

Benchmarking Arbitration (Refer to Section 14 of Chorus’ Third Quarter 2012 MD&A for additional information)

As communicated on October 3 and 4, 2012, the arbitration panel (the ‘Panel’) released its award (the ‘Award’) on the 2009 benchmark exercise between Jazz Aviation LP (‘Jazz’) (a wholly owned subsidiary of Chorus) and Air Canada.

In the Award, two of the three member Panel concluded that the component unit cost driver (‘CUCD’) methodology put forward by Air Canada was the appropriate methodology to use in the 2009 Benchmark to compare Jazz’s Unit Costs to the stage length adjusted median controllable unit costs of the Comparable Operators. However, the Panel also agreed with Jazz that a number of the additional adjustments proposed by Jazz were also required to be made (the “Adjustments”).The Panel also agreed with Jazz that fleet age impacts the rate at which maintenance costs increase. The Panel directed Air Canada and Jazz to negotiate a further adjustment that would account for the impact of fleet age, failing which the parties will submit new proposals and analysis to the Panel.

There remain disputes between the parties with respect to the interpretation and application of the Award and its impact on the Controllable Mark-Up. Jazz is of the view that, applying the CUCD methodology, and based on the proper application of the Adjustments that the Panel has found are required to be made, the result of the 2009 Benchmark is that Jazz is not required to repay Air Canada any amounts in respect of payments made since January 1, 2010, and that its Controllable Mark-Up will remain at 12.50% going forward until at least the 2015 Benchmark.

Air Canada, on the other hand, has asserted to Jazz its view that the impact of the Adjustments that the Panel found were required to be made would reduce the Controllable Mark-Up to 11.41%. However, this does not account for any impact that the fleet age adjustment described above would have on the Controllable Mark-Up. Air Canada took the position at the hearing that there should be no such fleet age adjustment. Jazz is of the view that, given its older fleet relative to those of the relevant comparable operators, any fleet age adjustment would result in a Controllable Mark-Up higher than 11.41%, even if the Panel were to otherwise accept Air Canada’s position concerning the impact of each of the various other Adjustments which the Panel indicated must be made.

The parties have scheduled a further hearing with the Panel to occur in the last week of November 2012 to resolve the outstanding issues in dispute, including the impact of the fleet age adjustment. As a consequence, the impact, if any, to the Controllable Mark-Up on Jazz’s Controllable Costs cannot be stated at this time with reasonable certainty. Chorus anticipates having all matters settled no later than the first quarter of 2013.

No amounts have been recorded in the accounts of Chorus in 2010, 2011 or 2012 related to this claim as management has determined that it is not probable that the Air Canada claim will be successful, and it is not practicable to determine an estimate of the possible financial effect, if any, with sufficient reliability.

Chorus Aviation Inc.‘s unaudited interim condensed consolidated financial statements for the three months ended September 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.