An Interesting Thesis....Negotiated SettlementI
I think a previous poster may be on to something with respect to a negotiated settlement. To take from the earnings call
Your next question comes from the line of Kevin Chiang with CIBC.
Kevin Chiang - CIBC
Just upon a clarification, my understanding was that the arbitration panel was to have a decision within or up to 60 days from when the final arguments were made. Looked that we've rolled passed the 60 days by a few days. Just wondering, is this delay something procedural or are they looking for more evidence from both stakeholders, or is it just, they're just taking longer we originally anticipated here? Is that something to be read into given its taken longer than 60 days?
Joseph Randell - President and Chief Executive Officer
I don't think we can read anything into this, into the amount of time that's taking, et cetera. We have not been backed with the panel. We've not been involved since we did our closing arguments, frankly, back in September. So the panel obviously is taking a little more time to do this. And I guess it's not unusual that in some cases, panels go beyond what's may normally be expected in terms of timeframes. And for us, really what's important is getting to the right answer. And like we say, we anticipated this quarter, and frankly we're looking forward to getting the result and moving on.
Fact
a) All adjustments prior to engine maintenance costs had been settled with both sides agreeing to 12.5% - before the September arguments.
As per guidance received by Randall.
b) The only outstanding item was how to deal with engine maintenance costs.
Both sides presented thier methodologies and arguments as of September 9th.
c) The arbitrators had 60 days to respond with thier ruling.
It strikes me as odd that the arbitrators have not responded yet. Specifically - all previous adjustments had been settled (which took month and months of review) to 12.5%.
If the only outstanding item was engine maintenance costs - that should NOT take more than 60 days to make a judgement call. There is only so much analysis one can do.
Thesis - I believe the arbitrator did make a decision - and that it was in favour of Chorus.
Basis
a) AC.B had all the leverage in this dispute with CHR.B. If it was known by both parties that the arbitrators were going to side with AC.B within 60 days - AC.B would have pushed quickly for the announcement - jolting the Chorus share price. That has not happened.
b) On the other hand - if the abritrators had made known thier decision to both parties within 60 days that the 12.5% markup would remain intact - Chorus would now have leverage they did not have before - and would most likely use this added leverage to negotiate with Air Canada a mutually beneficial outcome. Leverage has been the only thing Chorus has been lacking throughout this arbitration. They would not want to risk pissing off thier number one customer even further now that they hold a decent set of cards to play with AC that they didnt have before.
d) Both parties have a big incentive to manage the communication of the announcement - anything short of this will rattle the markets for both stocks.
To parse Randells words
- And for us, really what's important is getting to the right answer. -
Conclusion
a) The arbitrator has sided with Chours - and AC and Chorus are now negotiating a new deal.
b) Both parties will announce the new deal in December in a tightly managed communication that should benefit both Chorus and AC.
Something to chew on....
PM