RE:RE:RE:Dont be fooledparagonI wrote:
well aware of the clause, also, of forcemajuere. Do you really think AC is goiong to keep paying ? you do not understand the situation. All airlines in the world under extreme financial stress and you think AC is not going to claim Forcemaj. Good Luck
Lots to think about, below worth the read, take the time. Will be interesting to see how this plays out. I must admit I am concerned, long time holder of CHR, been through several down periods but this one is the most difficult. glta
Capacity Purchase Agreement with Air Canada Overview Jazz is the largest regional airline in Canada and operates more flights into more airports in Canada than any other airline. Jazz and Air Canada are parties to the CPA under which Air Canada purchases substantially all of Jazz’s fleet capacity. Air Canada is responsible for scheduling, pricing, product distribution, seat inventories, marketing and advertising, and customer service at certain airports staffed or administered directly by Air Canada. Air Canada is entitled to all revenues associated with the operation of the Covered Aircraft, including revenue from passenger ticket sales and Cargo Services. Accordingly, Air Canada bears all of the market risk associated with fluctuations in those revenues.
Operating Plans and Scheduling During the term of the CPA, Air Canada is obligated to annually deliver a high-level operating plan for the upcoming calendar year for budget and planning purposes. The CPA specifies that Air Canada and Jazz will jointly agree on a seasonal operating plan prior to the start of each summer and winter schedule period, which includes Air Canada's forecast regarding: • Block Hours and departures by aircraft type, available seat miles and passenger volume; • the airports to which Jazz will operate Scheduled Flights; and • specific dates for the commencement or termination of service to or from new airports, if any. No less than three months before the first day of any schedule period, Air Canada will provide Jazz with the final schedule for the period covered by the seasonal operating plan. There are two seasonal schedule periods: winter (from approximately November 1 to March 31) and summer (from approximately April 1 to October 31). Under the CPA, Air Canada provides rolling monthly schedules which may vary from the final seasonal schedule. Jazz operates based on such monthly schedules as long as the volume of flying required to meet the schedule change does not increase or decrease the total Block Hours for any aircraft type by more than 5%, as compared with the guaranteed Block Hours. If the variance is greater than 5%, Air Canada and Jazz will meet to discuss potential rate changes.
Chorus Aviation talks COVID-19's impact on business 2020-03-18 13:17 ET - News Release Chorus is working with its main customer and partner, Air Canada, as it adjusts to the significant demand reductions seen in its business. The CPA contains provisions which allow Air Canada to reduce its utilization of the Jazz fleet, and the parties are currently in discussions regarding schedule changes and cost mitigation measures for the Jazz operation. In accordance with the CPA, all resulting savings from such measures will accrue to Air Canada’s benefit with any cost exposure to Jazz being limited to the $2 million guardrail under the contract.1 Furthermore, the compensation paid to Jazz under the CPA does not vary with the amount of flying and is fixed based on agreed annual amounts. 1 For a description of the cost guardrail, please refer to Chorus’ Annual Information Form dated February 12, 2020.
Fixed Margin Jazz earns a Fixed Margin which has been set for 2019 and 2020 as an aggregate amount of $75.5 million for each year irrespective of the number of Covered Aircraft and thereafter the annual Fixed Margin is based on the number of Covered Aircraft operated by Jazz under the CPA. (Please refer to the caution regarding forward-looking statements included in the section of this AIF titled "Explanatory Notes".)
Controllable Revenue Jazz is paid Controllable Revenue rates based on Controllable Costs that are estimated using certain variables. The CPA includes provisions which limit Jazz’s exposure to $2.0 million annually for variances between the Controllable Revenue Jazz receives from Air Canada to cover Jazz’s actual Controllable Costs incurred in performing its services for Air Canada (referred to as the “Controllable Cost Guardrail”). Controllable Revenue rates are set annually, and Jazz and Air Canada complete an annual reconciliation and payment once the variance, if any, between the Controllable Revenue paid by Air Canada and Jazz’s actual Controllable Costs is determined. If Jazz’s Controllable Costs exceed the revenue received from Air Canada by more than $2.0 million, Air Canada pays to Jazz an amount equal to the excess over $2.0 million. Conversely, if the Controllable Revenue paid by Air Canada to Jazz exceeds Jazz’s actual Controllable Costs by more than $2.0 million, Jazz pays to Air Canada an amount equal to the excess over $2.0 million. Controllable Costs include such costs as wages and benefits, certain depreciation and amortization, certain aircraft maintenance, materials and supplies, third party operating leases, and other general overhead expenses, such as crew variable expense, professional fees, travel, and training. Substantially all of the Controllable Costs are subject to the Controllable Cost Guardrail and related reconciliation.
Risks Relating to Chorus’ Business Dependence on the CPA Chorus derives a majority of its revenues from the CPA. As a result, Chorus is directly affected by the financial and operational strength of Air Canada, its competitive position, and its ability to maintain sufficient liquidity. Air Canada’s business, results from operations and financial condition are subject to a number of risks, including the risk factors described under “Risk Factors - Risks Relating to the Aviation Industry”. In the event of any material decrease in its financial or operational strength, Air Canada’s ability to make full payment of amounts owing to Chorus may be adversely affected. Such events could result in the inability of Air Canada to pay all amounts owing to Jazz under the CPA or other defaults by Air Canada of its obligations under the CPA or other contracts with Chorus, which would have a material adverse effect on Chorus’ business, results of operations, cash flows, financial position and prospects. Management is committed to diversifying Chorus’ business to reduce the risk of Chorus’ economic dependence on the CPA and, to this end, Chorus acquired Voyageur in 2015 and established Chorus Aviation Capital in 2017. Management also continually evaluates opportunities in the market to further diversify Chorus’ business. Notwithstanding these efforts, management expects that Chorus will remain economically dependent on the CPA for the foreseeable future and there can be no assurance that efforts to diversify Chorus’ business will materially reduce Chorus’ economic dependence on the CPA over the long-term. See “Risk Factors - Risks Relating Specifically to Chorus’ Dependence on the CPA” for a further discussion of the risks associated with Chorus’ dependence on the CPA.
Uncertainty of Dividend Payments The Corporation’s ability to declare and pay dividends (whether at current levels, revised levels or at all) is dependent on, among other things, Chorus’ ability to generate sufficient free cash flows, compliance with statutory solvency tests, compliance with restrictive covenants (whether under credit agreements or other contracts), and Chorus’ general requirements for working, maintenance and growth capital. In particular, debt agreements typically contain a restriction on the payment of dividends and other distributions by the borrower if an event of default is continuing. This could prevent the upstream payment of dividends to the Corporation by its subsidiaries, which could in turn adversely affect the Corporation’s ability to declare and pay dividends. Furthermore, as the payment of dividends is subject to the discretion of the Corporation’s Board of Directors, the Corporation’s dividend policy could change at any time if the Board determines that a change is in the best interests of the Corporation (see “Dividends – Dividend Record” for information on the Corporation’s dividends). If the Corporation were unable to declare and pay dividends or changed its dividend policy, this could have a material adverse effect on Chorus’ business, results of operations, cash flows, financial position and prospects.
Foreign Exchange Rate Risk Chorus receives revenue and incurs expenses in U.S. Dollars, Canadian Dollars and in Euros. Chorus manages its exposure to currency risk in its Regional Aviation Services segment by billing for its services within the CPA in the underlying currency related to the expenditure and matching the currency of debt for leased aircraft with the currency of the related lease rents. Accordingly, the primary exposure results from balance sheet fluctuations of the U.S. Dollar denominated cash, accounts receivable, accounts payable, and in particular, obligations under finance leases and long-term debt, which are long-term and are therefore subject to larger unrealized gains or losses. Chorus mitigates the currency risk associated with its Regional Aviation Leasing segment by borrowing in the same currencies as the related lease revenues. Chorus has some leases and related loans that are denominated in Euros and that have significant principal payments due at maturity (known as “balloon payments”). As aircraft generally trade in U.S. Dollars, Chorus is subject to foreign exchange risk when prepaying loans denominated in Euros or making balloon payments under Euro denominated aircraft loans. Chorus mitigates the impact these payments might have on liquidity by limiting balloon payments under its aircraft loans to amounts below the estimated residual value of the aircraft at loan maturity. A 1¢ change in the US exchange rate would result in a change in the unrealized gain or loss of approximately $6.4 million. A 1¢ change in the Euro versus Canadian dollar exchange rate would not have a material impact in the unrealized gain or loss. Despite Chorus’ efforts to manage these risks, the realization of significant foreign exchange losses could have a material adverse effect on Chorus’ business, results of operations, cash flows, financial position and prospects (see “Third Party Credit Risk”).
Risks Relating Specifically to Chorus’ Dependence on the CPA Termination of the CPA The majority of the Corporation’s revenues on a consolidated basis are currently derived from the CPA, and the Covered Aircraft are mostly dedicated to that operation. During the term of the CPA, the non-defaulting party is entitled to terminate the CPA at any time upon the occurrence of an event of default by the other party. Events of default include, without limitation: • bankruptcy or insolvency of the other party; • suspension or revocation of any of Jazz’s regulatory authorizations and licenses required for Jazz to perform the air services required by the CPA; • failure by Air Canada or Jazz to pay amounts when due where such default continues for a period of 30 days after notice; • failure by Air Canada or Jazz to comply with any of its obligations under the CPA, where such default continues for a period of 30 days after notice; • more than 50% of the Covered Aircraft (and certain substitutes therefor) do not operate any Scheduled Flights for more than seven consecutive days or 25% of those aircraft do not operate any Scheduled Flights for more than 21 consecutive days, other than as a result of an order of a governmental authority affecting the industry generally or as a result of any action by Air Canada, any strike by Air Canada employees or any force majeure (including any cessation, slow-down, interruption of work or any other labour disturbance); • default by Air Canada or Chorus with respect to a material term of any other material agreement between Chorus and Air Canada if such default continues for more than the applicable period, if any; • default by Jazz with respect to a material term of any other material agreement to which it is a party if such default continues for more than the applicable period, if any; • failure by Jazz to maintain adequate insurance; • failure of Jazz to maintain specified critical service levels for four consecutive quarters or five of the prior eight quarters; and • failure by Jazz to comply with Air Canada’s audit and inspection rights. If the CPA were terminated, Chorus’ revenue and earnings would be significantly reduced unless Chorus were able to enter into satisfactory substitute arrangements. There is no assurance that Chorus would be able to enter into satisfactory substitute arrangements or that such arrangements would be as favourable to Chorus as the CPA. A termination of the CPA, or any failure of Chorus to enter into satisfactory substitute arrangements in the event of any such termination, would have a material adverse effect on Chorus’ business, results of operations, cash flows, financial position and prospects.
Force Majeure clause definition is a provision in a contract that excuses a party from not performing its contractual obligations that becomes impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled.
Force Majeure If either Air Canada or Jazz is prevented from performing its obligations under the CPA in whole or in part due to a force majeure event, the affected party may be temporarily excused from performing its obligations to the extent it is so prevented. In addition, if Jazz is affected by a force majeure event which prevents it from performing all of its services under the CPA, Air Canada’s obligation to pay the agreed rates related to certain limited fixed costs would continue, however, Air Canada’s obligation to pay the other agreed rates would be temporarily suspended. All other obligations of Air Canada, including, but not limited to, those related to the fleet of Covered Aircraft and minimum average daily utilization guarantee would also be temporarily suspended and inapplicable in respect of the period of the force majeure event. Such force majeure event would also trigger prorated adjustments to be made to Air Canada’s payment obligations in respect of the period of the force majeure event to reflect the level of service Jazz provides during such period. 45 2019 Annual Information Form Air Canada or Jazz is entitled to terminate the CPA if the other party is prevented from performing all or substantially all of its obligations hereunder for more than 60 days due to a force majeure event. If a force majeure event under the CPA were to occur, this could have a material adverse effect on Chorus’ business, results of operations, cash flows, financial position and prospects.
Epidemic Diseases A widespread outbreak of contagious diseases, or any governmental or global travel advisories (whether relating to Canadian or international cities or regions) could result in a significant reduction in passenger demand for air travel which could affect the operating performance and financial condition of airlines, including Air Canada and Chorus’ lessees. Any such event could result in reduced revenues for Chorus which could result in a material adverse effect on Chorus' business, results of operations, cash flows, financial position and prospects. (For further information, see “Third Party Credit Risk”)