RBC maintain outperform rating price target $4.50KEY POINTS "May 18, 2020 Chorus Aviation Inc. Q1 in line, focus now shifts to cash burn, liquidity and an eventual demand recovery Our view: We continue to view the fixed fee nature of Chorus' business model as offering some degree of protection from the headwinds currently facing the airline industry. Further, we think CHR's liquidity should bridge the company until demand recovers and see AC's equity stake in Chorus helping assuage concerns regarding the CPA. Reiterate Outperform rating. Key points: Q1/20 consistent with expectations. Adj. EBITDA came in at $89MM, in between consensus ($92MM) and RBC estimates ($87MM). Revenue of $350MM compares to RBC at $319MM and consensus at $348MM. Regional Leasing was a contributor to the positive top-line variance, with revenues of $42MM coming in ahead of the $33MM we were anticipating for the quarter. Liquidity sufficient to bridge until demand recovers. Including expected proceeds from CHR's unencumbered assets, we see total liquidity for Chorus currently sitting in the $330MM-$370MM range. Taken together with the company's warehouse facility (which we believe will be used to fund aircraft capex), we see liquidity as sufficient to meet the anticipated cash burn and bridge CHR into 2021 when we expect aircraft capex to moderate. Near term headwinds in Regional Leasing. Given the unprecedented reduction in demand in this segment (highlighted by the receipt of 25% of lease payments during April), mgmt has taken steps to provide relief to customers over a period expected to span 3-6 months. As such, we are forecasting a working capital drag of $60MM in aggregate over the next two quarters and will be closely monitoring any changes in the leasing market going forward to assess future impacts to cash flows. Price target lowered to $4.50 (from $6). We have updated our estimates slightly to account for the 2020 capex guidance and to reflect a slower rebound in air travel demand in 2021. As such, our 2020E EBITDA moves to $322MM (from $332MM) and our 2021 EBITDA moves to $388MM (from $391MM). Our Price Target drops to $4.50 (from $6), though our target multiples remain unchanged. Our take. Though we maintain our view that the viability of CHR will ultimately be linked to Air Canada (which we continue to believe has the balance sheet to survive this crisis), we think that the fixed fee nature of revenues (we expect will represent ~22% of 2020E revenues) provides a form of defensiveness which we view as favourable in the current environment. Further, as restrictions are eased and travel begins to come back online, we see the regional/domestic nature of operations as having the company well-positioned to participate in the industry recovery."