About the pilots shortageLB1: Copy of a Note from TD about Chorus giving the explanations behind this event. Interesting to see that the partnership between Chorus and AC works well.
Event
Announcements this morning from Chorus Aviation, Air Canada, and Exchange Income Corp. indicate that PAL Airlines, an Exchange subsidiary, has signed an LOI to provide 'bridging' capacity (six Q400's for undisclosed term) to help meet Air Canada's increasing regional flying requirements.
These announcements highlight the challenges that Chorus is having with pilot availability. While the need for Air Canada to outsource to another regional airline was not expected, the trend that is driving the need is not surprising, and we do not believe that it should be a complete surprise to the equity market. On March 28, 2023, Chorus announced that it was launching an in-house pilot training operation, and during its Q1/23 conference call, Chorus indicated that its ability to provide block hours is being impacted in the short-term due to the 'timing' of pilot availability. Based on what we currently know, these factors combined with the language in today's press release from Chorus/Air Canada suggest that the bridging agreement will not impact the earnings and cash flow opportunity from the CPA. The PAL agreement provides for six Q400 aircraft, approximately 5% of the total regional aircraft covered under the CPA. We don't believe that PAL has plans to become a significant competitor to Jazz in its regional services to Air Canada.
We estimate that Q1/23 CPA block hours provided to Air Canada were approximately 75% of Q1/19. We believe that this is due to the slower recovery in international travel (which contributes to the need for regional feed), the addition of A220's to Air Canada's fleet and the availability of flight crews at Chorus. The CPA contract extends through 2035. Amendments to the CPA made Jazz the exclusive operator of 70-78 seat aircraft through December 31/25. Presumably, the agreement between PAL and Air Canada suggests some relief from this term.
Overall, we do not believe that investors should view this news as a reflection of Chorus' ability to provide regional capacity to Air Canada or a decision by Air Canada to diversify its regional supply base.