Chorus Aviation announces solid year-end 2017 and fourth quarter earnings

Chorus Aviation Capital continues growth momentum
Delivering regional aviation to the world  

Selected annual 2017 information:

• Annual 2017 net income of $166.3 million, or $1.35 per basic share, inclusive of an unrealized foreign exchange gain of $60.9 million.
• Annual 2017 adjusted EBITDA¹ of $285.6 million.
• Annual 2017 adjusted net income¹ of $114.5 million, or $0.93 per basic share.

Selected Q4 2017 information:

• Q4 net income of $19.7 million, inclusive of an unrealized foreign exchange loss of $2.4 million.
• Q4 adjusted EBITDA of $82.6 million.
• Q4 adjusted net income of $23.4 million or $0.19 per basic share.
• Added to the S&P/TSX Composite Index.
• Diversified and grew leased fleet to 64 regional aircraft.
• Completed the fourth Extended Service Program on a Dash 8-300 aircraft.

HALIFAX, Feb. 15, 2018 /CNW/ - Chorus Aviation Inc. ('Chorus') (TSX: CHR) today announced solid year-end and fourth quarter financial results for fiscal year ended December 31, 2017.

"I'm very pleased with the significant progress made in 2017 towards our vision of delivering regional aviation to the world," said Joe Randell, President and Chief Executive Officer, Chorus.  "The successful launch of Chorus Aviation Capital and its rapid build to a global business has propelled the value of Chorus' portfolio of leased aircraft to over one billion dollars and demonstrated the strength of our growth and diversification strategy. We have been methodical and deliberate in deploying the $200 million gross proceeds from our convertible debt unit financing with Fairfax Financial. Within a relatively short period of time we've concluded leasing agreements with eight well-established regional carriers in eight countries located on six continents. We have strong momentum.

"Our expertise in aircraft engineering, maintenance, repair and overhaul coupled with our experience in all other areas of regional operations is what differentiates us from the competition. We're demonstrating our ability to leverage and capitalize on the entire lifecycle of an aircraft – from its origination, to conducting modifications and engineering to accommodate customer needs, including life extension programs on aircraft – to repurposing aircraft and marketing them for flying contracts or disassembly for parts provisioning.

"From a financial point of view, our contract flying and maintenance, repair and overhaul businesses performed according to our expectations and contributed to increases in all key financial metrics including growth in adjusted EBITDA and adjusted net earnings of 15 and 12 percent respectively year over year. I am grateful to our employees for their hard work and for recognizing the power of our vision.

"We finished 2017 on a very positive note when we returned to the S&P/TSX Composite Index – a strong endorsement of our strategy to transform our organization to a worldwide leader in providing regional aviation services. The focus in 2018 will be relatively consistent with 2017 – to execute on our foundational businesses in Jazz and Voyageur, and to leverage our industry relationships and expertise as we continue to build Chorus Aviation Capital," concluded Mr. Randell. 

2017 Strategic Accomplishments

The Chorus group of companies accomplished several strategic initiatives in support of its corporate objectives to grow and diversify the business, and improve its cost competitiveness. Highlights of 2017 included:

Regional Aircraft Leasing

• By the end of 2017, Chorus Aviation Capital completed the acquisition of 21 aircraft and leased them to brand name regional carriers based in eight countries on six continents. These aircraft have an average age of less than three years and have an average leasing term greater than seven years. Together with the 43 aircraft leased under the Capacity Purchase Agreement ('CPA') with Air Canada, Chorus' leased fleet of 64 aircraft is worth over one billion dollars.

To date CAC has acquired:

• Aircraft leasing under the CPA increased by $16.9 million or 17.1% with the addition of five new CRJ900s, five Q400s and four Dash 8-300s (post completion of an extended service program).

Contract Flying

• Operated over 230,000 Air Canada Express flights carrying just under 11 million passengers on behalf of Air Canada.
  
• Commenced new contract flying missions in Sweden, Denmark and Aruba.
  
• Transitioned a significant portion of the workforce to new industry competitive wage scales; currently 52% of Jazz pilots are operating under the new collective agreement.
  
• Added 10 efficient aircraft (five CRJ900s, five Q400s) and removed six less efficient aircraft (three CRJ200s, three Dash 8-100s). Available seat miles increased by approximately 3% over 2016.

MRO

• Completed the world's first Extended Service Program ('ESP') on a Dash 8-300 aircraft. The ESP extends the life of the aircraft by approximately 15 years. Four ESPs were conducted and a minimum of 12 additional aircraft are scheduled to undergo the program by the end of 2019.
  
• Became an Authorized Service Facility for Bombardier Commercial Aircraft at the MRO base in Halifax.
  
• Executed on third-party maintenance contracts and increased the number of heavy maintenance lines at the Halifax facility from three to five lines.
  
• Engineered a Supplemental Type Certificate and converted two former Jazz Dash 8-100 aircraft to Package Freighters and leased them to a third party. This conversion was the first of its kind with a Dash 8-100.
  
• Parted out seven aircraft to support strong market demand for part sales.
  
• Demonstrated strong technical capabilities through maintenance and engineering contracts including inflight entertainment and wireless GOGO installations, cabin seat reconfigurations of CRJ705 and Q400 aircraft, and the refurbishment of certain aircraft interiors.

Dividend Reinvestment Program ('DRIP')

Effective February 1, 2018 Chorus implemented a DRIP that allows Chorus to offer a discount of up to 5% from the average market price for shares purchased under the DRIP. Chorus is currently offering a discount of 4%. Details are provided at http://chorusaviation.ca/dividend-reinvestment-plan.

The DRIP provides shareholders who are resident in Canada the opportunity to purchase additional Chorus shares using cash dividends paid on shares enrolled in the DRIP. All shares purchased under the DRIP are newly issued by the Corporation from treasury, and the proceeds received by Chorus are used for general corporate purposes. Some of the benefits of participating in the DRIP include the current discount of 4%, the convenience of automatic reinvestment, savings from not having to pay brokerage fees or other service charges for shares purchased under the DRIP, and the ability to acquire fractional shares.

2017 ANNUAL RESULTS
Financial performance – year-end 2017 compared to year-end 2016

For the year ended December 31, 2017, Chorus reported adjusted EBITDA of $285.6 million versus $248.1 million in 2016; an increase of $37.5 million or 15.1%. 

The $37.5 million increase in adjusted EBITDA was primarily driven by:

• a $26.0 million increase related to incremental margin mainly attributed to non-CPA aircraft leasing and maintenance, repair and overhaul;
• increased aircraft leasing under the CPA of $16.9 million;
• decreased operating costs related to a $3.7 million increase in capitalized labour and maintenance costs on owned aircraft for major maintenance overhauls; and
• the absence of fleet transition costs of $1.7 million which occurred in 2016.

These increases were partially offset by:

• a decline of $6.4 million in CPA performance incentive revenue;
• an increase of $2.5 million in stock-based compensation expense; and
• an increase of $1.9 million in other expenses.

Adjusted net income was $114.5 million for the year, an increase from 2016 of $12.5 million, or 12.2%. The change was a result of the $37.5 million increase in adjusted EBITDA previously described, plus a $16.3 million decrease in income taxes and a year-over-year decrease of $2.0 million in foreign exchange losses related to working capital; partially offset by:

• $21.4 million of interest costs related to increased aircraft debt and convertible units; and
• $21.9 million of additional depreciation primarily related to new aircraft.

Net income was $166.3 million for the year, an increase of $54.6 million, or 48.8% from the same period of 2016. The increase was due primarily to the previously noted $12.5 million increase in adjusted net income plus:

• an increase of $35.9 million in unrealized foreign exchange gains on long-term debt;
• the absence of signing bonuses in 2017, compared to $5.5 million in signing bonuses in the same period of 2016;
• the absence of strategic advisory fees in 2017, compared to $3.7 million in strategic advisory fees in the same period of 2016; and
• foreign exchange gains of $1.6 million on US dollar denominated cash held on deposit for investment in the regional aircraft leasing business.

This was offset partially by a $4.6 million increase in employee separation program costs in 2017 over 2016.

FOURTH QUARTER 2017

Financial Performance - fourth quarter 2017 compared to fourth quarter 2016

In the fourth quarter of 2017, Chorus reported adjusted EBITDA of $82.6 million versus $69.3 million in 2016; an increase of $13.2 million or 19.0%. 

The $13.2 million increase in adjusted EBITDA was primarily driven by:

• a $10.3 million increase related to incremental margin mainly attributed to non-CPA aircraft leasing and maintenance, repair and overhaul;
• increased aircraft leasing under the CPA of $2.7 million;
• the absence of fleet transition costs of $1.7 million which occurred in 2016; and
• decreased operating costs related to a $2.6 million increase in capitalized labour and maintenance costs on owned aircraft for major maintenance overhauls.

These increases were partially offset by:

• a decline of $0.8 million in CPA performance incentive revenue; and
• an increase of $3.3 million in other expenses.

Adjusted net income was $23.4 million for the quarter, a decrease from the fourth quarter of 2016 of $7.8 million, or 25.1%. The change was a result of the $13.2 million increase in adjusted EBITDA previously described, partially offset by:

• $7.2 million of interest costs related to increased aircraft debt and Convertible Units;
• a $1.3 million increase in income taxes;
• $9.9 million of additional depreciation primarily related to new aircraft; and
• a $2.6 million increase in foreign exchange losses related to working capital.

Net income was $19.7 million for the quarter, an increase of $7.1 million from the fourth quarter of 2016. The increase was due primarily to a $10.2 million reduction in unrealized foreign exchange losses on long-term debt, a $1.0 million decrease in employee separation program costs and the absence of strategic advisory fees of $3.7 million incurred in 2016; offset by the previously noted $7.8 million decrease in adjusted net income.

2018 OUTLOOK

(See cautionary statement regarding forward-looking information below)

Chorus intends to continue growing its regional aircraft leasing business through CAC by leveraging the proceeds from the private placement of convertible debt units to acquire aircraft for lease to regional aircraft operators. CAC has invested approximately 70% of that capital to date and intends to deploy the balance by mid-2018 leveraging the remaining capital with further debt financing at a ratio ranging between three and four to one, to acquire new to mid-life regional aircraft for lease. Chorus is currently examining options for future financing arrangements to sustain the growth in the leasing business.

Based on 2017-2018 winter schedule, the 2018 summer schedule and updated planning assumptions from Air Canada, Billable Block Hours under the CPA for 2018 are expected to be between 350,000 and 375,000 hours based on 116 Covered Aircraft as at December 31, 2018. The actual number of Billable Block Hours for 2018 may vary from this anticipated range due to a number of factors, see Section 9 - Risk Factors. The CPA fleet transition to larger aircraft will generate approximately 3% more available seat miles in fiscal 2018 over the same period in 2017.

Capital expenditures for 2018, excluding those for the acquisition of aircraft and the ESP, and including capitalized major maintenance overhauls, are expected to be between $44.0 million and $50.0 million.

Investor Conference Call / Audio Webcast

Chorus will hold an analyst call at 09:30 a.m. ET on Thursday, February 15, 2018 to discuss the fourth quarter and year-end financial results. The call may be accessed by dialing 1-888-231-8191. The call will be simultaneously audio webcast via:
http://event.on24.com/r.htm?e=1585013&s=1&k=2F12B6685BDB7E60D6E45BA0B1A60A2D

This is a listen-in only audio webcast. Media Player or Real Player is required to listen to the broadcast; please download well in advance of the call.

The conference call webcast will be archived on Chorus' website at www.chorusaviation.ca under Reports > Executive Management Presentations. A playback of the call can also be accessed until midnight ET, February 22, 2018 by dialing toll-free 1-855-859-2056, and passcode 8382614#.

¹ NON-GAAP MEASURES

This news release references several non-GAAP measures to supplement the analysis of Chorus' results. These measures are provided to enhance the reader's understanding of our current financial performance. They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a consistent basis for comparison between periods. These non-GAAP measures are not recognized measures under GAAP, and therefore they are unlikely to be comparable to similar measures presented by other companies. A reconciliation of these non-GAAP measures to their nearest GAAP measure is provided in Management's Discussion and Analysis ('MD&A') dated February 14, 2018.

EBITDA and Adjusted EBITDA

EBITDA is defined as earnings before net interest expense, income taxes, and depreciation and amortization and is a non-GAAP financial measure that is used frequently by companies in the aviation industry as a measure of performance. Adjusted EBITDA (EBITDA before signing bonuses, employee separation program costs, strategic advisory fees and other items such as foreign exchange gains or losses) is a non-GAAP financial measure used by Chorus as a supplemental financial measure of operational performance. Management believes Adjusted EBITDA assists investors in comparing Chorus' performance by excluding items, which it does not believe will occur over the longer term (such as signing bonuses, employee separation program costs and strategic advisory fees) as well, which items that are non-cash in nature such as foreign exchange gains and losses.

During the first quarter of 2017, Chorus revised its definition of Adjusted EBITDA to include signing bonuses, employee separation program costs and strategic advisory fees to facilitate transparency and comparability as these items can fluctuate from period to period. Adjusted EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact of working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statements of cash flows, forming part of Chorus' financial statements.

Adjusted Net Income

Adjusted net income and Adjusted net income per Share are used by Chorus to assess performance without the effects of unrealized foreign exchange gains or losses on long-term debt and finance leases related to aircraft, foreign exchange gains or losses on cash held on deposit for investment in the regional aircraft leasing business, signing bonuses, employee separation program costs and strategic advisory fees. Chorus manages its exposure to currency risk on such long-term debt by billing the lease payments within the CPA in the underlying currency (US dollars) related to the aircraft debt. These items are excluded because they affect the comparability of our financial results, period-over-period, and could potentially distort the analysis of trends in business performance.  Excluding these items does not imply they are non-recurring due to ongoing currency fluctuations between the Canadian and US dollar. During the first quarter of 2017, Chorus revised its definition of Adjusted net income to exclude the signing bonuses, employee separation program costs, and strategic advisory fees to facilitate transparency and comparability as these items can fluctuate from period to period. In addition, Chorus revised its definition of Adjusted Net Income to exclude foreign exchange gains or losses on US dollar denominated cash held on deposit for investment in the regional aircraft leasing business. This item is excluded as it relates to a foreign exchange gain or loss on proceeds from the Convertible Units that were converted to US dollars and will be used to invest in long-term and primarily US dollar denominated assets, whose related income is expected to be earned over time.

Various Financial Measures

Forward-Looking Information

This news release should be read in conjunction with Chorus' audited consolidated financial statements for the years ended December 31, 2017 and December 31, 2016, and MD&A dated February 14, 2018 filed with Canadian Securities Administrators (available at www.sedar.com).

This news release contains 'forward-looking information' as defined under applicable Canadian securities legislation. Forward-looking information is identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Such information may involve but is not limited to comments with respect to strategies, expectations, planned operations or future actions. Examples of forward-looking information can be found in this news release under the heading "2018 Outlook", and the discussion throughout this news release of Chorus' expectations for CAC's market potential.

Forward-looking information relates to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and other uncertain events. Forward-looking information, by its nature, is based on assumptions, including those described below, and is subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, external events, changing market conditions and general uncertainties of the business. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from those expressed in the forward-looking information. Results indicated in forward-looking information may differ materially from actual results for a number of reasons, including, without limitation: risks relating to Chorus' economic dependence on and relationship with Air Canada; risks relating to the airline industry (including the international operation of aircraft in developing countries and areas of unrest); aircraft leasing (including the financial condition of lessees, availability of aircraft, access to capital, fluctuations in aircraft market values, competition and political risks); the failure of Chorus or any other party to satisfy conditions precedent to the closing of anticipated transactions; energy prices, general industry, market, credit, and economic conditions (including a severe and prolonged economic downturn which could result in reduced payments under the CPA); increased competition affecting Chorus and/or Air Canada; insurance issues and costs; supply issues and costs; the risk of war, terrorist attacks, aircraft incidents and accidents; fraud, cybersecurity attacks or other criminal behaviour by internal or external parties; epidemic diseases, environmental factors or acts of God; changes in demand due to the seasonal nature of Chorus' business or general economic conditions; the ability to reduce operating costs and employee counts; the ability of Chorus to secure financing; the ability of Chorus to attract and retain the talent required for its existing operations and future growth; the ability of Chorus to remain in good standing under and to renew and/or replace the CPA and other important contracts; employee relations, labour negotiations or disputes; pension issues and costs; currency exchange and interest rates; debt leverage and restrictive covenants contained in debt facilities; uncertainty of dividend payments; managing growth; changes in laws; adverse regulatory developments or proceedings in countries in which Chorus and its subsidiaries operate or will operate; pending and future litigation and actions by third parties. For a further discussion of risks, please refer to 2017 Annual Information Form dated February 14, 2018. The statements containing forward-looking information in this discussion represent Chorus' expectations as of February 15, 2018, and are subject to change after such date. However, Chorus disclaims any intention or obligation to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

About Chorus
Headquartered in Halifax, Nova Scotia, Chorus was incorporated on September 27, 2010. Chorus' vision is to deliver regional aviation to the world. Chorus has been leasing its owned regional aircraft into Jazz's Air Canada Express operation since 2009, and has established Chorus Aviation Capital Corp. to become a leading, global provider of regional aircraft leases and support services. Chorus also owns Jazz Aviation and Voyageur Aviation – companies that have long histories of safe and solid operations that deliver excellent customer service in the areas of contract flying operations, engineering, fleet management, and maintenance, repair and overhaul. Chorus Class A Variable Voting and Class B Voting Shares trade on the Toronto Stock Exchange under the trading symbol 'CHR'. www.chorusaviation.ca

SOURCE Chorus Aviation Inc.

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