Extends CPA With Carrier To 2025

Chorus Aviation Inc., parent company of Jazz Aviation LP ('Jazz') has announced that all terms and conditions have been met to establish an amended and extended capacity purchase agreement ('CPA') with Air Canada effective January 1, 2015.

"We are transforming Chorus to become a more formidable competitor in the regional aviation industry," said Joseph Randell, President and Chief Executive Officer, Chorus. "The time is right to restructure the CPA as it was no longer competitive in the ever-changing regional environment. Significant achievements such as the simplification and modernization of our fleet combined with an industry-leading agreement with our pilots, and a new compensation structure under the CPA all serve as catalysts to secure our cornerstone business with our customer Air Canada, and to create incremental value through growth and diversification."

"We will build upon our strengths as a proven, experienced and long-term regional operator," continued Mr. Randell. "Our interests are aligned with Air Canada.  Our amended CPA and fleet modernization improves fleet economics and enables a stronger relationship for the long term. Chorus will continue to enjoy strong compensation levels over our 11-year horizon which is anticipated to support the current dividend and diversification opportunities going forward."

The amended CPA is retroactively effective January 1, 2015 and is in effect until December 31, 2025.  The year 2015 is expected to be transitional as the amendments to the CPA are implemented and the fleet transforms over the term of the contract.

The compensation structure changes from a 'cost plus a 12.5% mark-up' to a fixed fee arrangement.  The new compensation structure is at the core of the amended agreement as it simplifies the relationship, improves transparency, and provides an alignment and mechanism for cost reduction benefits to materialize on an accelerated basis.  It also eliminates the requirement for a benchmarking provision.

Chorus is now compensated using the industry standard approach of a fixed fee per aircraft regardless of how much an aircraft is flown.  Chorus provides additional services that support the CPA regional network such as airport operations, and therefore is also compensated with a fixed infrastructure fee. As the fleet plan transitions, Chorus will increase its aircraft leasing revenue over the term of the CPA to include a minimum of 34 Q400 and 17 Dash 8-300s to be leased under the Air Canada CPA.

The overall fleet plan calls for the addition of 23 78-seat Q400s that will gradually replace 34 37-seat Dash 8-100s, and 25 50-seat CRJ-200s over the next 11 years.  The fleet of 26 Dash 8-300s will continue to operate to 2025.  The transition gradually reduces the minimum number of aircraft from 122 to 86 over the term of the agreement which translates to a reduction in overall seat capacity of less than 9% by the end of the 11 year period.  This simplification and modernization of the fleet will deliver significant cost efficiencies that will provide the economics required to maintain a significant long-term presence in Air Canada's regional network.

In order to achieve the right economics with the older fleet of Dash 8-100 and Dash 8-300 aircraft, the business will consist of two operating units. The first unit, which is Jazz, will transition to a mix of larger, newer aircraft comprised of Q400, CRJ 200 and CRJ705 aircraft. The creation of a second airline will address the requirement for improved economics of the older Dash 8-100/300 fleet.  This unit will be similar to Air Canada's rouge as it will have its own work force.

FMI: http://chorusaviation.ca