Chorus Sould Take A Page From Ac Play Book

[wizard]

Chorus should take a page from the AC play book and just buy the competition. Chorus should buy Sky Regional and also buy Porter and continue to keep them as separate airlines but all under the holding company Chorus. The end of the day you have diversification with all the money going in the Chorus pockets.

• 
  

[wizard]

Shares of Chorus Aviation Inc. jumped 37¢ or 12.3% to $3.39 on Wednesday after it appeared the regional affiliate of Air Canada would be able to avoid the significant cut to its dividend some had feared.

But Joseph Randell, Chorus chief executive, warned investors he doesn’t expect much growth from the company’s contract with Air Canada going forward.

The nature of the business is there is always pressure on costs

“The nature of the business is there is always pressure on costs,” Mr. Randell said on a conference call Wednesday. “We’ve heard from Air Canada that we should not anticipate growth for Jazz as Air Canada looks to lower its regional costs and to diversify the sources of regional lift.”

Under the terms of their so-called capacity purchase agreement, Air Canada effectively buys all of the seats on Chorus’ subsidiary airline, Jazz, at a fixed rate and sells them back into the marketplace, determining its schedule and prices. In exchange, Air Canada guarantees Jazz a minimum amount of flying and covers other costs, such as fuel.

While Chorus remains Air Canada’s primary regional affiliate, Air Canada has been diversifying its regional partnerships in an attempt to drive down costs.

In the past two years, the bulk of Air Canada’s additional regional flying has gone to its new partner, Sky Regional Airlines, due to its lower costs.

Air Canada also announced last month it would be transferring its fleet of smaller Embraer regional jets to Sky Regional with an eye on broadening that relationship.

While it appears little growth will be coming through its contract with Air Canada, Mr. Randell said the company continues its efforts to diversify its business away from Air Canada. To date, however, Chorus has had little success. Roughly 99% of its revenue is still derived from its partnership with Air Canada.

Mr. Randell noted, however, that Chorus’ agreement with Air Canada extends to 2020, and that the bulk of Air Canada’s regional flying is still performed by Jazz.

Their partnership has been uneasy in recent years with the parties locked in a lengthy dispute over the rate Chorus is paid by Air Canada above its controllable costs.

Chorus is currently paid a 12.5% mark-up on its controllable costs, meaning Air Canada pays Chorus $1.125 for every $1 in controllable costs, including items such as wages.

Air Canada has been seeking to reduce that rate to 9.5%. An arbitration panel in October sided with Air Canada in the dispute, but did not grant the full reduction.

It was unclear at the time how much lower the rate would be, but it raised fears Chorus would have to dramatically scale back its 60¢ a share dividend.

Air Canada has since said it doesn’t expect the mark-up to drop below 11.41%.

A final decision is expected by the end of the first quarter of 2013. But even in the worst-case scenario, it appears the dividend is sustainable through 2013, said Cameron Doerksen, a National Bank Financial analyst. He raised his price target on the stock to $3 a share on Wednesday, from $2.60 a share previously, and his rating to a sector perform.

Walter Spracklin, an RBC Capital Markets analyst, agreed the dividend was sustainable. Even if Air Canada were successful in the dispute, he estimated the dividend would only be cut to 53¢ a share, providing a 17% yield based on Tuesday’s closing price. He has a $4.50 target price on the stock.

“We believe that a significant dividend cut is now likely off the table and we would be buyers at current valuations,” he said.

[vanishing point]

I was thinking that a while back. Chorus/Jazz should be looking at buying up the Tier III carriers rather than investing in South American airlines or such.

Of course, that being said, who says the Tier III want to be part of the Chorus family?

The second post shouldn't come as any surprise to anyone.

[wizard]

You make a very good point. I was also thinking the same thing with the Tier 3's. Ya Investing in South America airlines. What a joke that was.

[AME]

Air Canada also announced last month it would be transferring its fleet of smaller Embraer regional jets to Sky Regional with an eye on broadening that relationship.

After years and years of in fighting between the AC/CP Pilots and their regional counterparts and the scope clauses that caused so much dissention in the ranks I find it rather amusing that AC can simply "Transfer it's Fleet" to another entity (not even a partially owned subsiduary)

[props2you]

Randell doesn't seem to have a plan other than ride it out to a 2020 retirement date.

[DEFCON]

Jazz had the 'Small Jets' agreement included in their CA. The parties to this arbitration included AC, JAZZ, ALPA & ACPA, but not, Sky Regional. ALPA grieved the AC decision to move the 170's to SR. Teplitisky will be ruling soon.

[Guest]

Jazz had the 'Small Jets' agreement included in their CA. The parties to this arbitration included AC, JAZZ, ALPA & ACPA, but not, Sky Regional. ALPA grieved the AC decision to move the 170's to SR. Teplitisky will be ruling soon.

I don't think there is any ALPA grievance regarding the EMB175's going to that other outfit.

[DEFCON]

Okay, but there really is!