Air Canada and Jazz parent extend agreement, securing regional airline's future

MONTREAL -- Air Canada and Chorus Aviation Inc. have extended a purchase agreement by 10 years that will see Chorus subsidiary Jazz Aviation LP continue to provide Canada's biggest airline with regional service through to 2035.

Analysts say the deal will quell concerns around Chorus's future after Air Canada announced last February it would expand its Rouge fleet and fly the lower-cost airplanes on Canadian regional routes -- Jazz's traditional stomping grounds.

The agreement, announced Monday, will grow Chorus revenues by $940 million for a contracted total of $2.5 billion in aircraft leasing and fixed fees over the next 17 years, the holding company said.

The deal also amends a 2015 agreement by lowering the fixed fees and incentive revenue Chorus receives by about $50 million annually.

Both companies characterized the contract extension as a "win-win"

"We are very pleased to have arrived at this win-win agreement with Jazz and Chorus, which will give us long-term stability, more competitive cost certainty and the flexibility to modernize the regional fleet for the benefit of our customers," said Air Canada chief executive Calin Rovinescu in a release.

Chorus CEO Joe Randell, who helped launch Jazz in 2002 -- then still a branch of Air Canada -- acknowledged the unease over Chorus beyond the previous agreement's expiry date in 2025.

"There has been some concern about where does Jazz sit in Air Canada's plans and how long is this relationship going to last," Randell said on a conference call with investors. "This really puts those concerns to bed."

Under the new contract, Air Canada will make an equity investment of $97.3 million in Chorus, giving the carrier about 9.99 per cent of Chorus's Class A and Class B voting shares, cumulatively.

Chorus aims to put some of the proceeds from the investment to its leasing business, facilitating the purchase of new, larger-gauge aircraft, including nine CRJ900s in 2020.

Analyst Walter Spracklin of RBC Dominion Securities called the surprise announcement "very positive" and said the contract purchase agreement "should be very well received."

"The most important element of the new CPA is the 10 year extension to 2035, as it meaningfully reduces the potential 'cliff risk' of an un-extended CPA," he said in a note to investors.

Share prices for the Halifax-based Chorus shot up 16 per cent to $7.30 from $6.29 in midday trading following the announcement.

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