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Air Canada and Chorus Aviation Inc., parent company of Jazz Aviation LP, today confirmed that all conditions have been met and the previously announced amendment and extension of the Capacity Purchase Agreement (CPA) between Air Canada and Jazz has become effective. As announced on January 14, 2019, the improved CPA is effective retroactively as of January 1, 2019 and extends to December 31, 2035.
As part of the agreement to amend the CPA, Air Canada has also completed the $97.26 million equity investment in Chorus previously announced on January 14, 2019. Air Canada has acquired 15,561,600 Class B Voting Shares in the capital of Chorus, representing approximately 9.99% of the issued and outstanding Class A Variable Voting Shares and Class B Voting Shares of Chorus on a combined basis.
Highlights of the CPA Amendment
- With this amendment, the parties will effectively address increased domestic and international competition, changing market demand, and fluctuating fuel prices, through significant changes that will modernize and up-gauge the fleet.
- In total, the 17-year contract will provide Jazz $2.5 billion in minimum contracted revenues, of which $1.6 billion, or 65%, will be generated from aircraft leasing revenue, supporting the continued transformation of Chorus’ business through the migration of CPA earnings to aircraft leasing. The amended CPA will provide for total incremental contracted revenue of $940 million; $310 million in fixed fees and $630 million in aircraft leasing under the CPA;
- Projected annual savings to Air Canada of approximately $50 million in each of 2019 and 2020, and cumulative savings of approximately $53 million between 2021 and 2025, both as compared to the 2015 CPA frame-work (from both fixed fee and performance incentive reductions); Beyond 2025 – a market competitive fixed fee for the extension period. This supports Air Canada’s Cost Transformation Programs;
- Chorus will secure preferred partner status on the operation of aircraft with up to 50 seats and Air Canada will consolidate its existing CRJ regional capacity into the Jazz operation;
- Air Canada Deputy Chief Executive Officer and Chief Financial Officer, Michael Rousseau, will be appointed to the board of directors of Chorus.
In other news, Chorus Aviation Inc. has announced the pilots of its subsidiary, Jazz Aviation LP (‘Jazz’), have ratified the amendments to their collective agreement which was tentatively agreed on January 14, 2019. The Air Lines Pilots Association, International (‘ALPA’) represents Jazz’s pilots based in Vancouver, Calgary, Toronto and Montreal.
Ratification of this tentative agreement was a condition of implementing the amendments to, and extension of, the capacity purchase agreement (‘CPA’) between Air Canada and Jazz, as announced on January 14, 2019. The amendment and extension of the CPA remains subject to completion of Air Canada’s $97.26 million equity investment in Chorus, which contains customary conditions to closing. Chorus anticipates closing the equity investment by no later than February 8, 2019, upon which the amendment and extension of the CPA will become effective.
The pending amendments to the CPA provide for a number of significant benefits including fleet modernization with the addition of 14 larger-gauge CRJ900 (76-seat) aircraft of which nine new aircraft will generate additional lease revenue under the CPA.
Air Canada will consolidate more of its overall regional capacity in the Jazz operation. Chorus will also secure preferred partner status on the operation of aircraft with up to 50 seats through a right to match third-party offers. Additionally, an enhanced pilot mobility agreement will provide Jazz pilots access to careers at Air Canada. The amended CPA will ensure that Chorus and Air Canada are well positioned to respond as allies to an ever-changing industry.
