Chorus Aviation - a mysterious quarter
Chorus Aviation released it's fourth quarter and annual results last week.It had a good EBITDA of $49.8 million an increase of 23% over the same quarter last year.Operating revenue was a little low as their billable hours(to Air Canada) were down;they passed on the Air Canada price increases.Adjusted net income was slightly higher than for the same quarter last year.Adjusted net income includes allowances for finance costs.There was no mention of the newly acquired Telesys (a maintenance operation) nor of selling their maintenance facility in London, Ontario.However it is clear that Chorus is making agile moves to control it's costs.
Annual performance
Annual EBITDA was$186.9 million while operating income was $124 million.That is interest,taxes,depreciation,and amortization expenses were $62 million or 33% of operating income.Adjusted net income was $40 million less than operating income.However in another press release Chorus announced that it was redeeming $40 million of it's $60 million convertible debenture issue prior to maturity.This prevents the debentures from being converted into equity and diluting earnings.This is beneficial to Chorus shareholders.Will they redeem the remaining portion of this debenture series?In addition,do they still have a small stake in Thomas Cook charters that they are not telling us about?They have terminated their contract but did they keep a small portion of their shares?
The next quarter
Chorus is still recovering from negotiations with Air Canada relating to it's Capacity Purchase Agreement (CPA).The mark-up on passenger tickets will not change.However this may reduce their traffic(billable hours) in the short term and slow any increases in revenue for the next quarter.It looks like Chorus has taken $40 million from operating income to redeem the convertible debenture issue.They may take another $20 million again next quarter which will dampen adjusted net income.But not as much as in this quarter.If this scenario is true they will have financed their debt from operations by far the cheapest way to finance.Also there will be no downward pressure on earnings.
The convertible debenture issue
I do not know the conversion date nor the conversion price but I
believe it to be in 2014.This gives Chorus lots of time to redeem the entire issue before maturity.Chorus has not explained what it intends to do with their new credit facility but Chorus has explained that it has ended it's involvement in their Uruguay venture.Consequently no cash is needed there now. Also they may have made a little profit from selling their London maintenance facility.They have consolidated their maintenance operation and now need an investment that increases revenues.One such possibility is one of the other regional airlines that has a C.P.A. agreement with Air Canada.This would move Chorus from a small airline stock to a mid-sized airline stock.The next problem would be whether it is accretive to their bottom line and how long that would take.Right now Chorus has a good opportunity before it.
Annual performance
Annual EBITDA was$186.9 million while operating income was $124 million.That is interest,taxes,depreciation,and amortization expenses were $62 million or 33% of operating income.Adjusted net income was $40 million less than operating income.However in another press release Chorus announced that it was redeeming $40 million of it's $60 million convertible debenture issue prior to maturity.This prevents the debentures from being converted into equity and diluting earnings.This is beneficial to Chorus shareholders.Will they redeem the remaining portion of this debenture series?In addition,do they still have a small stake in Thomas Cook charters that they are not telling us about?They have terminated their contract but did they keep a small portion of their shares?
The next quarter
Chorus is still recovering from negotiations with Air Canada relating to it's Capacity Purchase Agreement (CPA).The mark-up on passenger tickets will not change.However this may reduce their traffic(billable hours) in the short term and slow any increases in revenue for the next quarter.It looks like Chorus has taken $40 million from operating income to redeem the convertible debenture issue.They may take another $20 million again next quarter which will dampen adjusted net income.But not as much as in this quarter.If this scenario is true they will have financed their debt from operations by far the cheapest way to finance.Also there will be no downward pressure on earnings.
The convertible debenture issue
I do not know the conversion date nor the conversion price but I
believe it to be in 2014.This gives Chorus lots of time to redeem the entire issue before maturity.Chorus has not explained what it intends to do with their new credit facility but Chorus has explained that it has ended it's involvement in their Uruguay venture.Consequently no cash is needed there now. Also they may have made a little profit from selling their London maintenance facility.They have consolidated their maintenance operation and now need an investment that increases revenues.One such possibility is one of the other regional airlines that has a C.P.A. agreement with Air Canada.This would move Chorus from a small airline stock to a mid-sized airline stock.The next problem would be whether it is accretive to their bottom line and how long that would take.Right now Chorus has a good opportunity before it.
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