Chorus Aviation Review

choruslogo100

Hey guys today’s post is about Chorus Aviation. I own this stock and it is also on my radar to purchase more shares. I originally envisioned talking about two stocks in this post but thought it would be quite lengthy enough so I decided to just focus on Chorus Aviation.

So what is Chorus Aviation? Well Chorus which is headquartered in Halifax, Nova Scotia is a company that has various regional aviation interests including Jazz and Voyageur.

Jazz

In Canada Jazz operates the largest regional airline and the third largest airline based on passengers carried. Jazz had a Capacity Purchase Agreement (CPA) with Air Canada. Under which Air Canada purchases the capacity of covered aircraft operated by Jazz under the Air Canada Express Banner.

air-canada-express-jazz-dhc-8-400-c-ggoi-04apr-yyz-tmk46-m

Through Jazz Chorus provides a significant part of Air Canada’s domestic and transborder network to 57 destinations in Canada and 13 in the United States. The CPA is in effect until December 2025. The planes under the CPA have a seating capacity of between 30-78 passengers.

Under the CPA Chorus earns revenue five ways:

  1. Controllable Revenue
  2. Fixed Fees
  3. Performance Incentives
  4. Aircraft leasing
  5. Pass Through Revenue

Chorus is paid Controllable Revenue rates based on controllable costs using variables such as block hours, flight hours, cycles and passengers carried. Fixed Fees there are two fees Fixed Margin per Covered Aircraft and Infrastructure Fee per Covered Aircraft compensates Chorus for additional service provided in support of Air Canada’s regional flying network such as airport operations. Aircraft leasing Jazz leases owned Q400s (plane in the picture above) and engines under the CPA. Annually, these aircraft and engines currently generate a cash margin of approx 20%. Pass Through Revenue Jazz is entitled to repayment of certain costs including navigation, landing and terminal fees.

Costs Under CPA

There are two types of costs under the CPA Controllable and Pass Through Costs.

  • Controllable: Crew wages & benefits, aircraft maintenance, aircraft leased through CPA.
  • Pass Through Costs: Third party food and beverage, third party ground handling, aircraft maintenance materials & supplies.

CPA Value Drivers

  • Long term predictable compensation levels that support the dividend.
  • Long term labour agreements with pilots, flight attendants, dispatch and maintenance employees until 2025.

Outside of the CPA Jazz has a dedicated, standalone charter fleet and has the ability to offer aircraft operator services such as ground handling, dispatching, maintenance, repair and overhaul services, flight load planning and training.

Voyageur Aviation

On May 1st, 2015 Chorus Aviation purchased Voyageur Aviation. Voyageur provides specialized contract flying operations to Canadian and International customers. The company operates medical, logistical and humanitarian flights serving blue chip clients in Canada and Africa, comprised primarily of government entities and international non-governmental organizations. Voyageur also has a AeroTech division which specializes in engineering and advanced maintenance operations.

Growth Strategy

Chorus has been looking for ways to diversify their business away from the CPA with Air Canada and one way they are going about it is through aircraft leasing. Under the CPA aircraft leasing revenue has been growing year-over-year, but on November 9th, 2016 it was announced that Chorus had reached a deal to buy 4 CRJ1000 aircraft from Bombardier and lease them to Air Nostrum a leading regional airline based in Valencia, Spain. The aircraft are scheduled to be delivered in November and December of 2016, and July and October of 2017.

crj1000

On December 19th, 2016 Chorus Aviation announced that they would be creating a new subsidiary called Chorus Aviation Capital to help them with this Fairfax Financial Holdings Ltd. will be investing $200 million Canadian.

Dividends

In July 2014 Chorus changed it’s dividend which at the time was paid quarterly to monthly paying $0.0375 per month. In March 2015 Chorus increased the dividend to $0.04 where it stands today.

Operating Income Per Share

Stock Info

Chorus Aviation trades on the Toronto Stock Exchange (TSX) under the ticker: CHR at a price of $7.30 (as of January 29th, 2017) a share. The stock has a dividend yield of 6.58% and has a market cap of $891.9m.

Conclusion

As mentioned at the beginning I am a current shareholder of this company, and I am currently looking to add shares. The company has long term agreements with its employees until 2025 creating labour stability. Please do your own research if interested in this stock. I believe the stock is a buy for someone looking for monthly income. The stock is up 12.3% since Dec 19th, 2016 since the announcement of the planned new subsidiary Chorus Aviation Capital.

Please let me know if you liked this post. I am looking to do more stock reviews and would like your opinion on what you want to see. Did I miss anything important?? Please let me know.

Thanks for reading

Matthew

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