Air Canada closes C$100m Jazz investment

Aviation

Air Canada has invested C$97.3 million ($74.1 million) in regional carrier Jazz Aviation’s parent company, having closed a previously announced agreement under which Jazz will also acquire nine additional Bombardier CRJ900 regional jets.

The agreement extends the carriers’ contract through the end of 2035 while reducing the fees Jazz charges to Air Canada. It calls for Jazz to stop flying aging Dash 8-100 turboprops, reduce its Q400 fleet and fly more 50-seat Bombardier CRJ200s

Montreal-based Air Canada and Jazz parent Chorus, based in Halifax, have positioned the deal as responding to threatening competition. They do not name competitors, but in recent years Air Canada has faced threats from rapidly expanding WestJet and from new ultra-discount startups.

The C$97.3 million investment gives Air Canada 9.99% of Chorus’s shares, and Air Canada gains the right to nominate one director to Chorus’s board. The airlines had announced the then-pending deal on 14 January.

Air Canada’s equity purchase is part of a new capacity purchase agreement (CPA) that takes effect retroactively on 1 January and runs until the end of 2035, ten years beyond the 2025 expiration of the previous deal, struck in 2015.

“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 modernise” and increase the size of aircraft operated by Jazz, say Air Canada and Chorus in a joint media release.

The deal will slash Air Canada’s regional airline expenses by doing away with what Chorus’s regulatory documents call “above-market fixed-fee rates carried over from its legacy agreement” with Air Canada.

The agreement also resets to “market rates” performance-based incentive payments Air Canada makes to Jazz.

Combined, those changes will save Air Canada C$50 million in both 2019 and 2020, and another C$53 million between 2021 and 2025, the carriers say.

Chorus intends to use Air Canada’s C$97.3 million investment primarily to expand its aircraft leasing business. It will do so partly by acquiring and then leasing to either Jazz or Air Canada the nine new CRJ900s, documents say.

Chorus will use about 60% of Air Canada’s investment (equating to C$58.4 million) to acquire those aircraft, which it expects to begin arriving by the end of 2020.

Under a revised fleet plan, Jazz this year will to stop flying 15 Dash 8-100s, reduce its Q400 fleet from 44 to 36 aircraft and add another five CRJ200s to Air Canada’s operation.

Jazz will end 2019 with 105 aircraft in Air Canada’s service, down from a current 116. The fleet will remain at 105 aircraft through 2025.

The new agreement also calls for Air Canada to “consolidate its existing CRJ regional capacity into the Jazz operation”, says a media release. Air Canada did not immediately respond to requests to clarify that statement.

Regional carrier Air Georgian also operates 16 CRJ100/200s for Air Canada, according to Flight Fleets Analyzer.

Chorus predicts the new deal will generation C$940 million more revenue than the previous agreement, which will “more than offset” fee reductions, regulatory filings say.

The regional airline company pegs the contract’s total value at C$2.5 billion, of which 64% will be aircraft leasing revenue.

Chorus began expanding its regional aircraft leasing business in 2015 as a response to the 2015 CPA with Air Canada, which significantly slashed Jazz’s revenues.