MONTREAL – Chorus Aviation has placed an order for new planes after finalizing a contract with Air Canada that cuts costs and strengthens the partners’ ability to compete with WestJet Encore.
The Halifax parent company of Jazz Aviation placed a firm order for 13 Bombardier Q400 turboprop planes valued at US$424 million at list prices. Options for 10 more Q400s would increase the value to US$758 million.
The Q400s — which will fly under the Air Canada Express banner — will replace smaller Bombardier Dash 8-100 turboprops and CRJ200 regional jets as Chorus shrinks the size of its Jazz fleet.
Chorus (TSX:CHR.B) also said it will work with Bombardier to extend the life of its 50-seat Dash 8-300 turboprops by 15 years.
The changes follow the ratification by Chorus pilots of a new 11-year labour contract, which was a key part of the extended service agreement with Air Canada.
Air Canada has agreed to hire Jazz pilots who sign up to fly larger aircraft. More than 80 per cent of Air Canada vacancies will be offered to Jazz pilots. The shift will help Chorus to keep a lid on costs by hiring replacements whose wages will be in line with lower cost operators in Canada and the United States.
Chorus will now try to negotiate long-term agreements with its flight attendants and mechanics.
Chorus Aviation CEO Joe Randell said the new agreement with Air Canada, which runs through 2025, will guarantee the company’s current dividend.
“The terms of this agreement allow Jazz to transform into a more formidable competitor in the regional sector,” he said during a conference call. “By better aligning our respective interests we will achieve a more efficient deployment of the regional fleet, improve our operational and cost efficiencies and enjoy a much strong relationship with Air Canada.”
The agreement pays Chorus a fixed fee per aircraft regardless how much an aircraft is flown, while Air Canada will pay directly for costs including fuel and ground handling. Chorus’ annual compensation including aircraft from Air Canada is expected to average about $224.5 million through 2020 and then fall to $170.7 million over the next five years.
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