Chorus Aviation, parent of flyJazz, in the first quarter of 2015 generated adjusted EBITDA of $28.0 million excluding foreign exchange loss of $33.9 million on US denominated debt. Chorus also incurred one-time expenses that included a $10.0 million signing bonus for Jazz pilots under the terms of their new collective agreement, and $2.1 million for advisory fees related to the recent amendment to the CPA. Chorus' stock based compensation also increased by $5.1 million as a result of a change in accounting policy and increased Chorus share price.
"The first quarter of 2015 was the most transformative in our history," said Joseph Randell, President and Chief Executive Officer, Chorus. "Our accomplishments in the quarter have significantly strengthened our organization, preserved the value we have created for our shareholders, and provide a clear, long-term roadmap to build additional, positive returns. Excluding an unrealized foreign exchange loss and one-time cost items, first quarter earnings were relatively consistent with past results and as expected. We are progressing as planned through this year of change, and I'm pleased with our transition so far."
“Our financial performance under the recently amended CPA is in line with our expectations," said Randell. "Our employees delivered tremendous operational performance in the first quarter and captured $5.6 million of performance incentive payment under the CPA, or 96.7% of the maximum available."
"In the quarter we experienced a $1.8 million increase in leasing revenue under the CPA and anticipate this revenue stream to increase as six new Q400 aircraft are planned to be incorporated into the Jazz fleet later this year," continued Randell. "Earlier this month we completed the acquisition of Voyageur Airways – a transaction that will be immediately accretive to Chorus' consolidated earnings and free cash flow."
Operating revenue decreased from $414.6 million to $375.1 million during the reporting period compared to the same period last year, representing a decrease of $39.5 million, or 9.5%.
Flight revenue, including charter revenue, decreased by $14.2 million or 6.7%. Under the amended CPA, certain items provided to Chorus by Air Canada, such as ground handling at the major hubs which were historically charged back to Air Canada with a 12.5% mark-up, have been removed from flight revenue. Other items, such as third party ground handling, have been re-classified as pass-through costs and removed from flight revenue. The flight revenue reduction related to these changes was $23.2 million. Further, decreased billable block hours accounted for an additional reduction of $5.3 million. These decreases were offset by a favourable US dollar exchange rate that resulted in a $6.8 million increase in the quarter, and rate increases pursuant to the CPA accounted for an increase of approximately $7.5 million.
Aircraft leasing revenue under the CPA increased by $1.8 million. The increase was related to a favourable US dollar exchange rate. Aircraft leasing revenue under the CPA is generated from the 21 Q400 aircraft and four Q400 engines owned by Chorus.
Under the amended CPA, Chorus' margin compensation changed from a mark-up on controllable costs to the more industry standard approach of fixed fees. Based on the current fleet plan and the terms of the amended CPA, margin compensation for the period of 2015 to 2020 is contractually set at $109.7 million annually or $27.4 million quarterly.
In the first quarter, Chorus earned $5.6 million in performance incentives, or 96.7% of the maximum incentive payment available.
Pass-through revenue decreased by $26.5 million or 17.7% from $149.9 million to $123.4 million, which included a decrease of $32.0 million primarily related to decreased fuel costs. Under the amended CPA, compensation for deicing and other certain costs provided to Chorus by Air Canada will no longer be billed. This change resulted in a decrease of $6.1 million. Further, other costs, such as third party ground handling services, have been reclassified as a pass-through cost and therefore increased pass-through revenue in the quarter by $10.5 million. A favourable US dollar exchange rate resulted in a $1.7 million increase.
Operating expenses decreased from $383.3 million to $359.2 million, a decrease of $24.1 million. An unfavourable US dollar exchange rate compared to the same period in 2014 increased operating expenses by $8.5 million. Controllable costs increased from $233.5 million to $235.9 million, an increase of $2.4 million. $6.8 million of this controllable cost increase is attributable to an unfavourable US dollar exchange rate.
Salaries, wages and benefits increased by $13.9 million from $104.1 million to $118.1 million. Adjusted salaries, wages and benefits (adjusted by removing employee separation program costs and capitalized major maintenance overhaul labour costs) increased $1.3 million as a result of increased pension, incentive compensation and other employee benefits. In the first quarter, Chorus incurred a $10.0 million one-time pilot signing bonus in accordance with the ratified new collective agreement. Stock based compensation of $6.6 million increased by $5.1 million as a result of a change in accounting policy and an increased share price. Employee separation program costs incurred during the three months ended March 31, 2015 were $nil. Salaries and wages were also affected by fewer labour costs being capitalized on owned aircraft for major maintenance overhauls of $0.3 million.
Aircraft maintenance expense increased by $10.5 million from $39.6 million to $50.0 million. An unfavourable US dollar exchange rate on certain maintenance material purchases accounted for a $4.3 million increase, increased CRJ-200 aircraft engine overhauls accounted for $5.0 million, other maintenance costs accounted for $2.5 million, and fewer maintenance costs being capitalized on owned aircraft for major maintenance overhauls accounted for a $0.3 million increase. These increases were offset by a decrease in block hours which accounted for $1.6 million.
Non-operating expenses increased by $17.8 million from $19.4 million to $37.2 million. Interest expense related to long-term debt increased by $0.1 million as a result of an unfavourable US dollar exchange rate.
General overhead and professional fees in the first quarter increased by $2.8 million, of which $2.1 million related to advisory fees for the amended CPA.
Operating income of $15.9 million decreased by $15.4 million from $31.2 million. The overall decrease is attributed to $12.1 million in one-time costs associated with the amended CPA and was comprised of a $10.0 million one-time pilot signing bonus, and $2.1 million related to advisory fees for the amended CPA. Chorus also incurred a $5.1 million increase in stock based compensation expense as a result of a change in accounting policy in February 2014 and an increase in share price.
Adjusted EBITDA was $28.0 million compared to $47.3 million in 2014, a decrease of $19.3 million which resulted from a $15.4 million decrease in operating income and a $3.9 million decrease in depreciation and amortization expense.