Chorus Aviation, which owns aircraft lessor Falko, has reported third quarter net income of $17.1 million – a fall of $6.4million quarter-over-quarter.
Colin Copp, President and Chief Executive Officer, Chorus Aviation said that the team remained “laser-focused” on its improving its core business fundamental while also responding to ongoing macro- economic challenges affecting the industry.
In the third quarter, Chorus generated over $164.3 million in cash from operations and $113.7 million in Free Cash Flow while moving closer to its Leverage Ratio target, improving it from 4.4 at the end of 2022 to 3.6. Copp said that while the company saw a decrease in quarter over quarter earnings, it was primarily due to expected lower lease revenue attributable to 2022 asset sales and last year’s inclusion of customer claim recoveries, stressing that the company remains on track with its overall strategy.
During the reporting period, the decrease in EBITDA the company said was primarily due to lower lease revenue of $8.6 million related to the 2022 sale of wholly- owned aircraft, recovered claims in the Virgin Australia bankruptcy recorded in the amount of $7.9 million and a decrease in net gain on sale of assets of $2.7 million; offset by increased lease revenue from re-leased aircraft, the recognition of end of lease ("EOL") compensation of $4.1 million and a higher US dollar exchange rate.
Copp said: "A year and a half after the Falko acquisition, we remain confident about the regional aircraft leasing sector and our leading position within the space. Our Falko team is the leading regional aircraft-focused lessor and has successfully completed seventeen portfolio aircraft transactions this quarter, including, purchases of aircraft with leases attached, placement of idle aircraft on lease and lease extensions. We also continue to hold productive discussions on the launch of Fund III with potential lead investors."
Chorus has received approval from the Toronto Stock Exchange (TSX) respecting the renewal of its Normal Course Issuer Bid (NCIB).
The renewal of the NCIB follows on the conclusion of Chorus’ previous NCIB that expires on November 13, 2023. Under the previous NCIB, Chorus was authorized to purchase up to 15,928,236 Shares for cancellation. From November 14, 2022 to November 8, 2023, Chorus purchased 9,177,784 Shares through the facilities of the TSX at a weighted average price of $3.25 per Share.
On March 29, 2023, Chorus management held an investor day at which it provided its view that the intrinsic value of the Shares was $5.50 per Share at the date of the presentation.
Falko said that it continues to have positive discussions on its new fund (Fund III) with its existing lead investors in Fund II and others. Chorus said that it was also “routinely exploring opportunities to sell Falko’s wholly-owned or majority-owned aircraft in order to advance the implementation of its asset light leasing strategy”.
Chorus maintains that it has the key elements to successfully execute on its strategy to transition to an asset light leasing model while growing its contractual fund management business and its RAS segment.
Chorus stated that it intends to opportunistically trade RAL’s wholly-owned or majority-owned aircraft including in connection with the windup of its 67.45% ownership in Ravelin Holdings by the tenth anniversary of the commencement of Fund I (2025). As of September 30, 2023, Ravelin Holdings held an interest in 39 aircraft with a net book value of US $386.5 million and secured debt of US $193.7 million. As asset sales occur, the related leasing revenues in RAL will decrease, which will be partially offset by lower depreciation and debt servicing costs and earnings from Falko managed funds.
Chorus anticipates its Leverage Ratio will be between 2.5 to 3.5 by December 31, 2024.
Chorus said that it intends to expand the number of Falko managed funds and the RAS business into adjacent and complementary specialty aviation business lines.