Earns record 94% of available performance incentives
Jazz Air Income Fund (the "Fund") (TSX: JAZ.UN) announced today strong financial results for the third quarter of 2009.
Q3 2009 HIGHLIGHTS
The following are highlights of the Fund's financial performance for the
three-month period ended September 30, 2009.
- Earned 94% of available performance incentive, or $5.4 million.
- Distributable cash(1) of $37.9 million
- Adjusted earnings per unit of $0.27(2).
- EBITDA(1) of $42.5 million.
- Net income of $25.3 million.
"For the third consecutive quarter of 2009, we are reporting financial and operational results which are amongst the best of the North American aviation industry," said Joseph Randell, President and Chief Executive Officer of Jazz. "Our employees delivered our best quarterly operational performance since we became publicly traded, earning 94 percent of the available performance incentives under the CPA. I'm further encouraged by our ability to deliver strong financial results despite reduced demand and the amendments made in our capacity purchase agreement with Air Canada. Our strength is a clear reflection of our solid management practices, cost control and uncompromising attention to safety and operational excellence. Despite the headwind effects of our billable block hours and available seat miles being reduced by 5.5% and 3.6% respectively, we delivered a robust 9.2% operating margin before amortization of the CPA asset."
Please note that as of January 1, 2009, the financial results of Jazz Air LP ("Jazz") are no longer being reported separately. As a result, the Fund's year-to-date operating income, net earnings, and earnings per unit have been adjusted to remove the effect of certain consolidation amounts and to arrive at comparable results to those previously reported for Jazz. Further, the financial impact of the amendments made to the capacity purchase agreement between Jazz and Air Canada (amended effective August 1, 2009) is reflected in the last two months of the third quarter. A copy of the amending agreement between the parties is available on SEDAR at www.sedar.com.
Financial Performance - Third Quarter 2009 Compared to Third Quarter 2008
Operating revenue was $379.7 million, compared to $437.4 million, representing a decrease of 13.2%. The decrease in operating revenue was primarily attributable to a $60.0 million, or a 31.8% reduction in revenues relating to pass-through costs under the capacity purchase agreement, as amended (the "CPA"), a 5.5% reduction in Billable Block Hours, and a 4.3% reduction in departures, and a reduction in the mark-up charged by Jazz under the CPA, effective August 1, 2009 from 16.72% to 12.50%. These reductions were offset in part by a higher US dollar exchange rate and certain rate increases made pursuant to the CPA.
Performance incentives payable by Air Canada to Jazz under the CPA amounted to $5.4 million, as compared to $4.1 million. Jazz therefore earned 94% of the incentives available under the CPA versus 73% in the prior period. Incentives earned in this quarter were higher primarily as a result of an increase in CPA controllable revenue and improvements in controllable on-time performance, customer check-in and baggage performance. Other revenue sources decreased from $4.1 million to $3.6 million.
Total operating expenses decreased 12.0%, or $47.2 million, from $392.1 million to $344.9 million. Non-operating expenses amounted to $1.5 million, a decrease of $1.6 million. Such decreases were mainly attributable to a foreign exchange gain arising from the change in value of the Canadian dollar relative to the US dollar, and a gain on the disposal of certain property and equipment; offset by an increase in net interest expenses.
CPA Controllable Costs increased by 6.5% or $13.0 million primarily as a result of increases in salaries, wages and benefits and aircraft maintenance, materials and supply costs.
EBITDA(1) was $42.5 million compared to $52.8 million in the third quarter of 2008, representing a decrease of 19.5% or $10.3 million. Operating income of $24.2 million decreased 30.4% from $34.8 million in the third quarter of 2008. Distributable cash was $37.9 million, down from $44.3 million, representing a decrease of 14.4%.
Controllable Costs per Available Seat Mile increased 10.2%, as ASMs decreased 3.6% due to capacity reductions.
Net income for the third quarter was $25.3 million compared to $31.7 million, representing a decrease of 20.2%.
The Fund's unaudited interim consolidated financial statements for the period ended September 30, 2009, and accompanying Management's Discussion and Analysis (MD&A) are available on Jazz's website www.flyjazz.ca and at www.sedar.com. A copy may also be obtained on request by contacting Jazz's Investor Relations at: email@example.com or (902) 873-5094.
Jazz Air Income Fund's $75 million convertible debenture offering
Earlier today, the Fund announced the closing of its previously announced public offering of $75 million principal amount of 9.50% Convertible Unsecured Subordinated Debentures, with an over-allotment option of an additional $11.25 million of Debentures. Net proceeds from the successful offering will be used for working capital requirements and for general purposes of the Fund. This may include, among other uses, funding deposit amounts in respect of Jazz's re-fleeting program, repaying outstanding indebtedness and funding possible future acquisitions.
Quarterly Investor Conference Call / Audio Webcast
Jazz will hold an analyst call at 09:00 a.m. ET on Friday, November 13, 2009 to discuss the third quarter results of the Fund. The call may be accessed by dialing 1-866-250-4892 or (416) 644-3423 for the Toronto area. The call will be simultaneously audio webcast via: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2835360 or in the Investor Relations section of Jazz's website at www.flyjazz.ca. This is a listen-in only audio webcast. Media Player or Real Player is required to listen to the broadcast; please download well in advance of the call.
The conference call webcast will be archived on Jazz's Investor Relations website at www.flyjazz.ca. A playback of the call can also be accessed until midnight ET, Wednesday, November 20, 2009, by dialing (416) 640-1917 or toll-free 1-877-289-8525, and passcode - 4170411# (pound key).
(1) Non-GAAP Financial Measures
EBITDA (earnings before interest, taxes, depreciation, amortization and obsolescence) is a non-GAAP financial measure commonly used throughout all industries to view operating results before interest expense, interest income, depreciation and amortization, gains and losses on property and equipment and other non-operating income and expense. Management believes EBITDA assists investors in comparing the Fund's performance on a consistent basis without regard to depreciation and amortization, which are non-cash in nature and can vary significantly depending on accounting methods and non-operating factors such as historical cost. EBITDA should not be used as an exclusive measure of cash flow because it does not account for the impact on working capital growth, capital expenditures, debt repayments and other sources and uses of cash, which are disclosed in the statement on cash flows.
Distributable cash is a non-GAAP measure generally used by Canadian open-ended trusts as an indication of financial performance. It should not been seen as a measurement of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. Distributable cash may differ from similar calculations as reported by other entities and, accordingly, may not be comparable to distributable cash as reported by such entities. Readers should refer to the Fund's Management Discussion and Analysis for a reconciliation of distributable cash to cash provided by operating activities.
(2) EARNINGS PER UNIT CALCULATION
Earnings per unit of the Fund was calculated based on adjusted net income. Adjusted net income is a non-GAAP measurement defined as: net income before amortization of CPA asset, other operating expenses incurred by Jazz, and recovery of future income taxes.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This news release should be read in conjunction with the Fund's 2009 third quarter unaudited interim consolidated financial statements and MD&A dated November 12, 2009, filed with Canadian Securities regulatory authorities (available at www.sedar.com).
Certain statements in this news release may contain statements which are forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions. Forward-looking statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and other uncertain events. Forward-looking statements, by their nature, are based on assumptions, including those described below, and are subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to differ materially from those expressed in the forward-looking statements. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, risks relating to Jazz's relationship with Air Canada, risks relating to the airline industry, energy prices, general industry, market credit and economic conditions, competition, insurance issues and costs, supply issues, war, terrorist attacks, epidemic diseases, acts of God, changes in demand due to the seasonal nature of the business, the ability to reduce operating costs and employee counts, secure financing, employee relations, labour negotiations or disputes, restructuring, pension issues, currency exchange and interest rates, changes in laws, adverse regulatory developments or proceedings, pending and future litigation and actions by third parties, as well as the factors identified in the Risk Factors section of the Fund's MD&A dated November 12, 2009. The forward-looking statements contained in this discussion represent the expectations of the Fund and Jazz as of September 30, 2009, and are subject to change after such date. However, the Fund and Jazz disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
About Jazz Air Income Fund
The Fund is an unincorporated, open-ended trust established under the laws of the Province of Ontario, created to indirectly acquire and hold an interest in the outstanding limited partnership units of Jazz.
Jazz is the largest regional airline and the second largest airline in Canada based on fleet size and the number of routes operated. Jazz operates more flights and flies to more Canadian destinations than any other Canadian carrier. Jazz forms an integral part of Air Canada's domestic and transborder market presence and strategy.
Jazz is not a typical airline. The airline has a commercial agreement with Air Canada that is the core of its business. Under the CPA, Air Canada currently purchases substantially all of Jazz's fleet capacity based on predetermined rates. The CPA provides commercial flexibility, low trip costs and connecting network traffic to Air Canada.
SOURCE: JAZZ AIR INCOME FUND
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