Two years after betting big on plane leasing, Chorus Aviation Inc. has pulled a one-eighty and agreed to sell its regional aircraft leasing arm in a deal valued at $1.9 billion.
The sale to affiliates of New York City-based firm HPS Investment Partners will lighten Chorus's hefty debt load, provide cash for new acquisitions and discard an underperforming segment, said CEO Colin Copp.
Chorus, which currently leases planes across the globe and provides regional service for Air Canada via Chorus subsidiary Jazz Aviation, bought London-based plane-leasing outfit Falko Regional Aircraft Ltd. in 2022. The deal boosted Chorus鈥檚 customer base to 32 airlines across 23 countries, up from 19 carriers in 16 countries.
"As we progressed through 2023, it became clear that the level of returns from the Falko acquisition were not materializing at the pace we had expected due to the challenging macroeconomic environment," Copp told analysts on a conference call Tuesday to discuss the sale.
"It's a milestone transaction for the company. It really enables us to significantly improve our balance sheet and accelerate shareholder value. It allows us to reposition for future growth," he said, adding that the leasing segment's value was not reflected in Chorus's "discount" share price.
The company's stock was up five cents or about two per cent to $2.86 on the Toronto Stock Exchange as of early afternoon.
The $1.9-billion offer from the HPS affiliates comprises $814 million in cash and $1.1 billion in aircraft debt to be assumed or prepaid by the buyers at closing.
Chorus said its largest shareholders, Brookfield Asset Management Ltd. and Air Canada 鈥� owning 13.2 per cent and 8.1 per cent of the company, respectively 鈥� have both signed agreements in favour of the transaction.
The deal still needs to get at least two-thirds of votes cast by Chorus's common shareholders to be approved.
If it lands the approval, Chorus expects the transaction to close by the end of the year.
Several analysts on the call questioned the company's prospects for earnings growth.
"A few years ago, you identified the leasing business as a growth vertical. And ultimately you're recognizing today that the market didn't recognize your strategy in that segment," said Fadi Chamoun of the Bank of Montreal.
"How do you grow the business from here?"
Copp replied that he foresees organic growth as well as the potential for "some bolt-on, some smaller acquisitions."
"We're not chasing a big bang here. We're focused on finding a nice, gradual, steady growth business that we can add to," the CEO said.
The sale means the company will lean more heavily on Jazz, whose short-haul flights for the country's largest airline fall under the Air Canada Express brand, as well as Voyageur Airways Ltd. Acquired by Chorus in 2015, Voyageur is a charter carrier based in North Bay, Ont., that also provides repair and air ambulance services.
"We have a good position from a balance sheet perspective," said chief financial officer Gary Osborne. "We're even in a better one when you look at the market, and what Voyageur and Jazz are in aviation, to grow the company."
Chorus said the deal would drive down its debt ratio to 1.8 times from 3.6 times as of Dec. 31.
In February, the company reported that net income more than doubled to $106.1 million last year while revenue jumped five per cent to $1.68 billion. Its debt stood at $1.53 billion as of March 31.
This report by The Canadian Press was first published July 30, 2024.
Companies in this story: (TSX:CHR, TSX: AC, TSX:BAM)
Christopher Reynolds, The Canadian Press
