Agreement expected to generate approximately $550 million in financial value over next six years
MONTREAL, Feb. 2, 2015 /CNW Telbec/ - Air Canada said today that its amended and extended capacity purchase agreement ('CPA') with Chorus Aviation Inc., parent company of Jazz Aviation LP ('Jazz'), has been concluded with all terms and conditions now met. The agreement provides both parties with greater stability and significant cost reductions through a better alignment of their interests.
"This milestone 11-year agreement with Chorus Aviation represents another important step towards sustainable profitable growth
," said Calin Rovinescu, President and Chief Executive Officer of Air Canada. "The agreement significantly increases our competitiveness in regional markets through lower unit costs and an improved product offering. The resulting stronger network will support our commercial strategy of expanding internationally and increasing connecting traffic through our hubs."
Air Canada estimates the new agreement will result in approximately $550 million in financial value over the next six years as compared to the previous CPA, of which two-thirds will be in network optimization benefits. The remaining benefits will be spread across several cost areas. Annual benefits in 2015 are expected to increase operating income by approximately $50 million as Air Canada implements the new CPA, increasing each year throughout the following five years.
The agreement also provides for long-term stability by eliminating the risks, uncertainties and set-up costs of a potential transition to alternative regional providers in 2021. Post 2020, Air Canada expects Jazz will provide competitive costs and continued high service levels.
The highlights of the new CPA include:
- Extension of the term by five years to December 31, 2025;
- Establishment of a pilot mobility agreement that provides Jazz pilots with access to pilot vacancies at Air Canada, thus allowing a significant reduction in Jazz operating costs;
- Simplification and modernization of the Jazz fleet which will provide improved service and greater efficiency through the addition of 23 Bombardier Q400 aircraft;
- Reduction in Air Canada and Jazz costs derived from a combination of improved fleet economics, greater network flexibility and reduced operating and labour costs. This supports Air Canada's cost reduction initiatives; and
- Modification of Jazz's CPA fee structure, moving from a "cost plus" mark-up to a more industry standard fixed fee compensation structure. This will provide more cost certainty and better align the cost reduction goals of both Air Canada and Jazz. This eliminates non-value added costs and the necessity of the 2015 benchmarking exercise.
About Air Canada
Air Canada is Canada's largest domestic and international airline serving more than 180 destinations on five continents. Canada's flag carrier is among the 20 largest airlines in the world and in 2014 served more than 38 million customers. Air Canada provides scheduled passenger service directly to 61 Canadian cities, 50 destinations in the United States and 77 cities in Europe, the Middle East, Asia, Australia, the Caribbean, Mexico and South America. Air Canada is a founding member of Star Alliance, the world's most comprehensive air transportation network serving 1,321 airports in 193 countries. Air Canada is the only international network carrier in North America to receive a Four-Star ranking according to independent U.K. research firm Skytrax that ranked Air Canada in a worldwide survey of more than 18 million airline passengers as Best Airline in North America in 2014 for the fifth consecutive year. For more information, please visit: www.aircanada.com.
Caution regarding forward-looking statements
Air Canada's public communications may include forward-looking statements within the meaning of applicable securities laws. Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including without limitation, industry, market, credit and economic conditions, the ability to reduce operating costs and secure financing, pension issues, energy prices, employee and labour relations, currency exchange and interest rates, competition, war, terrorist acts, epidemic diseases, environmental factors (including weather systems and other natural phenomena, and factors arising from man-made sources), insurance issues and costs, changes in demand due to the seasonal nature of the business, supply issues, changes in laws, regulatory developments or proceedings, pending and future litigation and actions by third parties as well as the factors identified throughout Air Canada's public disclosure file available at www.sedar.com. Any forward-looking statements contained in this news release represent Air Canada's expectations as of the date of this news release and are subject to change after such date. However, Air Canada disclaims 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.
SOURCE Air Canada - Corporate - Finance