TORONTO — Air Canada is simplifying its regional operations amid COVID pressures by reaching a deal to make Chorus Aviation Ltd.'s Jazz Aviation subsidiary the exclusive operator of Air Canada Express flights.
The change means Air Canada will transfer operation of its 25 Embraer E175 fleet to Jazz from Sky Regional where they have operated for a decade.
Jazz will become sole partner for regional flying for aircraft with at least 70 seats until 2025. It will also remove 19 Dash 8-300s from its fleet this year.
Air Canada says the consolidation of regional flying with Jazz is due to the pandemic and the need to reduce costs.
"This necessary realignment of our regional services will help Air Canada achieve efficiencies and reduce operating costs and cash burn by consolidating its regional operations with one provider," stated Richard Steer, senior vice-president, operations and express carriers.
"Moreover, by streamlining the regional fleet, this agreement will also position Air Canada to operate more competitively with a single provider as traffic returns following the pandemic."
Air Canada said it expects to save $400 million over 15 years by combining its fleet under one operator, reducing overall regional flying compensation and related operational cost savings from changes to the capacity purchase agreement.
In addition, the new agreement will lower future contractual capital expenditure and leasing costs, avoiding an estimated $193 million in future capital expenditures.
For Halifax-based Chorus, the agreement provides greater cash flow certainty and eliminates potentially significant draws on working capital.
"With the Jazz fleet operating at a fraction of the capacity it flew a year ago, now is the time to update the CPA to help preserve regional flying and Jazz’s place within it," said Chorus CEO Joe Randell.
"Bringing the Embraer 175 aircraft into the Jazz Covered Aircraft fleet ... is a demonstration of our cost competitiveness and strong relationship with Air Canada," he said in a news release.
The changes to the capacity purchase agreement with Jazz are subject to Jazz reaching an agreement with the Air Line Pilots Association, International.
Walter Spracklin of RBC Dominion Services said the changes were "positive."
"For Air Canada, we view the consolidation of its regional flying with Jazz as a sound strategic move," he wrote in a report.
Spracklin added that Chorus can sell or lease the Dash 8s that it owns, 15 of which have had their useful life prolonged by about 15 years, or convert them for cargo operations.
Air Canada's shares gained $1.21 or 4.8 per cent at $26.31 in afternoon trading on the Toronto Stock Exchange.
Chorus shares were up 23 cents or 5.5 per cent at $4.43.
This report by The Canadian Press was first published March 1, 2021.
Companies in this story: (TSX:AC, TSX:CHR)
Ross Marowits, The Canadian Press