Q2 2024 Chorus Aviation Inc Earnings Call

Speaker Change: Good morning, ladies and gentlemen, and welcome to the QORUS Second Quarter 2024 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press Star 0 for the operator.

Operator: At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Tyrone Cotie, VP of Treasury Investor Relations. Please go ahead. Thank you, Jelena.

Tyrone Cotie: This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Tyrone Cotie, VP of Treasury and Investor Relations. Please go ahead.

Tyrone Cotie: Hello, and thank you for joining us today for a second quarter conference call via audio webcast. With me today from Chorus are our Colin Copp, President and Chief Executive Officer, and Gary Osborne, Chief Financial Officer. We will begin today's call with a brief summary of the results, followed by questions from the analyst community. As there may be some forward-looking discussion during the call, I ask that you refer to the caution regarding forward-looking statements and information found in our MD&A.

Tyrone Cotie: Thank you, Joanna.

Tyrone Cotie: Hello and thank you for joining us today for our second quarter conference call and audio webcast. With me today from CORUS are Colin Copp, President and Chief Executive Officer, and Gary Osborne, Chief Financial Officer. We will begin today's call with a brief summary of the results, followed by questions from the analyst community.

Speaker Change: As there may be some forward-looking discussion during the call, I ask that you refer to the caution regarding forward-looking statements and information found in our MD&A.

Speaker Change: This pertains specifically to the results and operations of Kors Aviation, Inc. for the three months ended June 30, 2024, as well as the Outlook section and other sections of our MD&A where such statements appear.

Speaker Change: As a result of the agreement to sell the KORUS Regional Aviation Leasing Segment, or RAL, the RAL segment has been reclassified to Discontinued Operations, and our Regional Aviation Services segment, together with corporate, is now referred to as Continued Operations.

Tyrone Cotie: Finally, some of the following discussion involves non-GAAP financial measures, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio, and free cash flow. This quarter, we have also provided certain of these measures on a pro forma basis to illustrate the financial impact of the disposition of the RAL segment on our capital structure. Please refer to the MD&A for further information relating to the use of such non-GAAP measures in pro forma figures.

Speaker Change: Finally, some of the following discussion involves non-GAAP financial measures, including references to adjusted net income, adjusted EBT, adjusted EBITDA, leverage ratio and free cash flow.

Speaker Change: This quarter we have also provided certain of these measures on a pro-forma basis to illustrate the financial impact of the disposition of the RAL segment on our capital structure. Please refer to the MD&A for further information relating to the use of such non-GAAP measures in pro-forma figures. I'll now turn the call over to Colin Copp.

Colin Copp: I'll now turn the call over to Colin. Thank you, Tyrone, and good morning, everyone. As we just recently reported out on the RAL sale transaction, I'll keep my comments short today. I'm pleased to report that our second quarter results, with the revised comparative figures as Tyrone mentioned, reflect a strong, steady, and reliable business going forward, with our cash generation enabling us to further improve our leverage ratio. As we look forward, Jez has approximately $1 billion in contracted revenue in the form of fixed fees and leasing revenue under its CPA for the term of the agreement. Converger is steadily growing. This quarter, both Jazz and Voyager delivered strong financial performance with a combined adjusted EBITDA of $51 million and $105 million year-to-date.

Colin Copp: Voyager delivered a $4.8 million increase in revenue in Q2 of 2023, demonstrating their ability to seize new opportunities. They purchased the King Air 200 in the second quarter of 2024 in support of their contract with Air Ambulance New Brunswick for the provision of fixed wing air ambulance services. And please, with our results and the progress we've made with improving the financial position of the business. Through the quarter, we also bought back 1.4 million common shares under our NCIB.

Colin: Thank you, Tyrone, and good morning, everyone.

Colin: As we just recently reported out on the RAL sale transaction, I'll keep my comments short today.

Colin: I'm pleased to report that our second quarter results, with revised comparative figures as Tyrone mentioned, reflect a strong, steady, and reliable business going forward, with our cash generation enabling us to further improve our leverage ratio.

Colin: As we look forward, Jazz has approximately $1 billion in contracted revenue in the form of fixed fee and leasing revenue under its CPA for the term of the agreement, and Voyager is steadily growing.

Colin: This quarter, both Jazz and Voyager delivered strong financial performance with a combined adjusted EBITDA of $51 million and $105 million year-to-date.

Colin: Voyager delivered a 4.8 million dollar increase in revenue over Q2 of 2023 demonstrating their ability to seize new opportunities.

Colin: They purchased a King Air 200 in the second quarter of 2024 in support of their contract with Air Ambulance New Brunswick for the provision of fixed-wing air ambulance services.

Colin: I'm pleased with our results and the progress we've made with improving the financial position of the business.

Colin: Through the quarter, we also bought back 1.4 million common shares under our NCIB.

Colin Copp: Turning for a moment to our recent announcement on the divestiture of Thalco and our regional aircraft leasing business, the process continues to progress well, with our shareholder meeting scheduled to approve the transaction in just over a month, scheduled for September 25th.

Colin: Turning for a moment to our recent announcement on the divestiture of Felco and our regional aircraft leasing business.

Speaker Change: The process continues to progress well, with our shareholder meeting called to approve the transaction in just over a month, scheduled on September 25th.

Colin Copp: I'm very pleased with the feedback we've received so far from our shareholders and industry partners, which further reinforces the value creation of this transaction. We appreciate that it will take a few months for us to get through the various approvals and for the transaction to close. And that it'll also take time for the true value of our business to be reflected in our share price. It is well recognized that this transaction will enable us to significantly deleverage our capital structure, generate more predictable cash flow, and provide us with the flexibility to grow and return capital to common shareholders going forward.

Speaker Change: I'm very pleased with the feedback we've received so far from our shareholders and industry partners, which further reinforces the value creation of this transaction.

Speaker Change: We appreciate that it will take a few months for us to get through the various approvals and for the transaction to close, and that it'll also take time for the true value of our business to be reflected in our share price.

Speaker Change: It is well recognized that this transaction will enable us to significantly deleverage our capital structure, generate more predictable cash flow, and provide us with the flexibility to grow and return capital to common shareholders going forward.

Colin Copp: The benefits of this transaction cannot be overstated when you consider the strength of our Go Forward cash flow and liquidity in combination with the simplification and improved flexibility of our business. On the debt side alone, we see a dramatic reduction in our pro forma leverage ratio to 1.5.

Speaker Change: The benefits of this transaction cannot be overstated when you consider the strength of our go-forward cash flow and liquidity in combination with the simplification and improved flexibility of our business.

Speaker Change: On the debt side alone, we see a dramatic reduction in our pro forma leverage ratio to 1.5.

Colin Copp: After closing, we expect to eliminate substantially all corporate debt, giving us strong financial flexibility going forward. This will create the right conditions to allow us to grow at a steady pace and capitalize on creative opportunities in the aviation and aerospace sector. I also recognize that our investors want to know more about the return of capital to shareholders. We appreciate your patience as we work towards the close of this transaction. Our priorities are shareholder returns, measured growth, and managing down corporate costs.

Speaker Change: And post-closing, we expect to eliminate substantially all corporate debt, giving us strong financial flexibility going forward.

Speaker Change: This will create the right conditions to allow us to grow at a steady pace and capitalize on creative opportunities in the aviation and aerospace sector.

Speaker Change: I also recognize that our investors want to know more about the return of capital to shareholders.

Speaker Change: We appreciate your patience as we work towards the close of this transaction.

Speaker Change: Our priorities are on shareholder returns, measured growth, and managing down corporate costs.

Colin Copp: Over the next few months, our focus will be on closing the rail transaction, which is subject to shareholder approval, regulatory approvals, and other customary closing conditions. We continue to expect the transaction to close before the end of the year.

Speaker Change: Over the next few months, our focus will be on closing the RAL transaction, which is subject to shareholder approval, regulatory approvals, and other customary closing conditions.

Speaker Change: We continue to expect the transition to close before the end of the year.

Gary Osborne: As a final comment, I want to thank our employees for their hard work over the past several months and reiterate my confidence in our ability to grow at a steady pace going forward. I'll now pass it over to Gary to take you through the financial highlights. Thank you, Colin, and good morning. As mentioned at the opening, as a result of the announced RAL transaction, the RAL segment has been reclassified as a discontinued operation.

Speaker Change: As a final comment, I want to thank our employees for their hard work over the past several months and reiterate my confidence in our ability to grow at a steady pace going forward.

Speaker Change: and to thank our shareholders and board of directors for their support.

Speaker Change: I'll now pass it over to Gary to take you through the financial highlights. Thank you.

Gary Osborne: And our regional aviation services segment, together with corporate, is now referred to as continuing operations. First, we'll have one reportable operating segment, and we'll no longer disclose its results on segment-a-base. Our second-quarter results for continuing operations were in line with our expectations, and the guidance provided for the JADCPA and Capitol Extension remains in effect and is contained in the outlook section of our MD&E. And as we looked at the results from our continuing operations for Q2 2024, our adjusted EBITDA came in at $51 million, in line with our expectations. Our free cash flow was $28.2 million for the quarter, primarily derived from operating cash flows.

Gary: Thank you, Colin, and good morning.

Speaker Change: As mentioned at the opening, as a result of the announced RAL transaction, the RAL segment has been reclassified to discontinued operations, and our regional aviation services segment, together with corporate, is now referred to as continuing operations.

Gary: Of course, we'll have one reportable operating segment and will no longer disclose its results on a segmented basis.

Gary: Our second quarter results for continuing operations were in line with our expectations and the guidance provided for the Jazz CPA and capital expenditures remain in effect and are contained in the envelope section of our MD&A.

Gary: As we look at the results from our continuing operations for Q2 2024.

Gary: Our adjusted EBITDA came in at $51 million, in line with our expectations. Our free cash flow was $28.2 million for the quarter, primarily derived from operating cash flows.

Gary Osborne: Our leverage ratio is 3... We're at 3.0 at the end of the quarter, down from 3.3 at December 31st, 2021. This has been accomplished primarily Through long-term debt repayments of $79.7 million since December 31, 2023. Our adjusted net income available to common shareholders from continued operations was at one cent, which includes the debt and preferred equity costs, which we intend to eliminate at the close of the RAL sale. We also allocated capital to retire 1.4 million shares in the quarter at a weighted average price of $2.15 per share.

Gary: Our leverage ratio was 3.0 at the end of the quarter, down from 3.3 at December 31, 2023.

Gary: This has been accomplished primarily through long-term debt repayments of $79.7 million since December 31, 2023.

Gary: Our adjusted net income available to common shareholders from continued operations was at one cent, which includes the debt and preferred equity costs, which we intend to eliminate at the close of the RAL sale.

Gary: We also allocated capital to retire 1.4 million shares in the quarter at a weighted average price of $2.15 per share.

Gary Osborne: As Colin mentioned, after closing, the sale of RAL will allow us to eliminate $1.7 billion in financing, including all RAL segment aircraft-related deaths. Substantially all, of course, is corporate debt and the $300 million U.S. Preferred Shares. I'd like to also share some additional details on the benefits of the sale to shareholders. Post-closing, the transaction is expected to significantly improve Chorus' key adjusted metrics.

Gary: As Colin mentioned, after closing, the CLRL will allow us to eliminate $1.7 billion in financings.

Colin: Including all Ralph Segment aircraft release debt, substantially all of course is corporate debt, and the $300 million U.S. preferred shares.

Speaker Change: I'd like to also share some additional details on the benefits of the sale to shareholders.

Speaker Change: Post-closing, the transaction is expected to significantly improve Chorus' key adjusted metrics.

Gary Osborne: If we look at this quarter and overlay those effects on a pro forma basis, as we show in Section 4 of our MD&A, we see pro forma adjusted net income available to common shareholders per common share from continuing operations of $0.08 and $0.17 with a three and six month end of June 30, 2024. This would be more than a five-fold increase in our currently reported figures of $0.01 for the quarter and $0.03 year-to-date.

Speaker Change: If we look at this quarter and overlay those effects on a pro forma basis, as we show in section 4 of our MD&A.

Speaker Change: We see pro forma adjusted net income available to common shareholders per common share from continuing operations of $0.08 and $0.17 for the three and six months ended June 30, 2024.

Speaker Change: This would be more than a 5-fold increase in our currently reported figures of 1 cent for the quarter and 3 cents year-to-date.

Gary Osborne: Our pro forma leverage ratio would be 1.5 at June 30, 2024, half of the 3.0 reported in this quarter, demonstrating the significant financial flexibility we will have moving forward. And pro forma free cash flow of $32.4 million and $67.3 million for the three and six months ended June 30, 2024, up approximately 14% from the $28.2 and the $58.9 million reported. This demonstrates our strong cash flow that will support future returns of capital to shareholders and measured growth.

Speaker Change: Our product on a laboratory show would be 1.5 at June 30, 2024, half of the 3.0 reported. In this quarter, demonstrating the significant financial flexibility we will have moving forward.

Speaker Change: and probe form a free cash flow of 32.4 million and 67.3 million for the 3.6 months and the June 30, 2024, up across the late 14% from the 28.2 and the 58.9 million reported.

Speaker Change: This demonstrates our strong cash flow that will support future return of capital to shareholders and measured growth.

Speaker Change: The sale of RAL will allow us to make changes to our capital structure that will result in a substantially strengthened and simplified balance sheet.

Gary Osborne: The changes in capital structure will drive improved profitability, primarily driven from reduced debt servicing costs and by eliminating the preferred share dividends, which more than offset foregone earnings from the RAL sale. Our pro forma leverage level will be well below the target range for the company and that of our peer group, providing us with flexibility moving forward. I would like to conclude by mentioning that we have worked with our lenders, led by the Bank of Nova Scotia, to put in place significant flexibility in our capital structure with this transaction.

Speaker Change: The changes in capital structure will drive improved profitability, primarily driven from reduced debt servicing costs and by eliminating the preferred share dividends, which more than offset foregone earnings from the RAL sale.

Speaker Change: Our pro forma leverage level will be well below the target range for the company and that of our peer group, providing us with flexibility moving forward.

Speaker Change: I would like to conclude by mentioning that we worked with our lenders, led by the Bank of Nova Scotia, to put in place significant flexibility in our capital structure with this transaction.

Gary Osborne: Subject to the closing of the sale of the RAL segment, we have amended our $50 million bilateral facility secured by the unencumbered aircraft leased under the CPA to be available for future growth opportunities and general corporate purposes. In addition, we are maintaining our $150 million secured operating revolver.

Speaker Change: Subject to closing of the sale of the RAL segment, we have amended our $50 million bilateral facility secured by the unencumbered aircraft leased under the CPA to be available for future growth opportunities and general corporate purposes.

Speaker Change: In addition, we are maintaining our $150 million secured operating revolver. This provides us $200 million in financing to support operations and the growth of the company.

Operator: This provides us with $200 million in financing to support operations and the growth of the company. We are now ready to take your questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the number on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please flip the handset before pressing any key.

Speaker Change: We are now ready to take your questions.

Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys.

Colin Copp: Your first question comes from Hillary Cacanando from Deutsche Bank. Please go ahead. Hi, thank you for taking my question. So, you know, it looks like you're set up very well post-transaction, with more flexibility to increase shareholder value and for growth. And so, you know, with a fixed contract with Air Canada as your main business, I was wondering, you know, what would be the biggest risk to your story or to your business going forward?

Speaker Change: Your first question comes from Hillary Cacanando from Deutsche Bank. Please go ahead.

Speaker Change: Hi, thank you for taking my question.

Speaker Change: So, you know, it looks like you're set up very well post the transaction, you know, with more flexibility to increase shareholder value and for growth. And so, you know, with a fixed contract with Air Canada as your main business, I was wondering, you know, what would be the biggest risk to your story or to your business going forward?

Speaker Change: global recession, geopolitical situation. Or would you say you're pretty insulated now with that as your main, with a fixed business contract as your main business? Or is there something else that could, that you would consider a risk to your story?

Colin Copp: You know, would it be, you know, a global recession or geopolitical situation, or would you say you're pretty insulated now, you know, with that as your main business, with a fixed business contract as your main business? Or is there something else that could, you know, that you would consider a risk to your story? Hi Hillary. It's, it's Colin.

Speaker Change: Hi Hillary, it's Colin. Good morning.

Colin Copp: Good morning. Um, yeah, I think so. I think on the risk side, Voyager and Jazz are very solid, we're extremely insulated there with both of them, Voyager is very diversified in what they do, and Jazz is extremely solid with Air Canada, with a long-term contract, as you know, so we don't see any real apparent risk there at all. You know, I think our focus is really on three areas, as we've kind of, you know, reiterated over these last few weeks here, it's really about evaluating, as we get through the transaction, shareholder returns, looking at measured growth, and, you know, managing down our corporate costs. Those are kind of our three areas of focus as we move forward. I got it.

Speaker Change: I think on the risk side, Voyager and Jazz are very solid, we're extremely insulated there with both of them, Voyager is very diversified in what they do.

Speaker Change: And Jazz is extremely solid with Air Canada, with a long-term contract, as you know, so we don't see any real apparent risks there at all.

Speaker Change: You know, I think our focus is really in three areas, as we've kind of, you know, reiterated over this last few weeks here. It's really about evaluating as we get through the transaction, shareholder returns.

Speaker Change: Looking at measured growth and, you know, managing down our corporate costs, those are kind of our three areas of focus as we move forward.

Colin Copp: Great. Thank you. And then, and then I just have a question about the Cygnet business.

Speaker Change: Gary, thank you, and learn, um...

Colin Copp: You know, it doesn't look like we really have a pilot shortage situation anymore, I think. So, you know, are you still seeing the same, you know, same type of interest level among potential candidates? Or do you think, perhaps, maybe, we are in a situation where maybe we have more candidates than, you know, demand in the industry? Yeah. Yeah, absolutely. I think in the U.S., we are seeing, you know, a little bit of a slowdown on the pilot side. In Canada, we've not seen that.

Speaker Change: And then I just have a question on the Cygnet business. You know, it doesn't look like we really have a pilot shortage situation anymore, I think.

Gary: So, you know, are you still seeing the same, you know, same type of, like, interest level among potential candidates? Or do you think, you know, perhaps, maybe, are we in a situation, maybe, you know, we have more candidates than, you know, than demand in the industry?

Speaker Change: Absolutely. I think in the U.S. we are seeing a little bit of a slowdown on the pilot side. In Canada, we've not seen that.

Colin Copp: Signet continues to do very well, and as the demand, I guess, for the higher-level regionals and the mainline operators slows down, there's still a big demand in Canada for pilots at the lower levels. So we see Signet continuing to grow on track, on plan, and we have no problems attracting students, new hires, or even finding placements. So we see that continuing for a long time, and most specifically, that it's a little bit of a differentiated product with its relationship with CAE. Great. Thank you for your time.

Speaker Change: Cygnet continues to track very well.

Speaker Change: And as, you know, the demand, I guess, in the higher level regionals and the mainline operators slows down, there's still a big demand in Canada for pilots at the lower level.

Speaker Change: We see Cygnet continuing to grow on track, on plan, and we have no problems attracting students, new hires, or even finding placements.

Speaker Change: We see that continuing on for a long time and most specifically that it's a little bit of a differentiated product with its relationship with CAE.

Speaker Change: Thank you for the time.

Operator: Thank you. The next question comes from James McGarragle from RBC Capital Markets. Please go ahead. Hey, good morning, and thanks for having me on.

Speaker Change: Thank you. The next question comes from James McGaraggle from RBC Capital Markets. Please go ahead.

James McGaraggle: Hey, good morning, and thanks for having me on.

Operator: Good morning. I have a longer-term type of question on the CPA. You know, there's a step down in 2026 that you flag in your guidance, but, you know, those aircraft that come out of the CPA in that year, you know, how do you expect to redeploy those? And, you know, when we think about this, even longer term, as aircraft come out of the CPA, is that cash flow neutral as these aircraft are potentially redeployed? If you can just provide any color there,

Speaker Change: Good morning.

James McGaraggle: I have a longer term type of question on the CPA, you know, there's a step down in 2026 that you flag in your guidance.

Speaker Change: But, you know, those aircraft that come out of the GPA in that year...

Speaker Change: You know, how do you expect to redeploy those, and, you know, when we think about this even longer term, as aircraft come out of the CPA, is that cash flow neutral as these aircraft are, you know, potentially redeployed? If you can just provide any color there, thank you.

Colin Copp: Thank you. Thank you, sir, James.

Colin Copp: All the aircraft that are in the CPA, as they come out or come off, are basically unencumbered. I think Gary's talked about that quite a bit, and he can give you some views on kind of the financial side. Right now, our plans are to continue to work with Air Canada and renew those leases, and we continue to make progress in that area. So the immediate plan is obviously to see those aircraft continue within the Jazz CPA, and where they can't, they're basically unencumbered assets that we could either redeploy into different operations, or we could sell, or we could do whatever we want with them. But given that they're unencumbered, it gives us a great deal of flexibility with regard to those assets. Yeah, it's Gary here.

Speaker Change: James, good morning.

Speaker Change: All the aircraft that are in the CPA as they come out or come off, that all are basically unencumbered. I think Gary's talked about that quite a bit, and he can give you some view on kind of the financial side.

Speaker Change: You know right now our plans are to continue to work with Air Canada and renew those leases And you know we continue to make progress in that in that area So the immediate plan is obviously to see those aircraft continue within the Jazz CPA and where they can't

Speaker Change: They're basically unencumbered assets that we could either redeploy into different operations or we could sell or we could do whatever we want with. But given that they're unencumbered, it gives us a great deal of flexibility with regards to those assets.

Gary Osborne: Yeah, so if you look at our disclosures, we have nine aircraft coming off the lease. We continue to look for opportunities, whether it's with Arcanda or others, to release some of those aircraft, and if not, we can redeploy them. But they are unencumbered and are debt free.

Speaker Change: Yeah, it's Gary here. Yeah, so if you look at our disclosures, we have nine aircraft, that's it.

Gary: In our disclosures, as coming off lease, we continue to look for opportunities, whether it's with Air Canada or others, to release some of those aircraft. And if not, we can redeploy them, as Colin said. But they are unencumbered. They're kept free.

Speaker Change: And, you know, we have opportunities to re-employ or to sell in some cases. So it does provide some flexibility, at least moving forward.

Colin Copp: We have opportunities to redeploy or to sell in some cases, so that provides some flexibility when moving forward. Yeah, I appreciate the call. And then on Voyager, you know, some of your peers have talked about, you know, some pretty good opportunities, surveillance, medevac, you know, anything that you're kind of working on there in the immediate term that you can flag? And then, you know, is the strategy discussed, you know, longer term there, still appropriate, or any updates that you might want to flag, you know, post the recent sale via the raw business? And after that, I can turn the line over.

Speaker Change: I appreciate the call, Aaron, and then on Voyager.

Speaker Change: Some of your peers have talked about some pretty good opportunities, surveillance.

Speaker Change: Medivac

Speaker Change: You know, anything that you're kind of working on there in the immediate term that you can flag?

Speaker Change: And then, you know, is the strategy discussed, you know, longer term there still appropriate? Or any updates that you might want to flag, you know, post the recent sale via the raw business? And after that, I can turn the line over. Thank you.

Colin Copp: Thank you. Yes, absolutely. Thank you.

Colin Copp: I think, you know, when you think of Voyager, you look at the various disciplines that they're in and that they've been successful at growing in, which really relate back to kind of the specialty aviation defense side of things, and the USM side, the parts business. Those have been the two big kinds of growth areas. We continue to see opportunity in those that are quite significant. You know, we announced this quarter the Air Ambulance, the Wilson Air Ambulance. Before that, they had an additional King Air that went into the Department of Defense's MASER program.

James: Yes, absolutely James

Speaker Change: I think, you know, when you think of Voyager, you look at, you know, the various disciplines that they're in and that they've been successful at growing in, which really relate back to kind of the...

Speaker Change: Specialty Aviation, Defence side of things and the USM side, the parts business. Those have been the two big kind of growth areas. We continue to see opportunity in those that are quite significant. You know, we announced

Speaker Change: There, this quarter, the air ambulance, the Grosvenor Air Ambulance, before that, they had an additional King Air that went into...

Colin Copp: Those are the kind of things that you're going to continue to see as we push forward with them. There's quite a bit of opportunity there, and we're pretty bullish on Voyager and where it's headed for sure. Any further questions, James? [inaudible] Oh, no, that's it for me.

Speaker Change: Department of Defense into the MASER program, those are the kind of things that you're going to continue to see as we push forward with them. There's there's quite a bit of opportunity there and you know, we're pretty bullish on Voyager and where it's headed for sure.

Speaker Change: [inaudible]

Speaker Change: I'm going to tell you what's going on.

James: Any further questions, James?

Operator: Thank you. The next question comes from Fadi Chamoun from BMO Capital Markets. Please go ahead. Yes, good morning.

James: Oh no, that's it for me. Thank you.

James: Next question comes from Fadi Chamoun from BMO Capital Markets. Please go ahead.

Fadi Chamoun: Maybe one question from me on, you know, the area of focus. Colin, you mentioned kind of, you know, as you get past the closing of this transaction, and you have a strong bounce sheet, a strong free cash flow that is generated by the remaining operation. How are you thinking about..., kind of the framework for capital going forward, like in terms of M&A and opportunity for growth. What type of assets and, maybe, what is the targeted return on capital framework that you expect to deploy capital towards?

Fadi Chamoun: Maybe one question from me on the area of the focus colony you mentioned as you get past the closing of this transaction.

Fadi Chamoun: kind of the framework for capital going forward like in terms of M&A and opportunity for growth.

Colin Copp: What are you targeting in these potential growth opportunities, whether it's M&A or organic? Is it 15%, 20% just kind of to get an idea how you're thinking about that recast or redeployment as we get past this? You're not going to be able to do that. You're not going to be able to do that.

Speaker Change: What type of assets and maybe

Speaker Change: What is the targeted return on capital framework that you expect to deploy capital?

Speaker Change: towards? Like what are you targeting in these?

Speaker Change: potential growth opportunities, whether it's M&A or organic. Is it 15%? 20%? Just kind of to get an idea how you're thinking about that precast or redeployment as we get past the closing of this transaction.

Colin Copp: The closing of this transaction. Hi Fadi. Yeah, absolutely. You know, I think Gary said that a few times in Solvai. You know, we're focused on mid-teen returns. There's no question about that. And that's, you know, whether we're looking at organic growth or we're looking at acquisition. On the acquisition side, [inaudible] We're very much focused on kind of this paced, gradual growth, not a big, huge mass of transactions, stuff that's going to move us over time nicely. And so that could be anything that's in aviation or aerospace.

Speaker Change: I think Gary said a few times, we're focused on mid-team returns, there's no question about that. And that's whether we're looking at organic growth or we're looking at acquisition.

Speaker Change: You know, on the acquisition side...

Speaker Change: We're very much focused on kind of this paste.

Gary: gradual growth, not big, huge, massive

Gary: And so that could be any, you know, anything that's in aviation or aerospace. We're looking quite broadly at the opportunities right now.

Gary: So you'll see us definitely in that area, in that zone, smaller opportunities that make sense.

Gary: that we understand well.

Gary: Those are kind of the acquisition side and on the organic side, you know, I think I've said a few times

Gary: Most of that opportunity probably lies today within Voyager, and we've been successful at moving them along quite well. I think there's lots of growth still there, and we see that area, especially the defence,

Colin Copp: We're seeing more and more download of that type of work from government into industry. And so those opportunities are the areas that we're focused on. Okay, appreciate it.

Gary: Surveillance side is a growing business. There's no question we're seeing more and more download of that type of work from government into industry. And so those opportunities are the areas that we're focused on.

Gary: Okay, appreciate it.

Operator: Thank you. The next question comes from Konark Gupta at Scotiabank. Please go ahead. Thanks and good morning.

Speaker Change: Thank you. Next question comes from Konrad Gupta at Scotiabank. Please go ahead.

Operator: Morning. Thanks for taking my question. I just want to understand, like, in terms of your continuing operations, so there's obviously really three things that you're focusing on, you know, CPA, Jazz, essentially, and Voyager plus Cygnet, maybe. Obviously, Voyager seems like it's going nicely, as we saw in Q2.

Konrad Gupta: Thanks and morning. Thanks for taking my question. I just want to understand, you know, like in terms of your continuing operations.

Speaker Change: So there's obviously really three things that you're focusing on, you know, CPA, jazz, essentially, and Voyager plus Cygnet.

Operator: So, you know, on CPA, maybe I can ask you, in terms of James' question as well, but, you know, you have these minimum covered aircraft, which are obviously changing over time, you have the fixed fee or fixed margin that's kind of, you know, a step-down function through 2026, and then I think it's probably a flat line after that. But the leasing revenue is the one where I think it's, you know, based on your investor day presentation, seems like it's coming down, at least for now, through the end of the contract. So you said you were looking to renew some of the leasing agreements with Air Canada. In terms of, you know, like, what's the discussion like with them?

Speaker Change: Maybe, obviously, Voyager seems like it's going nicely here, so I'm cute too. So, you know, on CPA, maybe if I can ask you.

Speaker Change: In terms of you know to James question as well a little bit you have you have these minimum covered aircraft Which are which are obviously, you know changing

Speaker Change: Over time, you have the fixed fee or fixed margin that's kind of, you know, it's a step down function through 2026, and then I think it's probably flat line after that.

Speaker Change: But the leasing revenue is the one where I think it's, you know, based on your yesterday presentation, seems like it's coming down.

Speaker Change: at least for now, through the end of the contract. So you said you are looking to renew some of the leasing agreements with Air Canada. In terms of, you know, like, what's

Colin Copp: You know, like, why have they not sort of signed those leasing agreements for the long term? You know, why are they retiring them as per the plan today? You know, like, is there something that Air Canada is contemplating doing with the aircraft on their own? Or is it just that, you know, typically, how these contracts work, they don't sign these long-term leases through the end of the contract? Yeah. Morning, Konark.

Speaker Change: What's the discussion like with them? You know, like, why have they not sort of signed these agreements for long term, you know, while they're retiring them as per the plan today? You know, like, is there something that Air Canada is contemplating to do with the aircraft on their own, or is it just that, you know,

Speaker Change: Typically how these contracts work, they don't sign these long-term leaders through the end of the contract.

Colin Copp: I'm just trying to capture what you said. It was a little hard to hear you, but I think I've got it. Look, the leases, the Dash, it's mainly the queues right now that you're looking at. If you look at the leases that come open over a period of time here, those are the ones that, obviously, we would be engaged with and working with Air Canada to renew and extend within the C

Speaker Change: Morning, Kornar. Look, AI, just trying to capture what you said. It was a little hard to hear you, but I think I've got it.

Speaker Change: It's mainly the cues right now that you're looking at if you look at the leases that come open over a period of time here. Those are the ones that obviously we would be engaged with and working with Air Canada to renew and extend within the CPA.

Colin Copp: That's really been our focus at Jazz. So those are the ones. I think Gary can give you a little bit of visibility as far as what we have in the MD&A and so on. So let's pass this over to him. Yeah, Konark, it's Gary.

Speaker Change: really has been our focus.

Gary: Jazz, so those are the ones I think Gary can give you a little bit of visibility as far as what we have in the MDNA and so on, so let's have a pass it over the hand. So we have if you look at the MDNA, there we have nine aircraft that come off, officially at least with their candidate in the 2025, they're towards the end of 25, so.

Gary Osborne: So we have, if you look at the MD&A there, we have nine aircraft that come off officially leased with Air Canada at the end of 2025. They're towards the end of 2025. So typically, this is the time you'd start to consider your options around those aircraft. So I wouldn't read anything into it other than just natural timing.

Gary Osborne: So from that perspective, we're looking at those aircraft. We'll see what we can do with Air Canada. We also have the option to redeploy, and we also have the option for those that don't get redeployed or whatever to sell them.

Speaker Change: Typically, this is the time you'd start to, you know, consider your options around those aircraft. So, I wouldn't read anything into it other than just natural.

Speaker Change: So, from that perspective, we're looking at those aircraft, we'll see what we can do with their cannon. We also have the option to redeploy and we also have the option for those that don't get redeployed or whatever to sell them. So, we'll get some...

Gary Osborne: So we've got some flexibility there, but I wouldn't read anything into it more than we were always in discussions with Air Canada. We continue to try and see if they need some of these aircraft for a bit. Okay, no, that's where you're going. Just to follow up on that. It seems like the fixed margin is a fixed margin, but leasing revenue is an opportunity for you, where it may not decline to the level that people think it might actually be flat, or it can actually go up, depending on the progress of the discussion with the account. So on the fixed-fee, I think Konark, you know, the fixed-fee is the fixed-fee. So I would take what you have there, and that would be a good number.

Speaker Change: some flexibility there, but I wouldn't read anything into it more than we were always in discussions with Air Canada and we continue to try and see if they need some of these aircraft for a bit.

Speaker Change: Okay, now that's very helpful, Greg, going in. Just to follow up on that...

Speaker Change: It seems like the fixed margin is a fixed margin, but leasing revenue is an opportunity for you, where it may not decline to the level that people think it might actually be flat, or it can actually go up, depending on how the discussion progresses.

Speaker Change: So on the fixed fee, I think Konark, you know, the fixed fee is the fixed fee, so I would take what you have there and that would be a good number. On the leasing, there's potential for upside, there's no question about it.

Gary Osborne: On the leasing side, there's potential for upside. There's no question about it. We've got nine aircraft there. Maybe the potential to, you know, have some of those go back in or release them somewhere else. And as time goes on, it's the same thing.

Speaker Change: We've got nine aircraft there, maybe a potential to, you know, have some of those go back in or release them somewhere else. And as time goes on, it's the same thing you'll see as the years go on and there's a few aircraft that come out, there's opportunities with those too.

Gary Osborne: You'll see as the years go on and there are a few aircraft that come out, there are opportunities with those. Great. Okay, thanks. And last one for me before I turn it over.

Gary Osborne: Why is your good growth in Q2? You talked about the opportunities there for the long term. So, should we think about growth in that business over the next couple of years? I think you probably had a target for that business at about $150 million-ish in revenue. It seems like it's doing about $100-$200 a year right now.

Speaker Change: Why is your good growth in Q2? You talked about the opportunities there for the long term. What should we think about growth in that business?

Speaker Change: over the next couple of years. I think you had probably a target for that business at about $150 million-ish in revenue. It seems like it's doing about $100,000 to $120,000 a year right now. Do you have the visibility to get to $150,000 by 2025, or it's more of a long-term story?

Gary Osborne: Do you have the visibility to get to $150 by 2025, or is it more of a long-term story? I think we're still on pace for that $150 by 2025. You see the growth that you're seeing here this year, and hopefully you'll continue. And based on the things that Colin talked about, under the major contract and a few other things like that, we're starting to see growth.

Speaker Change: I think we're still on pace for that 150 for 2025.

Speaker Change: You know, you see the growth that, you know, you're seeing here this year, and hopefully it'll continue. And based on the things that Colin talked about, like under the Maeser contract,

Speaker Change: And a few other things like that, we're starting to see growth and it takes hold and with Voyager and those particular businesses, it's a little bit of a step growth because once the contract comes online, it takes a little bit and then you start to see the full weight of it. So we feel like we can still get there.

Speaker Change: Yeah, I think the big thing for them is if you continue to see, you know, growth in the contracts, not so much the financial, as Gary says, there's always a little bit of give and take in all of these different contracts and they are pretty meaningful to their

Speaker Change: We're looking at a continual contract growth. They've been doing a great job of that. They have lots in the pipeline.

Speaker Change: So we're pretty bullish, as I said, on that.

Speaker Change: Right. And so the step function you mentioned, is that step function ending 25 based on the context you have today or should we see a further ramp-up beyond 25?

Speaker Change: The point is, you're going to continue to see them revving a lot, but it can go up and chunks as they bring in to you the contract. So like me, a good example is these are really keen in last year, so that's starting to take it back. That's the type of thing you're going to see.

Gary Osborne: Okay, closer. Thanks for the question. Thank you. Okay, thanks, Konark. Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star one. The next question comes from David Ocampo at Cormark Securities. Please go ahead. I think, good morning everyone. I just had one, and I apologize because I already asked because I actually missed a few minutes of the call this morning.

Speaker Change: Okay, perfect. Thanks for the question. Thank you.

Speaker Change: Thank you. Okay, thanks, Connor.

Speaker Change: Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star 1.

Speaker Change: Next question comes from David Ocampo at Cormark Securities. Please go ahead.

Operator: But when I look at your contract with them in Canada, I know that post 2026, you guys have 80 covered aircraft compared to calling 105 today. When we think about that step down in fleet count, is AC looking to bring on other partners to bridge that gap, or are you guys thinking that you could bid on that 25 extra fleet count as it relates to, you know, your fixed fee with Air Canada? Yeah, morning. It's Colin.

David Elcampo: Good morning, everyone. I just had one and I apologize if it was already asked because I actually missed a few minutes of the call this morning. But when I look at your contract with Air Canada, I know post-2026, you guys have 80 covered aircraft compared to call it 105 today.

Speaker Change: When we think about that step down in fleet count, is AC looking to bring on other partners to bridge that gap, or are you guys thinking that you could bid on that 25 extra fleet count as it relates to your fixed fee with Air Canada?

Colin Copp: You know, as far as the CPA goes, we are very focused on opportunities with their Canada. So any opportunities that come up, you will see us working with their Canada on and bidding on. We've been quite successful at getting our cost structure right and being able to really position things while they are in Canada. And you know, if you just go back in history over the last, you know, five, whatever years, you can see kind of where we sit in relation to our relationship and partners.

Speaker Change: Yeah, good morning.

Colin Goodmorting: It's Colin.

Speaker Change: You know, as far as the CPA goes...

Speaker Change: We are very focused on opportunities with Air Canada, so any opportunities that come up, you will see us working with Air Canada on and bidding on.

Speaker Change: We've been quite successful at getting our cost structure right and being able to really position things well with Air Canada.

Speaker Change: And, you know, if you just go back in history in the last, you know, five, whatever years, you can see kind of where we sit in relation to our relationship and partners. So...

Speaker Change: You know, we're going to continue that, we're very comfortable and bullish and supportive of Air Canada and the work we do there for them and any opportunities that come up.

Speaker Change: For growth, just like we talked about here a few seconds ago on the Dash 8s, we're working with them to see where those opportunities are and to see if we can make things work.

Speaker Change: So, I think Jazz has a minimum fleet there, but that doesn't mean that's necessarily the fleet that we're going to be at, for sure.

Colin Copp: And I guess how early, with your discussions already with Eric Canada, for that post-2026 fleet, I suspect you might need to do some pilot training for the fleet changes in a material way. So just curious where that stands today since we're hedging closer to 2026 now. Well, I think it's Gary here, David. You know, if you look at the 80 aircraft with 70 plus seats, they're currently in the fleet. So from that perspective, nothing really needs to change completely, you know, in 25. They can, or in 2026.

Speaker Change: And I guess, how early with your discussions are you with Air Canada for that post-2026 fleet? I suspect you might need to do some pilot training if the fleet changes in a material way. So, just curious where that stands today since we're edging closer to 2026 now.

Gary Osborne: So from that perspective, it is in place. It's just a question. I'm not sure whether it's above the 80 or what the fleet plans are, but currently, That's all I had for you guys. Thank you.

Speaker Change: So I think it's scary here David, you know, if you look at the 80 aircraft of 70 plus seats They're currently in the fleet. So from that perspective

David Elcampo: Nothing really needs to change with the fleet in 2025 or in 2026. So from that perspective, it is in place. It's just a question of whether it's above the 80 or what the fleet plans are, but it currently exists.

Tyrone Cotie: Thank you. We have no further questions. I will turn the call back to Tyrone Cotie for closing comments. Thank you, Joanna. And thank you everyone for taking part in today's call. Have a nice day. Ladies and gentlemen, this concludes the conference for today. We thank you.

David Elcampo: That's all I have for you guys. Thank you.

David Elcampo: Thank you. We have no further questions. I will turn the call back to Tyrone Cotie for closing comments.

Tyrone Cotie: Thank you Joanna and thank you everyone for taking part in today's call, nice day.

Gary Osborne: And with Voyager, it knows particular businesses. It's a little bit of a step growth because once the contract comes online, it takes a little bit of a start to see the full weight of it. So we feel like we can still get there. Yeah, I think the big thing for them is if you continue to see growth in the contracts, not so much the financial, as Gary said; there's always a little bit of give and take in all of these different contracts. And they are pretty meaningful to their finances.

Gary Osborne: The sale of Rail will allow us to make changes to our capital structure that will result in a substantially strengthened and simplified balance. The sale of Rail will allow us to make changes to our capital structure that will result in a straightforward balance.

Tyrone Cotie: This pertains specifically to the results and operations of Chorus Aviation Inc. for the three months ended June 30, 2024, as well as the Outlook section and other sections of our MD&A where such statements appear. As a result of the agreement to sell the Chorus Regional Aviation Leasing Segment, or RAL, the RAL segment has been reclassified to Discontinued Operations, and our Regional Aviation Services segment, together with corporate, is now referred to as Continued Operations.

Colin Copp: We're looking quite broadly at the opportunities right now. So you'll see us definitely in that area, in that zone, smaller opportunities that make sense that we understand well. Those are kind of on the acquisition side.

Colin Copp: So, you know, we're going to continue that. We're very comfortable and bullish and supportive of our Canada and the work we do there for them and any opportunities that come up for growth. Just like we talked about here a few seconds ago on the dashes, you know, we're working with them to see where those opportunities are and to see if we can make things work. So I think Jazz has a minimum fleet there, but that doesn't necessarily mean that's necessarily the fleet that we're gonna be on, for sure.

Gary Osborne: So you'll see some give and take, but the big thing is looking for that continual contract growth. And they've been doing a great job with that. They have lots in the pipeline. So we're pretty bullish, as I said, on that. Right, so the step function you mentioned is that step function ending at 25 based on the context you have today, or should we see it further ramp up and beyond 25? I think you're just, the point is you're going to continue to see the remedy move up in chunks as they bring in new contracts. So like, the good examples, these really came in last year, so that's starting to take effect. That's the type of thing.

Colin Copp: And on the organic side, you know, I think I've said a few times that most of that opportunity probably lies today within Voyager. And we've been successful at moving them along quite well. I think there's lots of growth still there. And we see that area, especially the defense and the surveillance side, is a growing business. There's no question.