Jazz Air Income Fund Announces year end 2006 financial results - Net income of $140 million
Feb 7, 2007
HALIFAX, Feb. 7 /CNW/ - Today, Jazz Air Income Fund (TSX: JAZ.UN) ("Jazz Air Fund") announced the year end 2006 results of Jazz Air LP (operating as Air Canada Jazz), with a net income of $140.0 million - an improvement of 18.8% over year end 2005. These results were primarily generated under a Capacity Purchase Agreement (CPA) with Air Canada that became effective January 1, 2006. Jazz Air Fund has a 20.3% ownership interest in Jazz Air LP.Q4 2006 Highlights ------------------ - Operating revenue of $351.9 million, up 15.7%. - EBITDAR(1) of $71.7 million, up 7.7%. - Operating income of $32.7 million, down 3.4%. - Net income of $31.9 million, up 1.2%. - Distributable cash(1) of $27.2 million. - For the fourth successive quarter as since the IPO, Air Canada Jazz exceeded the planned target level of $26.9 million in distributable cash. Year End 2006 HIGHLIGHTS ------------------------ - Operating revenue of $1,381.2 million, up 35.0%. - EBITDAR(1) of $299.0 million, up 31.4%. - Operating income of $143.8 million, up 11.1%. - Net income of $140.0 million, up 18.8%. - Distributable cash(1) of $122.9 million. - Unit cost reductions achieved in all expense categories except aircraft rent and fuel (which is a pass-through cost borne by Air Canada under the CPA)."2006 was a year of unprecedented growth at Jazz, and I am very pleased with our accomplishments," said Joe Randell, President and Chief Executive Officer, Air Canada Jazz. "The professionalism of our employees and their unwavering commitment to safety enabled us to outperform on our plan while managing through major changes. Looking ahead to the year 2007, we will continue to focus on delivering high quality service to our customers, supporting our employees, and exploring opportunities to grow and diversify our business. These objectives will ensure we deliver value to our unitholders." Financial Performance --------------------- For the year 2006, operating revenue was $1,381.2 million, compared to $1,023.2 million in 2005, representing an increase of $358.0 million or 35.0%. The increase in operating revenue is attributable to a net increase of 14 aircraft operated by Jazz, a 27.0% increase in the Block Hours flown and a $177.5 million increase in pass-through costs, including fuel costs which are reimbursed by Air Canada on an at cost basis. For 2006, performance incentives payable by Air Canada to Air Canada Jazz under the CPA amounted to $13.5 million or 1.6% of Jazz's Scheduled Flights Revenue as compared to $12.8 million or 1.9% in 2005. Other revenue decreased from $10.2 million in 2005 to $7.0 million in 2006. Other revenue is derived from charter flights, maintenance, repair and overhaul (MRO) services and other sources of revenue such as groundhandling and flight simulator services. In line with the growth in revenue, total operating expenses increased from $893.8 million in 2005 to $1,237.4 million in 2006, an increase of 38.4%. Aircraft fuel costs increased by $108.1 million or 61.2% due to an increase of $12.9 million in the price of fuel and a $95.2 million increase in fuel usage which corresponds to the 27.0% increase in Block Hours flown, and increased fuel burn as a result of the change in fleet composition from turboprop to jet aircraft. Aircraft rent increased by approximately $53.8 million or 67.1% mainly due to an increase of 16 jet aircraft to the operational fleet count from December 2005 to December 2006, which accounted for approximately $59.5 million of the variance. These costs are offset by a foreign exchange gain of $4.4 million related mainly to the CRJ leases, and the termination of two Dash 8s aircraft operating leases from the fleet reducing leasing costs $1.3 million. These cost increases, fuel and aircraft rent, account for 47.1% of the total increase in operating expenses in the year. Capacity, as measured by available seat miles (ASM), increased by 50.8%. Costs per available seat mile (CASM), representing the operating expenses per ASM, decreased by 11.5 % from 2005. Unit cost reductions were achieved in all expense categories except fuel and aircraft rent. For the year 2006, EBITDAR was $299.0 million compared to $227.5 million in 2005, an increase of $71.5 million or 31.4%. This improvement was achieved through increased capacity and cost control. The operating income of $143.8 million represents an improvement of $14.3 million or 11.1%. For 2006, estimated distributable cash was $122.9 million. Distributable cash for the quarter was $27.2 million, and for the fourth successive quarter Air Canada Jazz exceeded the planned target level of $26.9 million with distributable cash being defined as cash available for distribution less a 10% holdback. On an annualized basis, distributable cash was $122.9 million versus a target of $107.5 million. In 2006, non-operating expenses amounted to $3.7 million, a decrease of $7.8 million from 2005. The cost savings are mainly due to the restructuring of the long-term debt of Air Canada Jazz concurrently with the initial public offering of Jazz Air Fund and increased interest revenue of $3.3 million as a result of an increase in the average cash balance, offset by a gain on disposal of fixed assets in the prior period. Net income for 2006 was $140.0 million compared to $117.9 million recorded in 2005, an improvement of $22.1 million or 18.8%. As outlined above, the increase is due to the larger fleet and effective cost control. Air Canada Jazz's and Jazz Air Fund's audited annual consolidated financial statements for the year ended December 31, 2006, and accompanying Management's Discussion and Analysis (MD&A) are available on Air Canada Jazz's website www.flyjazz.ca and at www.sedar.com. A copy may also be obtained on request by contacting Air Canada Jazz's Investor Relations at: email@example.com or (902) 873-5000. Recent Events ------------- People For the year ended December 31, 2006, Air Canada Jazz had an average of 4,144 full time equivalent (FTE) employees compared to an average of 3,582 FTE employees in 2005. This reflects a 15.7% increase over 2005. The increase in the number of employees was due to growth in Air Canada Jazz's operations. Specifically, operational departments such as In-flight Services, Flight Operations, and Maintenance and Engineering grew by 27.4%, 18.7% and 11.2% respectively. Management carefully monitors growth and these employment increases are considered appropriate with capacity growth of 50.8% as measured by ASMs, resulting in a 30.4% improvement in ASMs per employee compared to the prior year. Wage Reviews Wage review awards were concluded in 2006 for four out of five eligible collective agreements. Arbitrator Michel Picher released his wage review award for the Maintenance and Engineering, Customer Service and Crew Scheduling groups who are represented by the Canadian Auto Workers (CAW), and for Air Canada Jazz Flight Attendants who are represented by Teamsters Canada. Negotiations with Flight Dispatchers, who are represented by the Canadian Airline Dispatchers Association, have begun. There are no other collective bargaining units to be reviewed. Performance Incentives For the year ended December 31, 2006, performance incentives payable by Air Canada to Air Canada Jazz under the CPA amounted to $13.5 million or 1.6% of Scheduled Flights Revenue compared to $12.8 million or 1.9% in 2005. This translates into 66% of available incentives for 2006 as a result of strong performance in the first and second quarters when 87% and 91% of available incentives were earned respectively. Cost Savings Initiative Continuous improvement through the employment of Six Sigma methodology and cost savings remain a major focus at Air Canada Jazz. This is evidenced by the fact that costs per ASM decreased by 11.5%, or 10.0% when fuel is excluded, from the prior year. Cost savings were achieved in 2006 in both the controllable and pass through categories including, but are not limited to, ensuring controlled and efficient growth in staff levels, reductions in leased space at many airports and improvements in airport operations. Quarterly Investor Conference Call / Audio Webcast -------------------------------------------------- Air Canada Jazz will hold an analyst call at 12:00 p.m. ET on Thursday, February 8, 2007 to discuss the 2006 fourth quarter and year-end results of Jazz Air Fund and Jazz Air LP. The call may be accessed by dialing 1-800-732-9303 (toll free) or (416) 644-3433 within the Toronto area. The call will be simultaneously audio webcast at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1712480 The conference call webcast will be archived on Air Canada Jazz's Investor Relations website at www.flyjazz.ca. A playback of the call can also be accessed until midnight ET, Thursday, February 15, 2007 by dialing 1-877- 289-8525 (toll free) or (416) 640-1917 within the Toronto area and passcode 21216970#. (1)Non-GAAP Financial Measures EBITDAR EBITDAR (earnings before interest, taxes, depreciation, amortization and obsolescence and aircraft rent) is a non-GAAP financial measure commonly used in the airline industry to view operating results before aircraft rent and ownership costs, including the impact of foreign exchange on monetary items as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and asset acquisitions. EBITDAR is not a recognized measure for financial statement presentation under GAAP, does not have a standardized meaning and is therefore not comparable to similar measures presented by other public entities. Readers should refer to Air Canada Jazz's and Jazz Air Fund's Management Discussion and Analysis for a reconciliation of EBITDAR to operating income (loss). DISTRIBUTABLE CASH Cash available for distributions and distributable cash are non-GAAP measures generally used by Canadian open-ended trusts as an indication of financial performance. It should not been seen as measurements of liquidity or substitutes for comparable metrics prepared in accordance with GAAP. Cash available for distributions may differ from similar calculations as reported by other entities and, accordingly, may not be comparable to cash available for distributions as reported by such entities. Readers should refer to Air Canada Jazz's and Jazz Air Fund's Management Discussion and Analysis for a reconciliation of distributable cash to operating income. CAUTION REGARDING FORWARD-LOOKING INFORMATION --------------------------------------------- Certain statements in this news release may contain 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, by their nature, are based on assumptions 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, energy prices, general industry, market and economic conditions, war, terrorist attacks, changes in demand due to the seasonal nature of the business, the ability to reduce operating costs and employee counts, 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 throughout Air Canada Jazz's filings with securities regulators in Canada and in particular those identified in the Risk Factors section of Jazz Air LP 2006 MD&A dated February 7, 2007. The forward-looking statements contained herein represent Air Canada Jazz's expectations as of the date they are made and are subject to change after such date. However, Air Canada Jazz disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise expect as required under applicable laws. About Jazz Air Income Fund Jazz Air Income 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 Air LP. About Jazz Air LP Jazz Air LP (Air Canada Jazz) is the second largest airline in Canada based on fleet size and the number of routes operated. Air Canada Jazz operates more flights and flies to more Canadian destinations than any other Canadian carrier. Air Canada Jazz forms an integral part of Air Canada's domestic and transborder market presence and strategy. Air Canada Jazz and Air Canada are parties to a Capacity Purchase Agreement (CPA) pursuant to which Air Canada currently purchases substantially all of Air Canada Jazz's fleet capacity based on predetermined rates. Air Canada Jazz provides all crews, airframe maintenance and, in some cases, airport operations. In turn, Air Canada determines routes and controls scheduling, ticket prices, product distribution, seat inventories, marketing and advertising for these flights. Air Canada Jazz is not a typical airline. Currently, over 99% of Air Canada Jazz's revenues are derived from the CPA. Air Canada Jazz is isolated from most of the risks typically associated with airlines such as fuel and navigation costs since these costs are passed through to Air Canada. Under the CPA with Air Canada, Air Canada Jazz provides service to and from lower density markets as well as higher density markets at off-peak times throughout Canada and to and from certain destinations in the United States. As of February 1, 2007, Air Canada Jazz operated scheduled passenger service on behalf of Air Canada with approximately 802 departures per weekday to 56 destinations in Canada and 29 destinations in the United States with a fleet of 135 aircraft. Air Canada Jazz is the focal point of Air Canada's regional passenger strategy. Air Canada Jazz and Air Canada have linked their regional and mainline networks in order to serve connecting passengers more efficiently and to provide valuable feed traffic to Air Canada's mainline routes.
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For further information: Media Contacts: Manon Stuart, (902) 873-5054, Halifax; Debra Williams (519) 659-5696, London; www.flyjazz.ca