Jazz Air Income Fund announces second quarter 2007 financial results net income of $40.6 million, up 14%
Aug 8, 2007
HALIFAX, Aug. 8 /CNW/ - Today, Jazz Air Income Fund (TSX: JAZ.UN) ("Jazz Air Fund") announced the second quarter 2007 results of Jazz Air LP, with a net income of $40.6 million - an improvement of 14% over the same quarter in 2006. These results were generated under a Capacity Purchase Agreement (CPA) with Air Canada that became effective January 1, 2006. Jazz Air Fund has 100% beneficial ownership interest in Jazz Air LP ("Air Canada Jazz").Q2 2007 HIGHLIGHTS ------------------ - Operating revenue of $375.3 million, up 10.3%. - EBITDAR(1) of $78.5 million, up 2.6%. - Operating income of $39.9 million, up 9.4%. - Net income of $40.6 million, up 14%. - Distributable cash(1) of $41.1 million."I am pleased with our earnings results for the second quarter of 2007," said Joseph Randell, President and Chief Executive Officer of Air Canada Jazz. "The investments we have made in information technology, maintenance infrastructure and our focus on service excellence have all positively contributed to our operational and financial performance. I am also encouraged by our continued process improvements and cost containment achievements as evidenced by an approximate six percent reduction in Controllable Cost per Available Seat Mile this quarter." Financial Performance --------------------- For the second quarter of 2007, operating revenue was $375.3 million, compared to $340.1 million in the same period of 2006, representing an increase of $35.2 million or 10.3%. The increase in operating revenue is attributable to an increase of 13.1% in the Block Hours flown and a $17.1 million increase in pass-through costs. For the three-month period ended June 30, 2007, performance incentives payable by Air Canada to Air Canada Jazz under the CPA amounted to $4.6 million or 2.0% of Jazz's Scheduled Flights Revenue as compared to $4.7 million or 2.2% for the same period in 2006. Year over year for the second quarter, other revenue sources increased from $1.6 million to $2.3 million. In line with the growth in revenue, total operating expenses increased from $303.7 million in the second quarter of 2006 to $335.4 million for the same period in 2007, an increase of $31.7 million or 10.5%. Pass-through fuel expense increased by $10.1 million or 14.2% due to an $11.8 million increase in fuel usage which corresponds to the 13.1% increase in Block Hours flown. Aircraft rent decreased by approximately $0.6 million or 1.8% over the previous second quarter mainly due to U.S. Dollar exchanges rate and new lease arrangements with respect to certain aircraft. Capacity, as measured by available seat miles (ASM), increased by 15.1%. Controllable Costs per Available Seat Mile decreased by 6.1% in the second quarter of 2007 from the second quarter of 2006. For the second quarter of 2007, EBITDAR was $78.5 million compared to $76.5 million in the second quarter 2006, an increase of $2.0 million or 2.6%. This improvement was achieved through increased capacity. The operating income of $39.9 million represents an improvement of $3.4 million or 9.4%. In the quarter, distributable cash was $41.1 million. In the second quarter of 2007, non-operating income amounted to $0.6 million, an increase of $1.6 million from 2006. The change is mainly due to an increase in interest revenue from short-term investments and favorable fluctuations in the monthly exchange rate. The Controllable Adjusted Actual Margin for the second quarter of 2007 was 14.89%, which is over the target of 14.09% by 80 basis points or approximately $1.8 million. This compares to the second quarter of 2006 margin of 14.61% which was approximately $1.2 million better than the target of 14.09%. Net income for the second quarter was $40.6 million compared to $35.6 million recorded in the second quarter last year, an improvement of $5.0 million or 14.0%. On May 24, 2007, ACE Aviation Holdings Inc. ('ACE") distributed 12,000,000 units of Jazz Air Fund to its shareholders through a special distribution. Immediately following this distribution, ACE's ownership of Jazz Air Fund went from 58.8% to 49.0%. As a result of the May 24, 2007 transaction, Air Canada Jazz is now consolidated, as a variable interest entity in the accounts of Jazz Air Fund and accordingly, as of May 24, 2007, Jazz Air Fund has changed its basis of accounting for its investment in Air Canada Jazz from the equity method to consolidation. Under the provisions of Bill C-52, Budget Implementation Act, 2007, which received Royal Assent on June 22, 2007, Jazz Air Fund, as a publicly traded income trust, is considered a specified investment flow-through ("SIFT") and will become subject to tax commencing January 1, 2011. Future tax will be assessed based on temporary differences expected to reverse after 2011 at the substantively enacted tax rate for that period of 31.5%. The tax effects of temporary differences that give rise to significant portions of the future tax assets and future tax liabilities at June 30, 2007 is a net $60.8 million liability and expected to reverse in 2011. Air Canada Jazz's and Jazz Air Fund's unaudited interim consolidated financial statements for the period ended June 30, 2007, 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 period ended June 30, 2007, Jazz had an average of 4,405 full time equivalent (FTE) employees compared to an average of 4,032 FTE employees in 2006. This reflects a 9.3% increase from the first six months of 2006. Management carefully monitors growth and these employment increases are considered appropriate with capacity growth of 14.1% as measured by ASMs. Wage Reviews with Canadian Air Line Dispatchers Association Arbitrator Martin Teplitsky released his wage review award for the dispatchers represented by the Canadian Air Line Dispatchers Association (CALDA). Aside from fixed adjustments to the scales applicable to employees hired after July 31, 2003, Mr. Teplitsky's award granted CALDA-represented employees a 1.5% wage increase effective August 1, 2006, 1.5% effective August 1, 2007, and 1.5% effective August 1, 2008. Quarterly Investor Conference Call / Audio Webcast -------------------------------------------------- Air Canada Jazz will hold an analyst call at 12:30 p.m. ET on Thursday, August 9, 2007, to discuss the second quarter results of Jazz Air Fund and Jazz Air LP. The call may be accessed by dialing 1-866-250-4909 (toll free) or (416) 644-3433 within the Toronto area. The call will be simultaneously audio webcast http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1944360 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, August 16, 2007, by dialing 1-877-289-8525 (toll free) or (416)-640-1917 within the Toronto area and passcode 21241684#. (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 or distributable cash is a non-GAAP measure generally used by Canadian open-ended trusts as an indication of financial performance. It should not been seen as a measurement of liquidity or a substitute 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 cash provided by operating activities. CAUTION REGARDING FORWARD-LOOKING INFORMATION --------------------------------------------- Certain statements in this news release may contain statements which are 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, 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, energy prices, 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 Jazz Air Fund's filings with securities regulators in Canada and in particular those identified in the Risk Factors section of Air Canada Jazz's and Jazz Air Fund's annual MD&A dated February 7, 2007.The forward-looking statements contained in this discussion represent Air Canada Jazz's expectations as of August 8, 2007, 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 except as required under applicable law. 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 some of the risks typically associated with airlines such as fuel and navigation costs since these costs are passed-through to Air Canada. The CPA provides commercial flexibility, low trip costs and connecting network traffic 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 August 1, 2007, Air Canada Jazz operated scheduled passenger service on behalf of Air Canada with approximately 888 departures per weekday to 56 destinations in Canada and 28 destinations in the United States with a fleet of 134 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.
For further information:
For further information: Manon Stuart, (902) 873-5054, Halifax; Debra Williams, (519) 659-5696, London; www.flyjazz.ca