Chorus Aviation Inc. is lowering its quarterly dividend as it looks cautiously at ongoing arbitration with Air Canada and the possibility of tens of millions of related costs.
The Halifax-based company operates Jazz aviation, which flies regional flights for Air Canada. Chorus said it is cutting its quarterly dividend in half to 7.5 cents a share from 15 cents a share. That move will help Chorus accumulate $9.3-million in additional cash per quarter in case an arbitration ruling comes in favour of Air Canada, the company said.
The company's stock sank 17 per cent or 64 cents to $3.02 in Toronto following the announcement.
Air Canada is looking to reduce costs and lower the mark-up rate Chorus charges for its services to 9.5 per cent, from the current 12.5 per cent. Chorus said it doesn't believe Air Canada will succeed in its case.
"However, in any litigation process, there is always some risk of an adverse outcome," the company warned. "The longer this process continues without resolution, the larger the amount of any potential retroactive payment."
Walter Spracklin of RBC Capital Markets estimates that potential payments could reach $85-million, if Air Canada wins its case. "However, Chorus currently has more than $118-million in available cash and can easily fund a retroactive payment of this magnitude," Mr. Spracklin added.
Chorus noted, though, that it also has $80.2-million in convertible debt coming due in December next year. "As a result, Chorus believes that strengthening its cash position during this period is prudent," the company said.
After the close of markets on Thursday, Chorus announced that operating revenue fell to $416.3-million in the first quarter from $437.1-million in the same period last year. Quarterly net income dropped to $9.2-million, or 7 cents a share, from $26.2-million, or 21 cents a year earlier.
Chorus' president and chief executive officer Joseph Randell added to the cautious tone by saying that "the regional airline industry is changing dramatically both here and south of the border. Competition is increasing significantly. We must continue in our efforts to reduce costs, strengthen the fundamentals of our business and improve our financial position, to ensure we have the flexibility required to effectively respond and compete in our ever-changing markets."