Updated with additional information on CPA

Bombardier has landed a $424 million firm order from Jazz Aviation parent company Chorus Aviation for 13 Q400 turboprops, the manufacturer announced Monday. The deal comes as Chorus and Air Canada prepare to execute a new Air Canada Express capacity purchase agreement (CPA) following Jazz Aviation’s successful negotiation of an 11-year collective bargaining agreement with its pilots. The contract between Chorus and Bombardier also includes options on another 10 Q400s, which, if completely exercised, would increase the value of the deal to $758 million.

“We are transforming Chorus to become a more formidable competitor in the regional aviation industry,” said Chorus president and CEO Joseph Randell. “The time is right to restructure the CPA as it was no longer competitive in the ever-changing regional environment. Significant achievements such as the simplification and modernization of our fleet combined with an industry-leading agreement with our pilots and a new compensation structure under the CPA all serve as catalysts to secure our cornerstone business with our customer Air Canada, and to create incremental value through growth and diversification.”

The new CPA calls for a change in Chorus’s compensation structure from a “cost-plus 12.5 percent markup” to a fixed-fee arrangement. As a result, Chorus earns a fixed fee per aircraft regardless of how much it flies and a fixed infrastructure fee associated with additional support services.

Chorus’s fleet plan calls for the replacement of 34 Dash 8-100s and 25 Bombardier CRJ200s with 23 more 78-seat Q400s over the next 11 years, while its fleet of 26 Dash 8-300s continues to operate until 2025.  The transition gradually reduces the minimum number of aircraft from 122 to 86 over the term of the agreement, which translates to a reduction in overall seat capacity of less than 9 percent by the end of the 11-year period. 

Meanwhile, Chorus plans to divide the business into two operating units “in order to achieve the right economics” with the aging fleet of Dash 8-100s and Dash 8-300s. The first unit, known as Jazz, will maintain a mix of larger, newer aircraft consisting of Q400s, 50-seat CRJ200s and 76-seat CRJ705s. The second airline will fly the older Dash 8-100s and -300s under a different cost structure using its own work force in an arrangement similar to that employed by Air Canada with its Rouge leisure-class product.

Randell thanked the Seabury Group for serving as a strategic advisor for two years and throughout the CPA negotiations. “Our management team and Seabury worked very well together which shows in the final results,” said Randell.

Jazz Aviation Holdings holds all of Chorus’s business interests associated with the CPA with Air Canada, which includes Jazz Aviation (Jazz), Jazz Aircraft Financing (JAFI) and Jazz Leasing (JLI).  JAFI and JLI exist for the sole purpose of acquiring and financing Q400s and related equipment, and leasing them to Jazz for use in the CPA. 

Separately, Chorus and Jazz signed as the launch customer and operator for Bombardier’s first de Havilland Dash 8-300 extended service program designed to increase the life of the 50-seat turboprops from the original 80,000 cycles to 120,000 cycles.

Bombardier plans to accomplish the extended service program through several structural and engineering analyses, applying fatigue and test data accumulated on the Dash 8-300 through a Service Bulletin that refers to a new Maintenance Program Supplement. As launch operator, Jazz expects to incorporate the Service Bulletin and Maintenance Program Supplement and arrange for the replacement of some structural and systems components as identified by the bulletin.

In 2009, Bombardier launched the Dash 8-100 aircraft Extended Service Program alongside Wideroe's Flyveselskap AS of Norway as launch customer for that aircraft type.