Will Chorus Aviation Capital bite on potential GECAS sale?

Roughly a year after after Chorus Aviation outlined plans to establish a regional aircraft leasing arm, the new lessor sees opportunities as larger lessors look to divest their regional aircraft portfolios. Chorus made that conclusion just as GE may be looking to sell all or part of its GECAS leasing business.


Summary:

  • Chorus Aviation Capital is perhaps the boldest of numerous steps for Canada’s Chorus Aviation, parent of Canadian regional airline Jazz Aviation, to diversify its business activities.
  • A significant proportion of the CAD28.9 million rise in Chorus Aviation’s “other” revenue for the 9M ending Sep-2017 is attributable to its new third party leasing business.
  • Chorus Aviation Capital has a fleet of 19 regional aircraft, but sees opportunities to grow as larger lessors look to divest their regional aircraft portfolios.

A significant proportion of the CAD28.9 million rise in Chorus’ “other” revenue for the 9M ending Sep-2017 is attributable to its new third party leasing business.

During 4Q2017 Chorus Aviation Capital aims to maintain a fleet of 19 aircraft in its portfolio leased to the following customers:

  • four CRJ1000s on lease to Air Nostrum;
  • six ATR 72-600 aircraft on lease to Flybe and Virgin Australia;
  • three Bombardier Q400s leased to Falcon Aviation Services;
  • two Embraer 190s on lease to KLM Cityhopper and to Aeromexico Connect
  • two Embraer 195s leased to Azul Brazilian Airlines; and
  • two Embraer 190s leased to Aeromexico

By mid-2018, Chorus Aviation capital aims to grow its portfolio to 34 aircraft.

“We are making progress towards our goal of becoming one of the largest global players focused on regional aircraft”, said Chorus Aviation CEO Joseph Randell. “Regional aircraft leasing is a $10 billion a year market in terms of aircraft being manufactured and delivered. There are approximately 6,000 regional aircraft around the world.”

 

CHART – There are approximately 3,850 regional jet aircraft and 3,350 larger turboprops currently in operation with regional airlines and full service carriersSource: CAPA Fleet Database (data: w/c 04-Dec-2017)

Chorus cites numerous opportunities in the regional aircraft leasing business, including larger lessors looking to divest their fleets of smaller aircraft. “There are a number of opportunities out there right now in that regard”, Mr Randell concluded.

News outlet Reuters has recently reported that GE may be considering a sale of all or part of its GECAS leasing business. GECAS is a major global lessor with 244 customers worldwide, and has a sizeable fleet of regional aircraft. The company’s fleet of 165 regional aircraft spans larger Embraer 190 jets to a single Saab 340 turboprop.

In a recent investor discussion, Mr Randell was not asked to comment directly about GECAS, but was queried about Chorus’ appetite for a potentially large portfolio of regional aircraft available. “The only thing I can tell you is that we will evaluate all these opportunities”, he remarked. “And there are various ways of structuring and doing these things.”

TABLE – The GECAS fleet is dominated by mainline short and long haul equipment, but does include sizeable regional jet numbers, including 70 Embraer EJets and over 50 Bombardier CRJsSource: CAPA Fleet Database

A recent Insights analysis article by CAPA – Centre for Aviation titled ‘Chorus Aviation Capital has clear ambitions to become a major force in regional aircraft leasing‘, said Chorus Aviation Capital was well placed to expand its activities in the leasing market given its experience with regional jet and turboprop equipment.

Chorus Aviation is perhaps the boldest of numerous steps by Chorus Aviation, parent of Canadian regional airline Jazz Aviation, to diversify its business activities away from its major source of revenue – a capacity purchase agreement with Air Canada. Its moves have included the establishment of a third party maintenance business and the 2015 purchase of Voyageur Airways, a company whose primary focus is specialised contract flying.

The CAPA report says Chorus Aviation “deserves credit” for recognising, early on, that solely relying on its partnership with Air Canada was not a long term viable strategy.

“The company has determined there is an opportunity, now that dynamics have shifted in the business of leasing regional jets. Having logged decades as an operator of those aircraft, Chorus has a deep knowledge of inherent opportunities in the regional aircraft sector, and has laid an important foundation positioning itself to create a viable revenue stream from leasing those aircraft to operators worldwide,” it says.