Air Canada said that its amended and extended capacity purchase agreement (CPA) with Chorus Aviation Inc., parent company of Jazz Aviation LP (Jazz), has been concluded with all terms and conditions now met. The agreement provides both parties with greater stability and significant cost reductions through a better alignment of their interests.
Calin Rovinescu, president and CEO of Air Canada, said: “This milestone 11-year agreement with Chorus Aviation represents another important step towards sustainable profitable growth. The agreement significantly increases our competitiveness in regional markets through lower unit costs and an improved product offering. The resulting stronger network will support our commercial strategy of expanding internationally and increasing connecting traffic through our hubs.”
Air Canada estimates the new agreement will result in approximately $550 million in financial value over the next six years as compared to the previous CPA, of which two-thirds will be in network optimization benefits. The remaining benefits will be spread across several cost areas. Annual benefits in 2015 are expected to increase operating income by approximately $50 million as Air Canada implements the new CPA, increasing each year throughout the following five years.
The agreement also provides for long-term stability by eliminating the risks, uncertainties and set-up costs of a potential transition to alternative regional providers in 2021. Post 2020, Air Canada expects Jazz will provide competitive costs and continued high service levels.
The new CPA includes:
- Extension of the term by five years to December 31, 2025.
- Establishment of a pilot mobility agreement that provides Jazz pilots with access to pilot vacancies at Air Canada, thus allowing a significant reduction in Jazz operating costs.
- Simplification and modernization of the Jazz fleet which will provide improved service and greater efficiency through the addition of 23 Bombardier Q400 aircraft.
- Reduction in Air Canada and Jazz costs derived from a combination of improved fleet economics, greater network flexibility and reduced operating and labour costs. This supports Air Canada’s cost reduction initiatives.
- Modification of Jazz’s CPA fee structure, moving from a “cost plus” mark-up to a more industry standard fixed fee compensation structure. This will provide more cost certainty and better align the cost reduction goals of both Air Canada and Jazz. This eliminates non-value added costs and the necessity of the 2015 benchmarking exercise.
Go to http://www.aircanada.com for more.