Air Canada and Jazz Aviation have reached an agreement on an amended and extended capacity purchase agreement (CPA) which provides for “significant cost reductions for both parties, strengthens the relationship and better aligns their interests over the long term.”
The new CPA is subject to a number of terms and conditions, including the ratification of a new tentative agreement reached between Jazz and its pilots, represented by the Air Line Pilots Association and approvals by the respective boards.
“Our restructured capacity purchase agreement with Jazz represents another important milestone in Air Canada’s ongoing cost reduction initiatives and the execution of our commercial strategy,” said Air Canada president Calin Rovinescu. “The agreement better aligns the interests of both companies and the resulting fleet, operational and cost efficiencies will allow Air Canada to compete more effectively in regional markets, improve our product and service offerings and generate connecting traffic to support our growing international network.”
Joe Randell, president, Jazz and Chorus Aviation Inc., commented, “We are pleased to have reached new agreements that strengthen our competitive position in regional markets and our relationship with Air Canada for the long term. We are aligned with Air Canada in terms of cost reduction and operational efficiency gains. While we have made significant progress in our cost reduction efforts, this improved contract will allow us to further address our cost challenges. I’m confident we will deliver additional value to our stakeholders as there is certainty of Jazz’s operations for the next 11 years, and it places Jazz in a more cost competitive position over the longer term.”
Highlights of the new CPA include:
- Extension of the term by five years to Dec. 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;
- 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.
The new CPA is subject to respective board approvals, the ratification of the pilot tentative agreement, and all requirements of the pilot mobility agreement being met. It is anticipated that all such approvals should be obtained by Feb. 1.