Chorus Aviation (CHR) M&A Announcement summary

Deal rationale and strategic fit

• Sale of the Regional Aircraft Leasing (RAL) segment, including Falko, for CAD 1.9 billion aims to unlock significant embedded equity value, accelerate value creation for shareholders, and reposition the company for future growth in aviation services.

• The decision follows underperformance of the Falko acquisition and a slower-than-expected transition to an asset-light model, providing flexibility for future growth and faster capital returns.

• The transaction addresses persistent undervaluation in the share price and is executed at a premium to book value, generating incremental value.

• Post-transaction, the company will focus on high-potential aviation services sectors, leveraging operational expertise and recent growth in Jazz, Voyageur, and new ventures like Cygnet.

Financial terms and conditions

• Aggregate sale price is CAD 1.9 billion, with CAD 814 million in cash/net proceeds and CAD 1.1 billion in assumed or prepaid aircraft debt and non-controlling interests.

• Net proceeds per common share are estimated at CAD 4.21.

• Proceeds will eliminate CAD 1.7 billion in financings, including all RAL-related debt, most corporate debt, and Series 1 Preferred Shares.

• Sale price represents a premium to the RAL segment's implied valuation and book value, with a price to book of 0.84x, aligning with industry peers.

• Transaction expected to result in an impairment on discontinued operations of CAD 187 million as at June 30, 2024.

Synergies and expected cost savings

• Annual servicing costs, including preferred share dividends, will be reduced by approximately CAD 58 million.

• Pro forma leverage improves from 3.6x to 1.8x net debt to Adjusted EBITDA, with most remaining debt supported by long-term contracts.

• Pro forma 2023 EPS increases by 17% to CAD 0.35 per share, and return on equity rises by 36%.

• Free cash flow after debt repayments increases by approximately 29%.