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TORONTO, May 10 (Reuters) - Chorus Aviation Inc shares sank more than 21 percent on Friday after the contract carrier cut its dividend in half due an ongoing cost dispute with Air Canada, the country's biggest airline.
Chorus said it was chopping its quarterly dividend from 15 Canadian cents per share to 7.5 Canadian cents a share, in order to conserve cash.
The two companies are involved in an arbitration process over cost mark-up. Chorus expressed confidence about its position, but warned that an adverse outcome would result in Chorus owing a significant retroactive payment to Air Canada, dating back to the start of 2010, due to the lengthy arbitration process.
An outcome has been delayed until late 2013.
"The preservation of cash with a lower dividend is probably a prudent move by the company," Cameron Doerksen, an analyst with National Bank Financial, said in a research note, which also pointed to potential risks.
Doerksen, who had previously cautioned that the company's dividend was not sustainable, said "the timing and magnitude of the cut is a surprise."
Under a capacity purchase agreement, Chorus operates 131 aircraft for Air Canada under the Jazz brand. It flies to smaller destinations and to large communities in off-peak hours throughout Canada and into the United States.
Chorus shares were down 21 percent at C$2.89 on the Toronto Stock Exchange at midmorning. This was its lowest level since late 2011. (Reporting by Solarina Ho; Editing by Nick Zieminski)