UPDATE 1-Chorus Aviation shares soar on favorable rate ruling

Tue Nov 26, 2013 3:14pm EST
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(Updates with comments from Air Canada and analyst, Air Canada share price)

TORONTO Nov 26 (Reuters) - Shares of Chorus Aviation Inc soared 29 percent on Tuesday after an arbitration panel agreed with the markup rate the company charges as a contract carrier for Air Canada.

Following more than a year of arbitration, Halifax, Nova Scotia-based Chorus said a panel had confirmed there would be no change to its 12.5 percent markup, above the 7 percent to 9.5 percent proposed by Air Canada.

A majority of the panel found there was no reason to change the rate and that Chorus need not make retroactive payments to Air Canada, Chorus said.

The markup rate refers to the premium Chorus is paid for its controllable costs in operating flights for Air Canada.

The decision is "a significant win for Chorus," RBC Capital Markets analyst Walter Spracklin said in a note to clients, adding that Chorus may now consider a dividend increase after halving its annual dividend due to concerns over the arbitration outcome.

"Chorus ... management is fully aware of the competitive pressures in the industry and is working hard at lowering unit costs," he wrote. "Following the resolution, we see Air Canada and Chorus engaging in a more constructive manner."

Chorus operates about 120 aircraft for Air Canada, the country's largest airline, under the Jazz Aviation brand. It flies to smaller destinations and to large communities in off-peak hours throughout Canada and into the United States.

But Chorus may need to negotiate lower rates in exchange for an extension of its operating agreement with Air Canada, or other benefits, said National Bank Financial analyst Cameron Doerkson.   Continued...