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.
MONTREAL and HALIFAX – Air Canada and Jazz Aviation LP, a wholly-owned subsidiary of Chorus Aviation Inc., have reached agreement on an amended and extended capacity purchase agreement 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 Calin Rovinescu, President and Chief Executive Officer of Air Canada. “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.”
“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,” remarked Joe Randell, President and Chief Executive Officer, Jazz and Chorus Aviation Inc. “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 eleven years, and it places Jazz in a more cost competitive position over the longer term. This confidence is shared by Air Canada with the elimination of any future benchmarking process over the term of the contract. The projected economics of the new contract are anticipated to support the Chorus dividend and the long term sustainability of Jazz.”
“I would like to thank the bargaining teams for forging a new pathway forward with Jazz and Air Canada,” said Captain Claude Buraglia, Chairman, Master Executive Council, Air Line Pilots Association. “This long term labour agreement provides competitive terms and secures Jazz’s leading position within the Air Canada network, which will provide certainty for our pilots. This clearly demonstrates the innovative spirit of our pilot group and sets the foundation for a renewed relationship that will benefit all stakeholders.”
The highlights of the new CPA include:
- 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;
- 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; and
- 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.
While it is anticipated that Jazz will achieve similar returns to its current fee structure until 2020, there will be a reduction in the fixed fee compensation structure beginning in 2021. The new CPA affords Chorus the opportunity to provide more Jazz operated aircraft to Air Canada at market rates. Provisions within the new CPA will contribute significantly to ensuring Jazz is a formidable cost competitor in the regional sector over the term of the new CPA, thereby enabling Jazz to bid for new regional flying for Air Canada on a more competitive basis.
Further modernization of the Jazz fleet continues with the addition of 23 Dash 8 Q400 aircraft to gradually replace 34 Bombardier Dash 8-100 and 25 CRJ200 aircraft. The transition to a newer, larger gauge aircraft operation calls for a reduction in the Jazz fleet from 122 to an established minimum guarantee of 101 aircraft by the end of 2020, and 86 aircraft by the end of 2025. The transition to newer and more efficient larger gauge aircraft significantly helps to reduce per seat operating costs. The up-gauging of aircraft results in a reduction of seat capacity of less than 4% by 2020, and is further reduced by less than 9% by 2025.
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 February 1, 2015.
Air Canada and Chorus do not intend to provide further comment pending the successful ratification of the tentative agreement with Jazz pilots.
Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales.
She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.
