Jazz Air Income Fund is changing its model with the proposed conversion from an income trust to a corporate structure, while Jazz Air is diversifying its operations with 757s services and operational support for Uruguay's Pluna.
Under the conversion plan, units of the Jazz Air Income Fund will be exchanged for shares in the capital of a new public corporation, Chorus Aviation and the Fund's obligations with respect to its outstanding convertible debentures will be assumed by Chorus. The arrangement will result in the exchange of Units held by unitholders who are Canadians, for Class B voting shares in the capital of Chorus on a one-for-one basis and the exchange of Units held by unitholders who are not qualified Canadians for Class A variable voting shares in the capital of Chorus on a one-for-one basis. The planned dividend policy of C$0.60 per Chorus share annually represents a C$0.43 after-tax income for the retail taxable investors (assumes average marginal tax rate of Quebec and Ontario) versus the C$0.32 after-tax equivalent income under the income trust structure, a 34% increase in after tax income for the same investors.
Earlier this week at the US Valuation conference President & CEO Joseph Randell confirmed that the Fund is holding a special meeting of unitholders on 9 November 2010 to consider and approve the arrangement, which is expected to be completed on 31 December 2010.
Randell said the Fund is debt free, with a clean balance sheet with convertibles outstanding. The company posted a C$15.6 million net income in the second quarter of this year and generates positive cash flows.
Randell says that the Fund is C$180 million in fair market value of unencumbered fixed assets, available to secure future financing.
"The conversion of the Fund to a new public corporation is a significant step in the evolution of our business, supporting our objectives of growth and diversification" comments Randell.
Jazz Air is in the process of introducing its six Boeing 757-200s with Thomas Cook Airlines to serve the Mexican and Caribbean markets. "The 757s will be oeprated between November and April each year with the term ending 30 April 2015," he says. According to him, Jazz Air Income Fund will benefit from an $100 million in annual additional revenues through the services.
Randell says the contract is compatible with CPA and Air Canada and this initiative signals a diversification of Jazz Air. "It's our time to shine in new markets and we will look further for value-driven opportunities," he comments.
Jazz has also teamed up with Uruguay's Pluna through a $15 million equity investment for a 33.33% direct share in LARAH, which gives the Canadian carrier a 25% stake in Pluna.
"The Uruguayan Government to invest $5 million and maintain current 25% equity stake in the carrier," comments Randell and adds that Jazz sees value and opportunity in Pluna’s niche markets. "Pluna has a solid business plan, with a new airport terminal in Montevideo being a key component to it's future success," he comments.
According to Randell, the Jazz’s experience will help Pluna identify and realize efficiencies with the Canadian carrier providing operational support.