Jazz provides update on Air Canada cost reimbursements

Washington DC
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An arbitration panel has sided with Air Canada in a dispute with Jazz parent Chorus Aviation over the method used to benchmark controllable cost mark-ups.

Air Canada pays the mark-up to Chorus for the controllable costs it incurs while flying for Air Canada under a capacity purchase agreement (CPA).

The arbitration panel says that Air Canada's methodology of using a component unit cost driver is an appropriate way to compare the growth rate of Chorus' controllable costs against those of comparable operators. Those airlines are Pinnacle, Mesa, SkyWest and ExpressJet, Chorus Aviation tells Flightglobal.

Chorus says the arbitration panel agreed to "certain controllable cost adjustments" to be made in favour of Jazz, but did not elaborate. It says that it first must seek clarity from the panel before determining how the results will affect its operations.

"Unfortunately, given the absence of clarity on a number of other issues, we're unable at this time to provide a comprehensive overview of the result with any certainty," says Jazz.

Air Canada and Jazz amended its CPA in 2009, however in 2010 it had not reached an agreement on the benchmark used to compare Jazz's controllable costs with the other operators. The two parties agreed to enter arbitration in February 2011, and in October 2011 Air Canada filed a claim seeking confirmation that its methodology was appropriate.

Under Air Canada's claim, the mark-up to Chorus would fall from 12.5% to 9.54%, which would require Chorus to repay $26 million to the airline for payments starting in 2010.

Chorus brought a counterclaim to the matter a month later, stating that its unit costs should be compared to other operators on a cost per available seat mile basis, which would not require an adjustment on the mark-up until 2015.

The arbitration hearings were conducted in June with a three-member panel. One member dissented.

Air Canada could not be reached for comment.