07.29
Jazz Air Income Fund and Air Canada announced they had come to an
agreement to amend the Capacity Purchase Agreement between them
effective August 1, 2009. The agreement is subject to Air Canada securing
$600 million in new financing and other conditions.
There are a number of changes to the CPA including an extension to 2020,
more formal language on block hour targets, changes to controllable
margins and a plan for fleet renewal to begin in 2011. We estimate the
savings to Air Canada are approximately $40 million in 2010.
With the CPA modified, Jazz is reducing distributions by 41% annualized
effective September 2009. Distributions will fall from the current $1.01 to
$0.60 on an annualized basis. The change will save Jazz approximately $50
million per year, lowering the 2010 payout ratio to 59.7%.
With the disclosure, the uncertainty surrounding the possibility of a filing by
Air Canada is lessened and much greater clarity around the long-term
prospects for Jazz has been gained.
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