Air Canada (Montreal) and Jazz Aviation LP (Halifax), a wholly-owned subsidiary of Chorus Aviation Inc., have reached agreement on an amended and extended capacity purchase agreement (CPA) 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 (‘ALPA’), and approvals by the respective Boards.

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 Bombardier Q400 aircraft to gradually replace 34 Bombardier DHC-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.

In related news, Jazz Aviation announced that a new tentative agreement has been reached with the Air Line Pilots Association (ALPA) who represents Jazz pilots. The proposed term of this tentative agreement is 11 years expiring on December 31, 2025, and is consistent with the term of the amended CPA announced today with Air Canada. The new labor agreement is subject to ratification by the majority of Jazz pilots and the requirements of a pilot mobility agreement being met. Details of the agreement will not be released pending ratification which is expected to be completed by February 1, 2015.

Copyright Photo: Chris Sands/AirlinersGallery.com. Jazz Aviation’s Bombardier DHC-8-402 (Q400) C-GGNW (msn 4388) departs from Calgary.

Air Canada Regional-Jazz Aviation aircraft slide show:

Routes operated by Jazz for Air Canada: