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Recently Chorus Aviation completed a deal with Air Nostrum,a subsidiary of Iberia Airlines, to lease 4 CRJ 1000 aircraft.Financing was obtained from Export Development Corporation (EDC).This was followed up with a deal with Fairfax Investment that saw Fairfax lend $200 million to a new subsidiary called Chorus Aviation Capital.Chorus Aviation Capital will buy regional aircraft and lease them to third parties at a very competitive price.In the past Chorus has leased only Bombardier regional aircraft to third parties-either Q400 or the CRJ aircraft.However this is a new venture and this subsidiary is not likely to have substantial earnings in 2016. On January14 it made another solid move.It announced that it had extended it's Smart Parts agreement with Bombardier to provide longer term support for more than 150 Q400 and C series aircraft to 2025.Chorus had an agreement with Bombardier before only for Dash-8s and Q400s.Likely this agreement will be done with their Voyageur Avparts subsidiary.Of interest is that it appears that much of the parts and equipment are being provided by Bombardier. This ,at first blush, seems to be quite profitable for Chorus. The Smart Parts operation will be setup at three airports and Chorus only has a maintenance operation in Halifax.This blog predicts that Voyageur Avparts will have a small but positive EBITDA in 2016.
Voyageur and Air Canada Express
These are the two subsidiaries that are hardest to predict in terms of performance.Chorus has just put more regional aircraft into their Air Canada Express operation in the last quarter.Chorus already had (with Georgian Air Lines) 141 of 170 aircraft in the start of 2016.And it has added 5 to 10 new aircraft in the second half of 2016.Chorus has also added aircraft to Voyageur Airways a completely owned subsidiary that does special charters.It does medical and engineering charters to other continents.This blog predicts Voyageur Airways will have an increase in revenues and earnings and adjusted EBITDA for 2016.It was about $20 million for the first half and may hit $30 to $35 million for the year.This may compensate(at least partly) for the reduction in expected revenues and earnings from the CPA agreement with Air Canada.
The Bottom Line
The important question is what impact will this have on Chorus total adjusted EBITDA.This blog predicts adjusted EBITDA of $235 to $250 million or earnings of about $1.95 to $2.05 per share.There will likely be a drop in revenues from their CPA agreement with Air Canada and offset by earnings from Voyageur and a small increase from Voyageur Avparts.Charter earnings will be up as will earnings from Air Canada Express.The wild card in the earnings prediction will be from Air Canada Express.They are too many variables here but this blog sees an increase from the third quarter results.So $240 million seems likely and this will put the P/E ratio at about 3 to 4 times.If these predictions are close to being accurate then can a dividend increase be faraway?
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Algonquin Power recently completed the acquisition of Empire District Electric,a supplier of water, natural gas and electricity originating from Joplin, Missouri.This took a lot of time and a lot of work and the final cost was U.S. $3.2 Billion (including $.9 billion debt).In an earlier press release AQN said they intend to spend another U.S$ 2.0Billion on renovations.Algonquin adds that this addition will allow it to bring economies of scale to it's American operations.It will also bring a 7to 9% accretion to AQN 2017 earnings.
Financing Details
Many investors thought Algonquin would never be able to complete this transaction.It would be "close but no Empire". However Algonquin says that this yearlong transaction will close in the first quarter of 2017.There are several steps involved in doing this.The transaction will be funded by $1.6 Billion in bridge debt financing from 4 banks including 2 Canadian banks.But permanent financing will be obtained by placements of common
equity,preferred equity,convertible debentures and long term debt.
Algonquin issued a large number of installment receipts that traded on the TSX.Notice to holders of the installment receipts was given that the final installment will be paid in no more than 90 days and no less than 15 days.Final payment is due on February2,2017.The final payment is significant at $667 per $1000.Algonquin says that holders can convert at a maximum 2.5% of their outstanding shares.
The Art of the Deal
This is a significant milestone for Algonquin as now their power generating capacity is at 2.5 GW.Investors will be upset temporarily that so many common shares will be offered at a price of $10.60.But shareholders may convert only 1 to 2 % of their float as some conversion may not happen.Conversion will dilute existing shares and earnings.But shareholders can be soothed by the fact that this will increase earnings by 7 to 9% in 2017 and by more in the future as AQN starts to reap economies of scale.Most satisfying of all is that Algonquin believes that this transaction will allow them to increase the dividend by 10% for perhaps 2 years. use Workathon for business news ; use Workathon for business news
In Huronia XIII I talked about how better transportation is needed and particularly rail transportation to improve Orangeville's industrial prospects.Huronia XIV will explore this idea in more detail.
Huronia XIII
In the last post in the Huronia series,which was done on Econothon(wordpress),on November 13,2016 it discussed a number of points that are seminal to this post.Firstly of the six main employers in town 4 are related to plastics.That includes Clorox, Roto-Mill,Hoffman Plastics and Sanoh-Nylon.There are plastic manufacturers in nearby Brampton.There is an existing rail line running presently between Brampton and Orangeville.And there is some kind of train terminal at the Sanoh plant.In other words, the groundwork for a plastics industry already exists.
Existing Industrial Plastics Firms
There are a number of smaller plastic's firms as well as the larger ones already mentionned.These include Technicor,P and A Plastics,ICO Mold Plastics.Novolex and Process Engineering in nearby Alliston.These firms all are custom engineering and machining and fabricating plastic products.The products are usually small and often use injection moulding.Most of these firms have 10 to 50 employees and do not have many steady customers.That is because the industry is very cost competitive and a few pennies on each item can cost them their market.And that is why transportation is so important;it can make the difference between having or losing a customer.
The Rail System
There is a rail system in place now ;it is called the Orangeville Brampton Railway (OBRY).OBRY goes from Streetsville (Mississauga) to Brampton and then to Caledon and finally Orangeville.At Streetsville it connects with the CP line and at Brampton it crosses the CN line.A company called Cando operates it and it runs on Tuesdays and Fridays.The main purpose of the rail system is to service several industries between Orangeville and Brampton.It also operates the Credit Valley Explorer which is a passenger service.It easily could be a dedicated rail system for 3 days of the week.But it would need investment in terminals at both ends and better facilities for loading trucks at both ends.This would allow several grades of processed plastic to be delivered to Orangeville from one or two plastic plants in Brampton.
What's Next
Orangeville has to specialize in several small processed plastic products;it cannot compete with bigger fabricaters for large plastic contracts.But it needs to get investment(likely from the provincial or federal government) to improve it's rail system.There may be need of side tracks,interconnections to CP at Streetsville and certainly better terminals with modern truck loading facilities.The likely beneficiaries will be the bigger plants at first like Hoffman and Sanoh Nylon.Down the road they may give subcontracts to smaller firms like Technicor and ICO moldings.
