Mr. Joseph Randell reports

CHORUS AVIATION ISSUES FIRST QUARTER 2013 EARNINGS AND REVISES ITS DIVIDEND

Chorus Aviation Inc. has released its first quarter 2013 earnings, and is revising its quarterly dividend to 7.5 cents per share from 15 cents per share.

First quarter 2013 highlights

• Operating revenue of $416.3-million;
• EBITDA (earnings before interest, taxes, depreciation and amortization) of $34.2-million;
• Operating income of $20.8-million;
• Net income of $9.2-million, or seven cents per basic share;
• Adjusted net income of $14.7-million, or 12 cents per basic share;
• Billable block hours of 97,202.

"The first quarter delivered solid results; however, two items negatively impacted the bottom line," said Joseph Randell, president and chief executive officer of Chorus. "In our continued efforts to improve operational efficiency and to reduce costs, we enacted a voluntary separation program for our more senior pilots and maintenance employees. The severance cost of $5.7-million will provide a return within the next two years as ongoing operational costs are reduced. This expense, when factored with the unrealized foreign exchange loss of $5.6-million into the adjusted net income for the quarter, increases earnings per share to the current market consensus of 17 cents per basic share."

Dividend

Chorus and Air Canada are involved in a continuing complex arbitration process regarding the 2009 benchmark. Chorus remains confident in its position that the controllable mark-up of 12.5 per cent in the capacity purchase agreement (CPA) should not change as a result of the arbitration. Accordingly, no amounts have been recorded in the accounts of Chorus in 2010, 2011, 2012 or 2013 related to the Air Canada claim. Management has determined that it is not probable that the Air Canada claim will be successful, and it is not practicable to determine an estimate of the possible financial effect, if any, with sufficient reliability.

However, in any litigation process, there is always some risk of an adverse outcome. This risk, combined with the extended duration of the arbitration, has created the risk of a material retroactive amount owing to Air Canada for the period commencing Jan. 1, 2010, should Air Canada succeed in its claim for a material fleet-age adjustment in its favour. The longer this process continues without resolution, the larger the amount of any potential retroactive payment.

In addition, Chorus's $80.2-million convertible debentures come due in December, 2014. Chorus anticipates that an increase in liquidity will provide increased flexibility in addressing the maturity of those debentures, in the context of challenging conditions for the airline industry and global economic uncertainty. Those debentures, issued in November, 2009, were used to pay part of the term debt of $115-million, which was established at the time of the Chorus initial public offering in 2006 and matured in February, 2010. As a result, Chorus believes that strengthening its cash position during this period is prudent.

Chorus will continue to manage its financial leverage ratios, such as its adjusted-net-debt-to-equity ratio, which has increased as a result of the financing of its new Q400 aircraft fleet. Such continued accretive investment in fleet renewal may occur either through refurbishment of the classic Dash 8-100 and Dash 8-300 series of aircraft or further investment in new-generation aircraft.

In consideration of these factors, Chorus has reduced its quarterly dividend from 15 cents per share to 7.5 cents per share going forward. This will enable Chorus to retain additional cash of $9.3-million per quarter.

While Chorus has current cash available to pay the dividend at the previous rate, the board of directors has determined that, given the factors discussed above, it is prudent and advisable to conserve Chorus's financial resources.

"We have and continue to prudently manage our financial resources," continued Mr. Randell. "The regional airline industry is changing dramatically both here and south of the border. Competition is increasing significantly. We must continue in our efforts to reduce costs, strengthen the fundamentals of our business and improve our financial position to ensure we have the flexibility required to effectively respond and compete in our ever-changing markets."

The board of directors will continue to assess the dividend payment on a continuing basis.

Financial performance -- first quarter 2013 compared with first quarter 2012

Operating revenue decreased from $437.1-million to $416.3-million, representing a decrease of $20.8-million or 4.8 per cent. Passenger revenue, excluding pass-through costs, decreased by $6.4-million or 2.5 per cent, primarily as a result of no activity in the quarter for Thomas Cook, offset by rate increases made pursuant to the CPA with Air Canada, an increase in billable block hours of 0.8 per cent, a $200,000 increase in incentives earned under the CPA and a higher U.S.-dollar exchange rate. Pass-through costs decreased from $176.7-million to $162-million, a decrease of $14.7-million or 8.3 per cent, which included a decrease of $1.8-million related to fuel costs. Other revenue increased by $200,000.

Operating expenses decreased from $407.4-million to $395.5-million, a decrease of $12-million or 2.9 per cent. Controllable costs increased by $2.7-million, or 1.2 per cent, offset by a decrease in pass-through costs of $14.7-million.

Salaries, wages and benefits increased by $3.1-million, primarily as a result of voluntary employee severance costs related to flight crew and maintenance employees, wage and scale increases under new collective agreements, and increased pension expense resulting from a revised actuarial valuation, offset by a reduction in the number of full-time-equivalent employees and higher capitalized salaries and wages related to major maintenance overhauls.

Depreciation and amortization expense increased by $500,000, primarily related to the purchase of Q400 aircraft, increased capital expenditures on aircraft rotable parts and other equipment, and increased major maintenance overhauls, offset by certain assets having reached full amortization and a change in estimate related to the residual value of the Dash 8-100 and -300 aircraft.

Aircraft maintenance expense decreased by $2.4-million as a result of a $4.6-million reduction related to no activity for Thomas Cook, offset by an increase in engine maintenance activity due to engine charges for the CRJ705 and Dash 8-300 aircraft of $1.2-million, increased other maintenance costs of $500,000, and an increase in the U.S.-dollar exchange rate on certain material purchases of $500,000.

Aircraft rent decreased by $5.4-million primarily as a result of no expense in the quarter for Thomas Cook aircraft and the return of CRJ aircraft.

Other expenses increased by $1.3-million primarily due to increased professional fees, increased travel and training costs associated with the Q400 aircraft, and increased general overhead expenses.

Non-operating expenses increased by $9-million. This change was mainly attributable to an increase in foreign exchange of $8.8-million (of which $8.9-million was related to an increase in unrealized foreign exchange loss on long-term debt and finance leases) and increased interest expense related to Q400 aircraft financing of $1-million, offset by $800,000 in other income related to a government grant.

EBITDA was $34.2-million, compared with $42.6-million in 2012, a decrease of $8.4-million or 19.6 per cent, producing an EBITDA margin of 8.2 per cent. Standardized free cash flow was negative $110.9-million, affected primarily by the continuing growth capital expenditures related to the purchase of Q400 aircraft.

Operating income of $20.8-million was down $8.8-million or 29.7 per cent from $29.6-million in the first quarter of 2012.

Net income for the first quarter of 2013 was $9.2-million or seven cents per basic share, a decrease of $17-million or 64.9 per cent from $26.2-million or 21 cents per basic share. On an adjusted basis, net income was $14.7-million or 12 cents per basic share, a decrease of 35.4 per cent or six cents per basic share from $22.8-million or 18 cents per basic share.

Chorus's unaudited interim condensed consolidated financial statements for the period ended March 31, 2013, and accompanying management's discussion and analysis (MD&A) are available on the company's website and on SEDAR. A copy may also be obtained on request by contacting investor relations by e-mail or at 902-873-5094.

Investor conference call/audio webcast

Chorus will hold an analyst call at 11 a.m. ET on Friday, May 10, 2013, to discuss the first quarter 2013 results. The call may be accessed by dialling 1-888-231-8191. The call will be simultaneously audio webcast in the investor relations section of Chorus's website. This is a listen-in-only audio webcast. Media Player or Real Player is required to listen to the broadcast; please download well in advance of the call.

The conference call webcast will be archived on Chorus's investor relations website. A playback of the call can also be accessed until 12 a.m. ET, May 17, 2013, by dialling 416-849-0833 or toll-free 1-855-859-2056 (passcode 34548114 followed by the pound sign).

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