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Chorus Aviation will feel the pressure from coronavirus, this fund manager says

Chorus Aviation

Chorus Aviation
DOUGLAS KEE
How will regional carrier Chorus Aviation (Chorus Aviation Stock Quote, Chart, News TSX:CHR) fare during the coronavirus outbreak? Likely similar to other airline stocks but the end result won’t be too bad, says Douglas Kee of Cardinal Capital.

“If it’s going to affect Air Canada, it’ll affect Chorus to some extent but that’s kind of far out there. Maybe that’s why the stock has come off because of that, because all the airline stocks and travel stocks have been hit,” says Kee, senior vice-president and portfolio manager for Cardinal Capital, who spoke to BNN Bloomberg on Thursday.

“But I can’t imagine it’s going to affect them very much,” he says. “I think that dividend is okay.”

Shares of Chorus Aviation have struggled in recent weeks, along with the rest of the air travel sector, a disappointing turn for a stock that had been on the rise, if slowly, over 2019.

Chorus, which operates as Air Canada’s regional service along with having an aircraft leasing business, got a contract extension from Air Canada last January, which firmed up the company’s future and gave a boost to its share price. CHR climbed 43 per cent in 2019 and had been rising over the first couple of weeks of 2020 before the coronavirus outbreak started impacting the sector.

Earlier this week, Australia’s Qantas and Air France both announced that the outbreak would impact their upcoming quarterly results, with many airlines suspending flights to mainland China and air travellers being more reluctant to book flights into surrounding Asian regions as well.

“Coronavirus resulted in the suspension of our flights to mainland China and we're now seeing some secondary impacts with weaker demand on Hong Kong, Singapore and to a lesser extent Japan,” said Qantas chief executive Alan Joyce to BBC News.

Earlier on Friday, the International Air Transport Association (IATA) released a statement saying that dropping passenger demand related to the coronavirus outbreak would likely cost the airline industry almost $30 billion in lost revenues this year, with the majority of those losses hitting airlines in the Asia Pacific region.

“The sharp downturn in demand as a result of Covid-19 will have a financial impact on airlines – severe for those particularly exposed to the China market,” read the IATA statement. “These estimates are based on a scenario where Covid-19 has a similar V-shaped impact on demand as was experienced during Sars. That was characterised by a six-month period with a sharp decline followed by an equally quick recovery.”

Chorus Aviation released its fourth quarter and full year 2019 financials last week, posting operating revenue for the quarter up 1.5 per cent to $338.6 million and EBITDA down 3.7 per cent to $88.6 million. For the year, Chorus reported $1.366 billion in operating revenue, up 1.0 per cent, and EBITDA of $341.7 million, up 0.3 per cent.

Chorus management called 2019 a “transformative year” for the company, with the signing of the Air Canada deal (the Capacity Purchase Agreement or CPA) and a concerted effort towards expanding its aircraft leasing business.

“We remain confident that we can expand our leasing portfolio by up to 20 aircraft per year funded through a combination of debt and cash from operations. The timing of these future transactions will not occur on a consistent basis; however, we expect the majority will be executed in the second half of this year. The expected growth in aircraft leasing will more than offset planned fixed fee reductions in the CPA in 2020 and beyond,” the company said in a press release.

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