ACE plans to market Jazz as a source of stable income because it effectively serves as a charter airline booked by Air Canada for regional flights. Jazz incurs costs for pilots and planes, but it receives a steady stream of revenue from Air Canada, even if a flight is half empty.
Jazz began charging Air Canada an hourly flying rate on Sept. 30, 2004, when Air Canada emerged from bankruptcy protection.
“Jazz doesn't have to worry about fluctuations in passenger loads. If Jazz runs on a Monday and it's half empty, it's the same fee as if it's full. It has a guarantee of revenue because of a capacity purchase agreement,” an industry source told the Globe and Mail. As part of that pact, Jazz pumps jet fuel into its planes but Air Canada pays those fuel bills.
Jazz had capacity last month of 358 million available seat miles (ASMs), or 40 per cent of WestJet Airlines Ltd.'s capacity of 905 million ASMs. But as a trust, Jazz's $1-billion value on the stock market would be two-thirds the size of WestJet's $1.5-billion valuation of common shares.
Halifax-based Jazz has its roots spread across Canada. In 2002, Jazz emerged as the new name for the merger two years earlier of four regional carriers: Air BC, Canadian Regional Airlines, Air Ontario and Air Nova.
Jazz has 3,700 employees and 119 aircraft, which seat 37 to 75 people. The carrier has been growing rapidly, with its passenger traffic in October up 77.8 per cent from the same month last year.
Jazz CEO Joseph Randell, in a corporate presentation, wrote that Air Canada effectively “buys or rents the capacity flown by the regional carrier.”
Posted by Tom on Monday, November 28, 2005
ACE, the parent of Air Canada, said today it will spin off Jazz into an income trust. AC will get the proceeds of the deal, as well as majority control of Jazz. From the Globe and Mail of Toronto: