Net Income of $39 million HALIFAX, Nov. 9 /CNW/ - Today, Jazz Air Income Fund (TSX: JAZ.UN) ("Jazz Air Fund") announced that commencing January 1, 2007, the Trustees of the Fund have approved an increase in monthly cash distributions to unitholders from the current level of $0.0729 per fund unit, equivalent to $0.875 on an annualized basis, to $0.0838 per fund unit, equivalent to $1.00 on an annualized basis, representing an increase of 15%. It is expected that the first cash distribution with the 15% increase will be paid on February 15, 2007 for unitholders of record at the close of business on January 30, 2007. The decision to increase cash distributions was made in light of Jazz Air LP's ("Air Canada Jazz") continuing strong financial performance. It is expected the Board of Directors of Jazz Air Holding GP Inc. and the Trustees of the Fund will periodically review cash distributions taking into account the current and prospective performance of Air Canada Jazz. Today, Jazz Air Fund also announced the third quarter results of Air Canada Jazz, with a net income of $39.1 million - an improvement of 6.1% over the same quarter in 2005. These results were generated under a Capacity Purchase Agreement (CPA) with Air Canada that became effective January 1, 2006. Jazz Air Fund has a 20.3% ownership interest in Jazz Air LP. Q3 2006 HIGHLIGHTS ------------------ << - Operating revenue of $369.3 million, up 34.7%. - EBITDAR(1) of $79.3 million, up 23.6%. - Operating income of $39.2 million, up 2.9%. - Net income of $39.1 million, up 6.1%. - Distributable cash(1) of $37.0 million. - Unit cost reductions achieved in all expense categories except fuel, which is a pass-through cost to Air Canada, and aircraft rent. >> "While our financial results again demonstrate the stability of our business model and are ahead of plan this quarter, we are focused on opportunities for improvement as our operational performance was challenged by many factors," said Joseph Randell, President and Chief Executive Officer of Air Canada Jazz. "Further, the increase in cash distributions effective January 1, 2007 is a testament of our confidence in the strength of our business." Financial Performance --------------------- For the third quarter of 2006, operating revenue was $369.3 million, compared to $274.2 million in the same period of 2005, representing an increase of $95.0 million or 34.7%. The increase in revenue is attributable to a net increase of 24 aircraft operated by Jazz, a 25.3% increase in the Block Hours flown and a $50.4 million increase in pass-through costs, including fuel costs which are reimbursed by Air Canada on an at cost basis. For the three-month period ended September 30, 2006, performance incentives payable by Air Canada to Air Canada Jazz under the CPA amounted to $1.6 million or 0.7% of Jazz's Scheduled Flights Revenue as compared to $3.4 million or 1.9% for the same period in 2005. The decrease is the result of Jazz's lower achievement level of performance targets set out in the CPA. Performance is expected to recover in the last quarter of this year. Year over year for the third quarter, other revenue increased from $2.1 million to $2.3 million ($0.4 million of which relates to operations covered under the CPA). Other revenue is derived from charter flights, maintenance, repair and overhaul (MRO) operation and other sources of revenue such as groundhandling services and flight simulator revenue. Jazz continues to focus on developing its other revenue and believes that it is well equipped to expand its charter operations with the fleet becoming fully operational. In line with the growth in revenue, total operating expenses increased by $93.9 million or 39.8% compared to the third quarter of 2005. Pass-through fuel expense to Air Canada increased by $33.0 million or 63.2% due to an increase of $8.6 million in the price of fuel and a $24.4 million increase in fuel usage which results from the 25.3% increase in Block Hours flown. Aircraft rent increased by $13.1 million or 59.5% over the third quarter mainly due to the six CRJ-200s, three CRJ-705s and nineteen CRJ-100s that were received in September 2005 to September 2006, which accounted for approximately $15.4 million of the variance. The aircraft rent expenses were offset by the termination of four Dash 8 operating aircraft leases of $0.6 million and foreign exchange gain of $1.7 million. These cost increases, fuel and aircraft rent, account for 49.0% of the total increase in operating expenses for the period. Capacity, as measured by available seat miles (ASM), increased by 46.4%. Costs per available seat mile (CASM), as measured by operating expenses per ASM, decreased by 4.3%. Unit cost reductions were achieved in all expense categories except fuel and aircraft rent. For the third quarter of 2006, EBITDAR was $79.3 million compared to $64.2 million in the third quarter 2005, an increase of $15.1 million or 23.6%. This improvement was achieved through increased capacity and cost control. The operating income of $39.2 million represents an improvement of $1.1 million or 2.9%. In the quarter, estimated distributable cash was $37.0 million. In the third quarter of 2006, non-operating expenses amounted to $0.1 million, a decrease of $1.1 million from 2005. The cost savings are mainly due to the restructuring of long-term debt of Air Canada Jazz after the initial public offering of Jazz Air Fund and increased interest income from short term investments, offset by a gain on disposal of fixed assets in the prior period. Net income for the third quarter was $39.1 million compared to $36.8 million recorded in the third quarter last year, an improvement of $2.3 million or 6.1%. As outlined above, the increase is due to the larger fleet and effective cost control. Air Canada Jazz's and Jazz Air Fund's unaudited interim consolidated financial statements for the period ended September 30, 2006 and accompanying Management's Discussion and Analysis (MD&A) are available on Air Canada Jazz's website www.flyjazz.ca and at www.sedar.com. A copy may also be obtained on request by contacting Air Canada Jazz's Investor Relations at: investorsinfo(at)flyjazz.ca or (902) 873-5000. Recent Events ------------- Proposed Legislation Change for Income Trusts On October 31, 2006, federal Finance Minister Jim Flaherty announced proposed legislation to change the tax rules governing income trusts. Jazz continues to assess the full implications of this proposed legislation. People For the year-to-date ended September 30, 2006, Jazz had an average of 4,102 full time equivalent (FTE) employees compared to an average of 3,509 FTE employees in 2005. This reflects a 16.9% increase over the same period of 2005. The increase in the number of employees is due to growth in the fleet and capacity as measured by ASMs. Specifically, departments such as In-flight Services, Flight Operations, and Maintenance and Engineering grew by 31.7%, 19.7% and 11.8% respectively. Management carefully monitors growth and these employment increases are considered appropriate with capacity growth of 62.2% as measured by ASMs year to date, resulting in a 38.8% improvement in ASMs per employee compared to the prior year. Wage Reviews with Teamsters Canada and Canadian Air Line Dispatchers Association Negotiations with Teamsters Canada, who represent approximately 740 flight attendants, began in early August 2006 and Arbitrator Michel Picher released his wage re-opener award on October 31, 2006. Aside from modest fixed adjustments to the scales applicable to employees hired after July 31, 2003, Mr. Picher's award granted Teamsters-represented employees a 1.00% wage increase effective June 1, 2006, 1.75% effective June 1, 2007 and 1.75% effective June 1, 2008. Picher's award also resolved the outstanding issue of profit sharing for the flight attendants represented by Teamsters Canada, who are now eligible to receive the full profit sharing payout. In July, Arbitrator Michel Picher awarded the 1,660 employees represented by the CAW a 1.00% wage increase effective July 2006, 1.75% effective July 2007 and a 1.75 % increase effective July 2008. At that time, Mr. Picher also granted modest fixed adjustments to the scales applicable to CAW-represented employees hired after July 31, 2003. The Canadian Air Line Dispatchers Association (CALDA), which represents the airline's 54 dispatchers, has been in discussion with the Company, but has yet to conclude an agreement. Focus remains on concluding a final agreement by year end. There are no other collective bargaining units to be reviewed. Cost Savings Initiative Continuous improvement through the employment of Six Sigma methodology and cost savings remain a major focus at Air Canada Jazz. This is evidenced by the fact that costs per ASM decreased by 11.5%, or 14.3% when fuel is excluded, from the prior year. Cost savings achieved year-to-date in both the controllable and pass through categories include; but are not limited to, ensuring controlled and efficient growth in staff levels, reductions in space at many airports as leases are renewed and improvements in airport operations. Although fuel is a pass through cost under the CPA, Air Canada Jazz has also initiated an internal team to develop fuel efficiency programs. Some of these initiatives include better fuel-tankering procedures, increased aircraft towing instead of taxing to and from gates at major bases, and galley weight reductions. Quarterly Investor Conference Call / Audio Webcast -------------------------------------------------- Air Canada Jazz will hold an analyst call at 12:30 p.m. ET on Friday, November 10, 2006 to discuss the third quarter results of Jazz Air Fund and Jazz Air LP. The call may be accessed by dialing 1-866-249-2157 (toll free) or (416) 644-3427 within the Toronto area. The call will be simultaneously audio webcast at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal sign)1639660 The conference call webcast will be archived on Air Canada Jazz's investor relations website at www.flyjazz.ca. A playback of the call can also be accessed until midnight ET, Friday, November 17, 2006 by dialing 1-877- 289-8525 (toll free) or (416) 640-1917 within the Toronto area and passcode 21207655(pound key). (1) Non-GAAP Financial Measures EBITDAR EBITDAR (earnings before interest, taxes, depreciation, amortization and obsolescence and aircraft rent) is a non-GAAP financial measure commonly used in the airline industry to view operating results before aircraft rent and ownership costs, including the impact of foreign exchange on monetary items as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and asset acquisitions. EBITDAR is not a recognized measure for financial statement presentation under GAAP, does not have a standardized meaning and is therefore not comparable to similar measures presented by other public entities. Readers should refer to Air Canada Jazz's and Jazz Air Fund's Management Discussion and Analysis for a reconciliation of EBITDAR to operating income (loss). DISTRIBUTABLE CASH Cash available for distributions or distributable cash is a non-GAAP measure generally used by Canadian open-ended trusts as an indication of financial performance. It should not been seen as a measurement of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. Cash available for distributions may differ from similar calculations as reported by other entities and, accordingly, may not be comparable to cash available for distributions as reported by such entities. Readers should refer to Air Canada Jazz's and Jazz Air Fund's Management Discussion and Analysis for a reconciliation of distributable cash to cash provided by operating activities. CAUTION REGARDING FORWARD-LOOKING INFORMATION --------------------------------------------- Certain statements in this news release may contain statements which are forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Such statements may involve but are not limited to comments with respect to strategies, expectations, planned operations or future actions. Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements to differ materially from those expressed in the forward-looking statements. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, energy prices, general industry, market and economic conditions, war, terrorist attacks, changes in demand due to the seasonal nature of the business, the ability to reduce operating costs and employee counts, employee relations, labour negotiations or disputes, restructuring, pension issues, currency exchange and interest rates, changes in laws, adverse regulatory developments or proceedings, pending and future litigation and actions by third parties, as well as the factors identified throughout Air Canada Jazz's filings with securities regulators in Canada and in particular those identified in the Risk Factors section of Jazz Air Limited Partnership 2005 MD&A dated March 16, 2006.The forward-looking statements contained in this discussion represent Air Canada Jazz's expectations as of November 9, 2006, and are subject to change after such date. However, Air Canada Jazz disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. About Jazz Air Income Fund Jazz Air Income Fund is an unincorporated, open-ended trust established under the laws of the Province of Ontario, created to indirectly acquire and hold an interest in the outstanding limited partnership units of Jazz Air LP. About Jazz Air LP Jazz Air LP (Air Canada Jazz) is the second largest airline in Canada based on fleet size and the number of routes operated. Air Canada Jazz operates more flights and flies to more Canadian destinations than any other Canadian carrier. Air Canada Jazz forms an integral part of Air Canada's domestic and transborder market presence and strategy. Air Canada Jazz and Air Canada are parties to a Capacity Purchase Agreement (CPA) pursuant to which Air Canada currently purchases substantially all of Air Canada Jazz's fleet capacity based on predetermined rates. Air Canada Jazz provides all crews, airframe maintenance and, in some cases, airport operations. In turn, Air Canada determines routes and controls scheduling, ticket prices, product distribution, seat inventories, marketing and advertising for these flights. Air Canada Jazz is not a typical airline. Currently, over 99% of Air Canada Jazz's revenues are derived from the CPA. Air Canada Jazz is isolated from most of the risks typically associated with airlines such as fuel and navigation costs since these costs are passed-through to Air Canada. Under the CPA with Air Canada, Air Canada Jazz provides service to and from lower density markets as well as higher density markets at off-peak times throughout Canada and to and from certain destinations in the United States. As of November 1, 2006 Air Canada Jazz operated scheduled passenger service on behalf of Air Canada with approximately 797 departures per weekday to 58 destinations in Canada and 28 destinations in the United States with a fleet of 135 aircraft. Air Canada Jazz is the focal point of Air Canada's regional passenger strategy. Air Canada Jazz and Air Canada have linked their regional and mainline networks in order to serve connecting passengers more efficiently and to provide valuable feed traffic to Air Canada's mainline routes.