Chorus Aviation Buys Falko Regional Aircraft

Chorus Aviation (TSE: CHR) has entered into a sale and purchase agreement with Falko Regional Aircraft Limited.

Chorus is a global provider of integrated regional aviation solutions, while Falko is an asset management company actively engaged in all aspects of commercial aircraft leasing, financing and management, with a particular focus on the regional aircraft market.

Under the agreement, one or more wholly owned subsidiaries of Chorus will acquire Falko together with affiliates of Falko, and interests in certain entities and aircraft that are ultimately held by funds managed by Fortress Investment Group LLC and managed by Falko or one of its affiliates.

Creates Leading Full-Service Provider in Regional Aviation

The total consideration for the transaction is approximately $855 million. The transaction includes Falko’s asset management platform and Fortress’ interests in 1,263 owned and managed regional aircraft.

It will create new growth opportunities and a differentiated business model to maximize returns from aircraft assets.

CEO Commentary

Chorus president and CEO Joe Randell said, “The acquisition of Falko is transformative for Chorus, creating a world premier full-service provider in regional aviation. We are extremely pleased to have Brookfield, a well-respected company with global reach, as our strategic cornerstone investor, bringing extensive experience in asset management, fundraising and capital markets. The equity investment is an important endorsement of our strategy and simultaneously reduces leverage. Brookfield’s significant financial strength and transaction expertise provides Chorus with increased stability and support to execute on our strategy to the benefit of all stakeholders. The size and scale of the newly combined entity broadens and enhances market opportunities. Growth through this established asset management platform meaningfully changes Chorus’ risk profile in terms of debt levels, residual value asset risk, and enhanced earnings stability and diversity. This transaction will be accretive to earnings and earnings per share in the first year.”

Wall Street’s Take

On February 17, BMO Capital analyst Fadi Chamoun kept a Buy rating on CHR and raised the price target to C$5.50 (from C$5.25). This implies 26.4% upside potential.

Chamoun said, “Overall guidance was consistent with our expectations and our model is little changed following the results. Management expects Q1/22 flight activity at 50-65% of pre-pandemic levels while Q2/22 is trending at 87%; this is consistent with our expectations for the recovery in air travel as the impact from Omicron seems largely contained to Q1/22. Our price target rises to $5.50 from $5.25 with greater visibility into the air travel recovery, which lowers the risk around our forward estimates.”

The rest of the Street is bullish on CHR with a Strong Buy consensus rating based on five Buys. The average Chorus Aviation price target of C$5.45 implies 26.5% upside potential to current levels.

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