Good morning. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chorus Aviation Inc. fourth quarter and year-end 2018 earnings analyst call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Ms. Nathalie Megann, Vice President, Investor Relations and Corporate Affairs, you may begin your conference.
Thank you, operator. Hello, and thank you for joining us today for our fourth quarter and year-end 2018 conference call and audio webcast. With me today from Chorus are Joe Randell, President and Chief Executive Officer, and Jolene Mahody, Executive Vice President and Chief Financial Officer. We'll start by giving a brief overview of the results and then go on to questions from the analyst community. Because some of the discussion in this call may be forward-looking, I direct your attention to the caution regarding forward-looking statements and information which are subject to various risks, uncertainties, and assumptions that are included or referenced on page 55 of our management's discussion and analysis of the results and operations of Chorus Aviation Inc. for the period ended December 31, 2018, the outlook section and other sections of our MD&A, where such statements appear.
In addition, some of the following discussions involve certain non-GAAP financial measures, including references to EBITDA, adjusted EBITDA, and adjusted net income. Please refer to Section 18 of our MD&A for a discussion related to the use of such non-GAAP measures. I'll now turn the call over to Joe Randell.
Thank you, Nathalie. Good morning, everyone, and thank you for joining us. I am tremendously pleased with how we ended 2018 and with our start to 2019. On total revenues of CAD 1.5 billion, we generated adjusted EBITDA of CAD 343 million in 2018, a 19.4% increase over 2017. Each of our operations performed well and reached important milestones that strengthen our company. These successes help advance our vision to transform into a worldwide provider of regional aviation services. In January, we announced we had successfully negotiated an amendment and extension to the Capacity Purchase Agreement, revitalizing our strategic partnership with Air Canada and marking a pivotal development in our transformation.
The change has secured Jazz's place in Air Canada's regional network, extending our relationship under the agreement by an additional 10 years out to 2035 and enhancing our relevance to Air Canada as they consolidate more of the regional, overall regional capacity into Jazz. This is the longest-term strategic partnership between Jazz and Air Canada thus far and one of the longest CPAs in the industry, providing long-term certainty for our employees, investors, and other stakeholders. The economics of the agreement are strong for Chorus, with incremental commitments in fixed fees and aircraft leasing revenue of CAD 940 million and operating fleet commitments that create additional future leasing opportunity post 2025. In total, the 17-year contract will provide a minimum of CAD 2.5 billion in contracted revenues, of which CAD 1.6 billion will be generated from aircraft leasing.
For Chorus, the amended CPA and investment by Air Canada support the continued transformation of our business by migrating CPA earnings to aircraft leasing. The CAD 97.26 million equity investment from Air Canada will help us modernize the Jazz fleet with larger aircraft, which lowers per-seat operating costs and addresses a growing trend in the industry. We will use approximately 60% of the investment proceeds to purchase nine new larger-gauge CRJ900s, which in turn will generate additional lease revenue under the CPA. These new aircraft will be delivered in 2020 and will be equipped with Bombardier's new Atmosphere cabin, which features a larger passenger living space, increased overhead bin capacity, more spacious lavatory, and overall improved aesthetic details to enhance the passenger experience.
With the modernization and simplification of the Jazz fleet, we anticipate conducting up to 60 aircraft transitions over the next 2 years. We plan to induct 5 CRJ900s this year, which will be sourced by Air Canada. We will also add CRJ200s, which are currently operated by Air Georgian. The Dash 8-100 aircraft will be exiting the CPA-covered fleet earlier than planned, and we will be pursuing various alternatives for this equipment, which is owned by Chorus. Once the fleet transitions are completed, we anticipate operating close to 80% of the Air Canada Express network capacity, and we are well positioned for future growth. As a reminder, an important aspect of the CPA amendment is the introduction of an annual cap on potential controllable cost overruns. Annually, a comparison will be made between the actual costs incurred and the controllable revenue.
If overall actual controllable costs incurred are more or less than CAD 2 million as compared to the controllable revenue, a true-up will be made. This significantly reduces our margin risk, providing much improved fixed-fee earnings stability. This amended contract would not have been possible without the Jazz pilots, and I commend them for recognizing and seizing this opportunity. The unprecedented term extension of their collective agreement to 2035 and the enhanced pilot mobility with Air Canada provide both labor stability and improved cost competitiveness. As Air Canada's preferred regional partner, we've become an employer of choice, given the career growth opportunities under the CPA. Now turning to our growing leasing business. Yesterday, we announced an agreement to acquire a portfolio of 6 regional aircraft with leases attached.
The portfolio consists of two ATR 72-600s on lease to Azul of Brazil and four Q400s on lease with two of our existing customers that remain subject to customary closing conditions. In just over two years, Chorus Aviation Capital has grown its portfolio to 40 aircraft, valued at approximately $850 million, with approximately $655 million in future contract lease revenue. This includes pending acquisitions and lease commitments for future aircraft deliveries. The portfolio is well diversified, consisting of both turboprops and regional jets from all three regional aircraft equipment manufacturers, and placed with 12 customers based on 6 continents.
When you factor in the aircraft leased under the CPA, including those CRJ900 aircraft to be delivered in 2020, we currently have 107 aircraft under lease contract, valued at approximately CAD 2.3 billion. We're maturing and building scale as a worldwide lessor. Since the start of 2017, we've raised net proceeds of CAD 401 million for equity investment in aircraft, which is levered at a ratio of 3-to-1, yields approximately CAD 1.6 billion in investment capital. With the establishment of our new CAD 300 million warehouse facility and the cash we have on hand, I'm confident the momentum achieved in our growth strategy will continue to build.
The combination of being a highly experienced regional operator and our ability to manage every stage of aircraft life, from origination to disposition, is a strength that differentiates us from our competition. We can provide a wide range of services and can leverage the synergies across our organization to support our lessees. The addition of Q400 spare parts to our supply chain sales inventory in 2018 was another step in that direction. This was our first part out of an in-production aircraft and is an aircraft type that is highly utilized around the world. We will continue to work on expanding our capabilities and services.
We made progress in these areas when we received Transport Canada certification to conduct heavy maintenance on Embraer 135 and 145 regional jets, and welcomed our first international customer to Jazz Technical Services, airBaltic of Latvia, to conduct airframe heavy maintenance on 12 Q400s. These accomplishments help build on our vision. Looking ahead to the balance sheet, our focus will be on operationalizing the amendments of the CPA and building our regional aircraft leasing segment. I'm very optimistic about the future, and we will build more value for our stakeholders. I congratulate the Chorus team for delivering another standout year and look forward to our future accomplishments together. Before passing the call over to Jolene, I'd like to say we were very pleased to welcome Mike Rousseau, who's Air Canada's Deputy Chief Executive Officer and CFO, to our board meeting yesterday.
His insight and expertise will certainly contribute to our future success. Having Air Canada as a shareholder of Chorus further strengthens and aligns our two companies, and their investment is a strong endorsement of the Chorus strategy. With that, I'll now turn the call over to Jolene to take you through the fourth quarter financial results.
Thank you, Joe, and good morning, everyone. I'd also like to thank and congratulate our team for our successes in 2018 and so far this year. Together, we built a great foundation from which to further grow and strengthen our organization. In the fourth quarter of 2018, we generated total revenue of CAD 359 million, versus CAD 356 million in the same period of 2017. Adjusted EBITDA was CAD 92 million, an increase of almost CAD 10 million, primarily due to growth in regional aircraft leasing. Quarter-over-quarter, our third-party leasing revenue grew by CAD 10.4 million, as we had the equivalent of 27 aircraft earning lease revenue for the quarter, as compared to 18 aircraft in the fourth quarter of 2017.
Leasing revenue under the CPA increased by CAD 2.4 million, related to the additional Dash 8-300 aircraft that have completed their life extension program and are now earning lease revenue and changes in foreign exchange. These increases were offset in part by declines in performance incentives and other revenue and increases in certain operating costs. Adjusted net income grew by CAD 11.5 million over the period to CAD 35 million, mainly due to the increased adjusted EBITDA I spoke about and lower foreign exchange losses on working capital that amounted to $4.7 million and a $400,000 decrease in depreciation. These were offset by increases of $1.2 million in interest costs related to debt on new aircraft and income tax expense increases of $2.1 million, respectively.
Unrealized foreign exchange losses on long-term debt of CAD 30.5 million had the impact of decreasing net income by CAD 18 million over the same period in 2017, bringing it to CAD 2 million. This unrealized loss was offset by the CAD 11.5 million increase in adjusted net income and decreased employee separation costs of CAD 1 million. As a reminder, our aircraft-related debt is denominated predominantly in U.S. dollars. We convert the debt associated with the aircraft leased under the CPA each quarter to Canadian currency, thereby resulting in unrealized foreign exchange gains or losses. Further, debt payments are made in U.S. dollars, and the corresponding lease revenue is earned in U.S. dollars, which helps mitigate the impact on cash flows. For the year ended December 31, 2018, we grew adjusted EBITDA by 19.4% to CAD 343 million.
This growth was generated by a CAD 47.3 million increase in the regional aviation leasing segment, as we had the equivalent of 24 aircraft earning lease revenue compared to 9 for the year 2017. Increased earnings in regional aviation services of CAD 8.5 million also contributed to this growth. This was generated primarily by aircraft leasing income under the CPA associated with the completion of ESP on Dash 8-300 aircraft and the annualization of the leasing revenue on five CRJ900 aircraft that began earning lease revenue in the second quarter of 2017. Adjusted net income was CAD 121.8 million for the year, an increase from 2017 of CAD 6.4 million or 5.5%.
This was due to the CAD 55.8 million increase in adjusted EBITDA previously described, lower foreign exchange losses on working capital, which amounted to CAD 1.6 million, offset by increased income taxes of CAD 20.5 million, an additional CAD 17.4 million in depreciation, primarily related to new aircraft, an increase in interest costs of CAD 12.8 million related to additional aircraft debt and convertible units, and an increase in other expenses of CAD 0.3 million. Net income was CAD 67 million for the year, a decrease of CAD 100.3 million for the same period of 2017. This decrease was primarily due to year-over-year changes in unrealized foreign exchange losses on long-term debt of CAD 110.4 million and foreign exchange gains on cash held for deposits of CAD 1.6 million.
These were offset by decreased employee separation program costs of CAD 5.3 million and the previously noted CAD 6.4 million increase in the adjusted net income. Looking ahead to the balance of this year, capital expenditures for 2019, excluding those for the acquisition of aircraft and the ESP, and including capitalized major maintenance overhauls, are expected to be between CAD 36 million and CAD 42 million. Capital expenditures for ESP and aircraft acquisitions are expected to be between CAD 299 million and CAD 302 million in 2019, and this does not include capital for future to-be-announced aircraft acquisitions. Given the fleet transitions to occur as we implement the amended CPA and the fact that block hours do not impact compensation, we will not provide billable block hour guidance go forward.
The amended CPA further simplifies the fee structure, as we now have only a fixed fee margin for the range of operational services we provide under the Air Canada Express banner. As such, for each of 2019 and 2020, we anticipate earning CAD 75.5 million in fixed fees per year as compared to CAD 111.3 million in 2019. It is also worth noting that the maximum future available performance incentives reduced from CAD 23.4 million in 2019 and 2020 to an annual average maximum available of CAD 3.4 million for the term of the CPA. The near-term reductions are more than offset over the term of the CPA by incremental contracted revenue secured with the extension of the agreement, including both fixed fees and aircraft leasing.
As of today, approximately three-quarters of the total net proceeds of CAD 401 million raised to grow the leasing business has been committed. This includes deposits on future commitments and the investment in nine CRJ900s that will be leased into the CPA operation. We anticipate investing the balance by early 2020 in new to mid-life aircraft with long-term leases to a diverse group of high-quality customers around the world. For additional information supporting our projected guidance for the balance of this year, see Section 4 of the 2019 Outlook section of our MD&A for the year ended December 31, 2018. In addition, we continue to evaluate the impact of the new standard for IFRS 16, which we'll have on the consolidated financial statements, and also the transition approach that will be applied.
We anticipate an increase in both total assets and total liabilities of approximately CAD 10 million-CAD 15 million as of January 1, 2019. Please see note 3 of our 2018 financial statements for further information. Given our new segmented reporting format, I'll direct you to section 21 of the MD&A for a breakdown of revenue in the Regional Aviation Services segment and to section 22 for the consolidated statements of income. That concludes my commentary. Thank you for listening. Operator, we can now open the call for questions from the analyst community.
Thank you. If you would like to ask a question at this time, please press star, then the number one on your telephone handset. Our first question comes from Walter Spracklin, RBC Capital Markets. Your line is open.
Yeah, thanks very, very much. Good morning, everyone.
Morning.
Morning.
So, Joe, leasing is, you're, you're pretty much three quarters, you mentioned, through your CAD 1.6 billion in committed capital. What percent do you like to go to, or do you feel comfortable going to, before you start looking at the new avenues of reloading on that? And given you've tried a few different avenues, can you talk a bit about some of the alternatives? Are you looking at one of the avenues that you've done before, or could there be other opportunities now? Obviously, Air Canada's in the mix. Just curious your thoughts on your opportunities there.
Yeah. Well, Walter, we're always looking at going forward, you know, how we fund our growth and, and, you know, we look at the opportunities that are there. And frankly, we're finding that as we grow, our opportunities widen in terms of how we finance the growth. You know, I think the achievement of the warehouse was a significant milestone for us. And, you know, our equity is extensive, and, you know, the yield is high, and that, you know, creates a challenge for us. But, you know, we are looking at a combination of things. And, of course, when you're in the leasing business, it is very much capital intensive and, et cetera. So, you know, we are evaluating a lot of alternatives. We're looking ahead now.
We've said that the capital that we have will allow us to move into 2020. And, you know, the pipeline actually looks very good. The opportunities are certainly there. And, you know, and as we see our share price change as well, that changes our outlook as well. So, we'll be looking at a number of alternatives.
Okay. Next question is on Air Georgian. Obviously, that contract with Air Canada is completed or terminated. Can you give any comment as to whether, I mean, it seems that you're set up nicely for that, a ny comments there?
Yeah, no. You know, the Air Georgian has approximately 14 CRJ200s. So we will be seeing some of those airplanes come over. We also will be welcoming, you know, their pilots and those that would like to come over, so that disruption is minimized from an employee point of view. We already have CRJ200s in our fleet, and this will increase the number that we operate, for Air Canada. You know, the CRJ operation and all the Bombardier fleet now will be consolidated within Jazz. You know, I made a comment, there in the script that our footprint is increasing. We've been at about 70%, and that's sort of measured on a seat basis, of the Air Canada Express network. And with this change, will move us up to, about 70%.
This will give us, I think, a lot more flexibility in terms of the movement of fleet for Air Canada, being able to deploy fleet in various operating environments, et cetera. And, you know, it, it's a significant transition. There's a lot of growth going on and a lot of changes, et cetera. And our focus, certainly within Jazz over the next number of months, will be managing that transition in a seamless way. So, you know, that, that's what we see happening now. So it's very busy, but it's, you know, it's exciting to be able to do this and to play a greater role in the Air Canada network.
Okay. Air Canada also announced a little bit of a reorganization of its domestic flying, some upgauging into Rouge on eastern routes, I guess redeployment on the queue in the west. So net of Air Georgian, net of all of that, do you see yourself as being, as doing net more, less, or roughly the same level of block hours for Air Canada on the go forward?
Well, I, I tend to look at it more in terms of fleet and that sort of thing, and I think the fleet is, you know, looking to be, higher than it was under our original CPA. There's a lot of transition going on. I think the big change is the early retirement of the Dash 8-100s. There are 15 of those that we have been operating in the fleet. But of course, we're bringing in the 900s , et cetera. So, you know, we're going to have, from a fleet point of view, a very large footprint within the Air Canada network. Beyond 2025 in the agreement, there's a minimum of 80, 75- or 76-seat aircraft. And of course, you know, that's, that's a big upgauge too, from, a lot of the aircraft that we presently operate.
You know, the movement of Rouge on some of these flights and the consolidation makes a lot of sense. I think we're seeing, though, the redeployment of the Q400s in roles that are probably a little more suitable because the Q400 was operating on some stage lengths that were particularly long, 800 miles, et cetera. And you know, I think it puts Air Canada in a stronger competitive position there. And we're seeing our equipment deployed on a combination of new routes, replacing Dash 8- 100s, and of course, then the growth that comes from consolidating Air Georgian into a lot of the Air Georgian fleet into Jazz.
Okay, last question here. Sky Regional, can you update us on when their contract with Air Canada ends and whether you'll be a bidder on that business? Would that be an avenue for you to further expand your integration with Air Canada, if that were to come up?
Well, I can't comment on the Sky Regional contract, but, you know, we will be looking at opportunities in the 50-seat and under side. I think that's part of our agreement with Air Canada here. And going forward, we're going to continue to work with Air Canada to, you know, seize any opportunity that may be there for us. But, you know, I think Air Canada has a strong relationship with Sky Regional, and, you know, it's there for some time. So, you know, we'll work with Air Canada, and we will, with Sky Regional, be providing Air Canada with its express network.
Great. Okay, that's all my questions. Appreciate it.
Thank you. Our next question comes from Doug Taylor, Canaccord Genuity. Your line is opened.
Thank you. Good morning. I'd like to talk about the third party leasing business. You know, first of all, you know, yields have moved around quite a bit here in the last few months. I just wonder if you'll comment on the pricing environment and the lease factors you're seeing with the within the regional aircraft leasing market.
Yeah. We're seeing, as I mentioned on, you know, a week, a good pipeline of opportunities. This latest one was a portfolio buy, and, you know, it's competitive. It's not a lot different than it was really a couple of months ago. You know, as a matter of fact, I think the pipeline is probably a little like last year. So, you know, we're optimistic on it. You know, it is competitive, and so, you know, I don't really say that the yields have decreased significantly in this area. I think it has. They have probably more on the narrow body side and the wide body side. You know, we're seeing some, from what I understand, some significant compression there, but we have not witnessed that in our segment of the business.
No, we're still pretty pleased, Doug, with what we're seeing, and it's still in the range of, you know, what we expect and what we kind of started with in our original business plan.
Okay. And so a transaction like the one you announced yesterday, I mean, should we think that the lease factors, I would assume that some of the aircraft are perhaps a little approaching midlife, and that's filling out that kind of side of your portfolio. Can you talk to the lease factors on transactions like that relative to a new or near-new aircraft?
Well, I'm not going to kind of, you know, provide indication of those specifics on, on this deal. But when you look at a portfolio acquisition, the value of kind of the, the asset value, and in combination, you're buying a lease attached as well, right? So, that's kind of goes to the economics of, of the entire transaction. But, you know, with, portfolio acquisitions, and we've done some in the past, we've done some back in 2017, when we started, and with this one, the, you know, the, the LRF will be different based on the, age of the aircraft, but I can say they're still in our zone, right? We had indicated a 0.8%-1% monthly lease rate factor is kind of the zone that we expect to see, and we continue to see those.
Yeah. The average age of the aircraft in this portfolio was between 3 and 4 years. You know, I think I've mentioned previously on call, that midlife is actually quite interesting to us, though, because we see some opportunities in the midlife aircraft side out there. And when we look at those, you know, in terms of residual value and looking at opportunities for that aircraft, for that age of aircraft, you know, we're now in the part-out parts business. You know, we look at that, you know, the residual value, both in terms of lease or sale, but also in terms of the asset and the economics it would deliver in a part-out. So, you know, it makes a lot of sense.
That will have the impact of increasing our average age as we move forward, but the returns are actually quite good, and I think, you know, we've got a good amount of comfort in terms of the residual value.
So, so that leads me to my next question. I mean, the often overlooked other businesses, which is MRO, the contract flying, part out. You know, the financials show a little bit of a decline still. Can you talk a little bit about the outlook there? And then as a second part, with some of the aircraft that are exiting the fleet, related to the CPA, I mean, is there an opportunity for a little extra growth there? Is that where we would see it? Is that going to be material? And is the capital that you expect to recover from some of those aircraft, you know, meaningful in any way relative to the, you know, the CapEx and as a source of capital?
Right. So very good question. So, you know, with respect to the other revenues there, I think we've mentioned previously that we've seen some decline in some of the contracted revenue, in particular, that Voyageur has been doing. You know, it still has a very good footprint there, but we have seen some decline there. With regard to the MRO side, you know, JTS has been very busy with the third party, et cetera. We do have more capacity in North Bay that we intend on focusing on more now that we've gotten, you know, our Air Canada relationship set up. And, you know, now we've got the leasing really coming onto its own. So it will be more of a focus for us, certainly going forward.
And, you know, with these assets, though, in North Bay, we've been quite busy with these older assets. So some of them, the, the ones that we've already taken out, and we can expect the ones to be taken out, we'd be pursuing more, more of these options. We've leased to other parties. In some cases, we've parted them out. We're on our third freighter conversion, of a, of a Dash 8-100, and, you know, we think there are opportunities there. And, some of the early Dash 8s that we took out, frankly, were starting to run up close to their 80,000 cycles, whereas now the Dash 8s that we will be taking out of the, the Jazz fleet have more life. So that gives us even more opportunities, I think, with those aircraft to pursue, to pursue things.
Again, you know, we don't have a specific plan there that's included in our projections, but it's gonna be a focus, and North Bay will play a pretty significant role on those.
Should we assume any material amount of capital recovered from the aircraft exiting, or would you suggest that, you know, we treat that as upside, if and when you do achieve it?
Yeah, I think I would just treat it as upside, because the other thing we, you know, we don't really have nailed down the actual fleet transition plan yet as to when those dashes are coming out. So there's still a lot of work to be done on the detail. So, for your modeling, I would just treat it, you know, as it comes.
Yeah, that's great. I'll pass the line.
Thank you. Our next question comes from Cameron Doerksen, National Bank Financial. Your line is open.
Yeah, thanks. Good morning. I guess a couple of questions for me, just I guess, with regards to some financing decisions. I mean, I guess first thing I just wanted to clarify and then sort of notice is that, you know, the interest rate that you're paying on the leases in the CPA versus the aircraft financed in the third party leasing business, there's about 100 basis point difference between, you know, the interest rate on the, on I guess, the debt that's associated with those aircraft. I'm just wondering if you can comment on why there's a pretty big discrepancy there.
So, Cameron, I think it mostly has to do with timing. Like, if you look at the aircraft leased under the CPA, a lot of that debt would have been secured back in 2011, I think, when we started an initial kind of modernization campaign on the fleet. You know, the increase in rates that would have occurred more recently would be averaged out in some of those numbers that you're seeing on the CPA, whereas the CAC debt is all relatively new within the last two years. So that's driving, you know, the predominant difference in the average debt numbers you're seeing there.
Okay. So if we think about the CRJ 900s that are coming in in 2020, is it probably more likely to be kind of at the rate that you're seeing in the CAC debt that we would expect for those aircraft?
Yeah, it's, you know, it all kind of depends on the kind of the nature of the actual deal and everything, but they will be a little bit higher than what we've seen historically, so you'll have to bump it up a little by some basis points.
Okay. And I guess a couple of questions just on capital. I mean, you mentioned that you've got probably more avenues available for you to raise capital to continue to grow the CAC business. I'm just, you know, and we definitely, I guess, there's a, you know, the change with the regulations with regards to foreign ownership limits going higher. I'm just wondering if that was ever an impediment in the past to raising capital, the fact that there was an ownership limit, you know, set lower than what the new limit's gonna be.
Yeah, we've not really run into that up to now, but, you know, certainly as we grow the business and we get more interest, you know, from people outside of Canada and that sort of thing, it may provide us with more flexibility.
Okay. And then just final thing from me, just on the DRIP. I mean, it wasn't, I guess, huge dilution, 1.7 million shares in 2018 were issued through the DRIP. But just wondering if you really need to have that anymore. You know, you've got the $300 million revolver. You know, I'm just wondering if you really need that cash and whether it makes more sense to not have the DRIP.
Yeah, I mean, we don't see the dilution as hugely significant, as you pointed out, and we do have a fairly high participation rate in the DRIP program. Now it's up in the 20% range. So we're delivering back some good cash to the organization that we are deploying in, into, into the leasing business, and we see a, you know, a better, a better use of that money, kind of in the growth opportunity on the leasing side.
Okay, fair enough. That's, that's all I have. Thanks very much.
Thank you. Our next question comes from Turan Quettawala from Scotiabank. Your line is open.
Yeah. H i, good morning. Thank you for taking my questions. I guess, first of all, I just wanted to, I was hoping you could help us understand a little bit in terms of the planes that are coming in on the CAC side. So you have six more ATRs, or, sorry, six more planes total, two ATRs, four Qs coming in, in Q1 of 2019. Can you give us a sense of whether, like, what the timing is on that?
Sure. So in total, you know, we have nine aircraft that are, I guess, due to be yet completed, right? So, the announcement that we did yesterday, the six portfolio acquisition, you can kind of assume for purposes of your modeling, that those will be all done and in play for, I'd say the first of March, or in and about there. And, we have announced previously a couple of aircraft with Jambojet that were to occur in 2019. So those are going to be the tail end of this year. We also have three Lion Air aircraft. If you recall, last year, we announced a Lion Air deal for four aircraft in total. We, we had one of those aircraft come in in 2018.
The remaining three, we're planning for 2019. We're actually working on some tentative dates now. So, for your modeling, you know, I would until we kind of nail down those dates, I would push them more towards the end of the year.
Oh, so end of the year or, o kay. So like Q3, Q4?
Yeah, exactly. Yeah.
Okay. Thank you very much. That's helpful. And then I guess, just, wondering, based on, you know, so the, the decline that you're going to see in 2019 on the CPA revenue as well as the incentive revenue, I guess it's about CAD 46 million-CAD 47 million of a decline on a year-over-year basis. Is it fair to assume that based on all these contracts that you've signed on the leasing side right now, that you should be able to make up all of that?
Sorry, I missed the first part of your question, Turan.
So if you look at the CPA revenue, so you're seeing a decline of about CAD 35 million or so, I think, from the CAD 111 million to the CAD 75 million or something, right? For on the CPA side. And then there's another CAD 11 million or so, because you earned about CAD 14 million or so of incentive revenue this year, and you're only going to earn max of CAD 3.5 million in 2019, right?
Yeah.
So I'm looking at a total revenue of what, CAD 46 million-CAD 47 million, I think, that you're not going to see from the CPA.
Yeah. So you're looking at it from a revenue perspective only, or from a bottom line perspective?
Well, either or, I mean, I guess maybe you can just help us provide, like g ive us some sense.
You know, when you look at the CPA, you can, you know, you can quarterize the impact there, the reduction that we're seeing on the fixed fees and the performance incentives don't drive a whole lot of impact on the bottom line, as we communicated before, because a lot of that, you know, gets paid out in variable compensation. So I would look at the fixed fee only portion of it as our bottom line impact. And, you know, from the leasing that we're generating, a lot of the benefit that we're seeing as a result of the CPA doesn't start to come due until 2020, as you know, when we take delivery of those CRJ900. We will see a net reduction year-over-year and quarter-over-quarter for 2019, until we start to build out those CRJ 900.
No, but I guess, sorry, Jolene, what I meant to say was, all these deals that you sign on the third party leasing side, presumably you can offset most of this from that. Is that right or not?
They do provide an offset, although-
But not completely?
It's not a full offset. Yeah.
Okay. Thank you.
Some of the timing of those is later on as well.
Yeah, and the revenue from the leasing segment doesn't fall to the bottom line the same as the fixed fee, because, of course, the leasing segment is, we have interest expenses, et cetera. So, those are things that you'd have to factor in.
No, of course. That's great. Thank you. And then I just one last one from me. In terms of the incentive revenue, so I guess the incentive revenue is now quite low on the max side for Air Canada under the new agreement. Is there some other mechanism to provide you with an incentive or, you know, on the operations side at all?
No, no, there's nothing in the amended CPA that addresses that.
Okay. Thank you very much.
You're welcome.
Thank you.
Thank you. Our next question comes from David Ocampo, Cormark Securities. Your line is open.
Good morning, and thank you for taking my questions. You touched up on this a little bit earlier, but can you further explain what the rationale is, why the regional leasing market is more attractive than the narrow body and wide body markets?
Yeah, well, you know, first of all, we haven't seen such an overflow of capital into the narrow body, into the regional leasing side as we've seen within the narrow body and wide body side. In the case of the larger aircraft, we've seen a lot of Asian capital, in particular, Chinese investments in some of the leasing companies, et cetera. And that has resulted in surplus capital. And when you have that type of situation, yields tend to decline, lease rate factors tend to decline. And we have many competitors in the, you know, institutions that compete within the narrow body and wide body side. So, generally, these competitors in those segments tend not to focus on the regional side.
They've historically taken a negative view because the argument has been, it costs the same to do a transaction on a, you know, an A330 as it does a Q400, so we're better off focusing on that particular segment. And it's like anything, you know, it's like the major airline business. There are very few airlines that work, that operate everything from small regional aircraft to wide bodies. People focus where they are, they know the products, and, you know, and, and they have a critical mass of lessors that they can, you know, really, really deal with. So, you know, and we haven't seen that in the regional side. We haven't seen an overflow of capital coming in.
There are not a lot of competitors, as many as you find in the narrow body side. And, of course, you've seen GECAS start to pull back in the regional business, and GECAS has been historically a very major player in the regional side. And, you know, you're dealing with a different customer base, quite often, et cetera. So, you know, there are a number of factors there, and, historically, leasing has not been, you know, really, penetrated within the regional business. And of course, we're seeing that increase now. But, fortunately, we've not seen a lot of new competitors.
We've got one or two that recently have come in the market, but at the same time, we're seeing some of the narrow body lessors looking to dispose of some of their regional portfolios as they focus more and sort of double down on the narrow body side. So those are some of the factors that I'd say influence, you know, or indicate there's a difference between the regional and the larger aircraft market.
Right. And you mentioned players exiting the market, so Avolon is one that comes to mind. They sold 48 aircraft last year. Is there a specific reason why they exited, or is it simply because they're, you know, primarily owned by a Chinese company?
Well, I think that, in the case of Avolon, from what I see, if you look at their portfolio, they just made a decision to focus more on narrow and wide body, and they took that total portfolio and put it out in the marketplace, and you had another regional lessor pick it up, which was Falko, in that case. So, I think that was a perfect example of what I talked about earlier, where, you know, you see these larger lessors packaging up these portfolios and putting them out to the market because they just wanna, they just wanna simplify their business and have more of a critical mass and more capital that's available in order to compete in their prime markets.
Right. And do you intend to participate in acquiring these larger portfolio assets in the future?
Well, we will look at any portfolio, and as I said, you know, we have a good pipeline, et cetera. But, you know, all of these portfolios have their positives, and they have their challenges, et cetera. That's why quite often they're sold. But, we take a lot of time to evaluate the portfolio, the credit risk, the fleet, that's there. So, you know, we're, we'll continue to look for opportunities from, from around the world.
And also, you also see some other regional lessors looking to sell a portfolio because, you know, this portfolio we've purchased from another regional, primarily regional lessor, and a lot of it is they look at their balance sheet, they look at their, their debt, their own, their own situation, and decide that there's a certain part of the fleet that they'd like to dispose of in order to shore up their own business. So it isn't only the larger narrow-body lessors that we're seeing the opportunities from. And some of these portfolios that we've already purchased, for instance, we purchased from AirAsia in Singapore, way back, a fleet of six aircraft, etc. So it's a combination of things.
Great. That's all for me.
Thank you.
Thank you. And again, if you would like to ask a question, please press star one. Our next question comes from Kevin Chiang, from CIBC. Your line is open.
Hey, thanks for taking my question. Just a couple from me here. When you look at your covered fleet with Air Canada, just thoughts on, or have you had any discussions about diversifying outside of primarily a Bombardier fleet there? Like when I look at Sky Regional, it's primarily an Embraer. I think it's only an Embraer fleet. Like, has there been any conversations on your end or any desire to diversify your covered fleet from outside of Bombardier with Air Canada?
We would certainly be open to any diversification of the fleet outside of the Bombardier fleet with Air Canada. I think, you know, as you look out to 2035, which is how long the CPA goes, there will be fleet decisions that will have to be made, with respect to, you know, the fleet mix, et cetera. You know, we believe there are good possibilities on those 80 airplanes that are beyond 2025. You know, the majority of them have not, are not presently under lease, and, you know, we will work with Air Canada and pursue any opportunity to take advantage of any changes in the fleet, fleet mix, et cetera. You know, I think it could present a very good opportunity of course .
And then when I think of the leasing you do on behalf of, or as part of the CPA, you're obviously leasing aircraft that you'll fly as part of your service. You know, they're going to bring on A220s. I think you've talked about that aircraft being of interest or potentially something you'd fold into the type of aircraft you could look at leasing as part of Chorus Aviation Capital. Just thoughts on leasing to Air Canada outside of the CPA. Is that, you know, one, is the A220 still a viable plan for you? And two, is that an opportunity that you're exploring as well?
Well, you know, first of all, on the A220, it's, I think we've said before, it's an aircraft of interest to us. That aircraft is really starting to gain traction around the world. And, you know, we see that as a positive, and we will pursue opportunities if we are competitive to look at that fleet. You know, I think it's potentially a very good investment as long as you achieve the right economics. And, you know, with respect to Air Canada, we have a number of airplanes that will be coming off lease as well through the CPA. But as those airplanes come off lease, you know, they will be debt free, and we will be pursuing opportunities then with Air Canada to further extend leases on those aircraft.
Of course, we have the opportunities to put those aircraft out to others at that time, should it not be in Air Canada's interest to negotiate an arrangement at that time. So, I think we've got a lot of opportunities and a lot of flexibility, and, you know, I think we've got a pretty wide scope when it comes to looking at the opportunities there.
Okay. And just maybe last one for me. It sounds like, you know, there's definitely a growing opportunity from parting out aircraft. You had mentioned that in your prepared remarks, I believe. And correct me if I'm wrong here, I think when you typically part out an aircraft, you get roughly 15%, something like mid-teens%, return on invested capital. Given you're pulling this from your, you know, your leased fleet, are the returns better for you when you part out than we just buy a, you know, an old aircraft that has no more green miles on it and parting out that kind of aircraft? Are the returns better, the life cycle returns better for you when you're pulling it from your leased fleet?
No, well, potentially, and actually, we're just in the process of acquiring a second Q400 to part out, actually. And, you know, these airplanes, some of them have life left in them, but when you look at, in particular, the engines and the components, et cetera, it isn't necessarily that the aircraft is, you know, at its total end of life. It's a factor as to how strong the market is for the components, the engines, et cetera. So, you know, and we search for, and we've acquired now a number of aircraft outside of our own fleet for part out. While we've parted out some of our own, we've acquired CRJ200s, we've acquired 300 , you know, so we're going to continue to do that, and the returns are good in that segment.
Perfect. That's it for me. Thank you very much.
Thank you.
Thank you. That concludes the questions in the queue today. I'll turn the call back to Ms. Megann for final comments.
Thank you very much, operator, and thank you all for joining us today. We wish you a great rest of the day and weekend.
Thank you very much, ladies and gentlemen. This concludes today's call. You may now disconnect.