Chorus Aviation : Q1 2024 Chorus Aviation Inc. Management’s Discussion and Analysis

INTRODUCTION

In this MD&A, references to Chorus refer, as the context may require, to one or more of Chorus Aviation Inc. and its current and former subsidiaries, including partnerships in which the Corporation holds a majority of the equity interests. Where this MD&A discusses the CPA, references to Chorus are exclusively intended to refer to Jazz. Please refer to Section 24 - Glossary of Terms for definition of capitalized terms and acronyms used in this MD&A.

This MD&A, which presents a discussion of the financial condition and results of operations for Chorus, should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements of Chorus for the three months ended March 31, 2024, the audited consolidated financial statements of Chorus for the year ended December 31, 2023, Chorus' MD&A dated February 22, 2024 in respect of the year ended December 31, 2023, and Chorus' Annual Information Form dated February 22, 2024 in respect of the year ended December 31, 2023. All financial information has been prepared in accordance with GAAP, as set out in the CPA Canada Handbook, except for any financial information specifically denoted otherwise. Except as otherwise noted or where the context may otherwise require, this MD&A is prepared as of May 6, 2024.

The earnings and cash flows of Chorus are affected by certain risks. For a description of those risks, please refer to the discussion of specific risks in Section 8 - Capital Structure and Section 10 - Risk Factors.

Except where the context otherwise requires, all amounts are stated in Canadian dollars.

• OVERVIEW

• These are non-GAAP financial measures or non-GAAP ratios that are not recognized measures for financial statement presentation under GAAP. As such, they do not have standardized meanings, may not be comparable to similar measures presented by other issuers and should not be considered a substitute for or superior to GAAP results. Refer to Section 18 - Non-GAAP Financial Measures for further information, including the composition and use of such non-GAAP financial measures.

Q1 2024 Financial Highlights:

• Net income of $12.3 million, compared to $32.0 million for Q1 2023.
• Adjusted Earnings available to Common Shareholders of $11.8 million, compared to $21.5 million for Q1 2023.
• Adjusted Earnings available to Common Shareholders of $0.06 per Common Share, basic, compared to $0.11 for Q1 2023.
• Adjusted EBITDA of $109.1 million, compared to $118.1 million for Q1 2023.
• Free Cash Flow of $102.1 million, compared to $73.1 million for Q1 2023.
• Leverage Ratio improved to 3.4 at March 31, 2024 from 3.6 at December 31, 2023.

Highlights:

• Generated strong Free Cash Flow of $102.1 million for the period ended March 31, 2024 primarily derived from operating cash flows and net proceeds of $38.0 million related to the sale of two A220-300s, one ATR72-500 and two engines.

• Deleveraged the balance sheet improving the Leverage Ratio from 3.6 at December 31, 2023 to 3.4 at March 31, 2024 primarily through long-term debt repayments of $134.6 million since December 31, 2023.
• Purchased and cancelled 938,216 Common Shares under the current NCIB during the quarter at a weighted average price of $2.06 per Common Share (refer to Section 8 - Capital Structure).
• Voyageur purchased one King Air 350 in the first quarter of 2024 and delivered it to the Canadian Department of National Defence ("DND") under a lease and maintenance agreement. This is in addition to Voyageur's existing DND contract for in-service-support of the manned airborne intelligence surveillance and reconnaissance ("MAISR") program.
• Falko executed a sale and purchase agreement with Nordic Aviation Capital to acquire a portfolio of 24 Embraer aircraft on behalf of Fund II.

First Quarter Summary

In the first quarter of 2024, Chorus reported Adjusted EBITDA of $109.1 million, a decrease of $9.0 million compared to the first quarter of 2023.

The RAL segment's Adjusted EBITDA was $55.0 million, a decrease of $6.6 million compared to the first quarter of

2023 primarily due to:

• a decrease in lease revenue of $9.9 million primarily due to lower market lease rates on re-leased aircraft, lower maintenance reserve releases and the sale of aircraft in 2024; and
• increased general administrative expense; partially offset by
• a decrease in expected credit loss ("ECL") provisions of $3.1 million due to improved credit ratings on certain lessees; and
• an increase in the net gain on sale of assets of $3.0 million.

The RAS segment's Adjusted EBITDA was $62.4 million, a decrease of $1.5 million compared to the first quarter of

2023 primarily due to:

• a decrease in aircraft leasing revenue under the CPA of $4.5 million primarily due to a change in lease rates on certain aircraft; and
• a decrease in other revenue of $1.6 million primarily due to Voyageur's decreased revenue in parts sales, contract flying and MRO activity; partially offset by
• an improvement in the Controllable Cost Guardrail of $2.0 million; and
• an increase in capitalization of major maintenance overhauls on owned aircraft of $1.9 million.

Corporate Adjusted EBITDA was $(8.4) million compared to $(7.4) million in the first quarter of 2023 primarily due to an increase in stock-based compensation of $1.2 million due to the change in fair value of the Total Return Swap (refer to Section 8 - Capital Structure - Equity Price Risk) offset by a decrease in the Common Share price.

Adjusted Net Income was $24.1 million for the quarter, a decrease of $6.7 million compared to the first quarter of

2023 primarily due to:

• a $9.0 million decrease in Adjusted EBITDA as previously described;
• an increase in depreciation expense of $4.7 million primarily attributable to a change in depreciation estimates on certain aircraft and capital expenditures; and
• a negative change in foreign exchange of $2.0 million; partially offset by
• a decrease of $5.1 million in income tax expense;

• a decrease in net interest costs of $3.0 million; and
• a positive change in the fair value on investments and derivatives of $0.9 million.

Net income decreased $19.7 million compared to the first quarter of 2023 primarily due to:

• the previously noted decrease in Adjusted Net Income of $6.7 million; and
• a negative change in net unrealized foreign exchange of $14.6 million; partially offset by
• a decrease in lease repossession costs of $1.6 million.

• ABOUT CHORUS

Chorus is a global aviation solutions provider and asset manager, focused on regional aviation. Chorus' principal subsidiaries are: Falko Regional Aircraft, the leading pure play regional aircraft asset manager and lessor; Jazz Aviation, the largest regional airline in Canada and provider of regional air services under the Air Canada Express brand; Voyageur Aviation, a leading provider of specialty charter, aircraft modifications, parts provisioning and in- service support services; and Cygnet Aviation Academy, an industry leading accredited training academy preparing pilots for direct entry into airlines.

Together, Chorus' subsidiaries provide services that encompass every stage of a regional aircraft's lifecycle, including: aircraft acquisition and leasing; aircraft refurbishment, engineering, modification, repurposing and transition; contract flying; aircraft and component maintenance, disassembly, and parts provisioning; and pilot training.

Corporate expenses include various debt instruments, such as interest on the Series A Debentures, the Series B Debentures, the Series C Debentures, the Unsecured Credit Facility and the Operating Credit Facility, and employee and stock-based compensation and professional fees.

Chorus groups its businesses into two reporting segments:

1. Regional Aviation Services: This segment includes all four sectors of the regional aviation industry in which Chorus currently operates (described below).
2. 1. Contract flying: Chorus provides contract flying services, commonly referred to as "wet leasing" through two
      of its wholly-owned subsidiaries: Jazz and Voyageur. Jazz is the largest regional airline in Canada and operates more flights into more airports in Canada through its scheduled services under the CPA with Air Canada than any other Canadian airline. Air Canada makes all decisions with respect to flight scheduling and ticket sales, and bears all of the market risk associated with fluctuations in passenger ticket revenues.
      Voyageur provides charter services and specialized contract flying, such as medical, logistical and humanitarian flights, to international and Canadian customers.
   2. Aircraft leasing: Jazz currently earns leasing revenue under the CPA from 48 wholly-owned aircraft and fivespare engines. Voyageur also earns revenue from aircraft leasing.
   3. MRO, part sales and technical services:Jazz provides 24/7 MRO services and is certified on Dash 8, CRJ, and Embraer 135, 145 and 175 aircraft. Voyageur provides specialty MRO and engineering services on Dash, CRJ, Embraer, Diamond DA-20/40/42, and Beechcraft King Air aircraft products. Voyageur also focuses on aircraft disassembly and aircraft parts provisioning to customers globally.
   4. Pilot training: Cygnet isa pilot academy in Canada that, together with CAE Inc., enables cadets to achieve their Integrated Airline Transport Pilot License and acquire an airline specific type rating.

Jazz earns margin under the CPA in three ways:

1. Fixed Margin

Jazz earns a Fixed Margin based on the number of Covered Aircraft under the CPA that does not vary based on flight activity.

2. Performance Incentives

Jazz has the opportunity to earn Performance Incentives under the CPA for achieving certain performance targets in relation to controllable on-time performance, controllable flight completion, customers arriving with luggage and customer service.

3. Aircraft leasing under the CPA

Jazz earns aircraft leasing revenue under the CPA from the following owned assets: 34 Dash 8-400s, 14 CRJ900s, and five spare engines.

Jazz bills for Controllable Costs (which are offset by Controllable Cost Revenue) and Pass-Through Costs (which are offset by Pass-Through Revenue) as follows:

1. Controllable Cost Revenue
   Jazz and Air Canada negotiate rates ("Controllable Cost Revenue") for the Controllable Costs Jazz expects to incur which are estimated based on certain variables to operate Air Canada Express services under the CPA. Jazz's exposure to variances between the Controllable Cost Revenue Jazz receives from Air Canada to cover annually negotiated Controllable Costs, and Jazz's actual Controllable Costs incurred in performing its services for Air Canada is limited to $2.0 million annually (referred to as the "Controllable Cost Guardrail").
2. Pass-ThroughRevenue
   Jazz receives Pass-Through Revenue, which is based on Pass-Through Costs reimbursed by Air Canada.
   Pass-Through Costs includes operational expenses that are reimbursed by Air Canada such as airport and navigation fees, and certain aircraft maintenance, materials and supplies. Jazz does not incur fuel or food and beverage costs related to CPA flying, as these are charged directly to Air Canada.

Aircraft fleet under the CPA

From January 1, 2021 through December 31, 2025, the minimum number of Covered Aircraft is set at 105. From January 1, 2026 through December 31, 2035, Air Canada will determine the composition of the Covered Aircraft fleet on the condition that the fleet must have a minimum of 80 aircraft with 75-78 seats (refer to Section 25 - Caution Regarding Forward-Looking Information).

1. Regional Aircraft Leasing: Falko is an asset manager and lessor of regional aircraft assets. Its asset management business comprises the management of aircraft investment funds on behalf of financial investors as well as the provision of lease servicer capabilities to owners of regional aircraft. Its leasing business consists of wholly or majority-owned aircraft, in addition to the Managed Aircraft (refer to Section 5 - Fleet). RAL earns income as follows:
2. 1. Earnings from Managed Aircraft
   2. 1. Asset management fees: RAL earns asset management fees for managing aircraft on behalf of fundinvestors and other third-partyaircraft investors and/or owners;

1. 1. Co-investmentreturns: RAL earns co-investment returns from its equity investment in the Falko managed funds; and
   2. Incentives fees: RAL earns incentive fees from Falko-managed funds for exceeding investment performance targets.
2. Earnings from wholly or majority-owned aircraft
3. 1. Lease income: RAL earns income from wholly or majority-owned aircraft leased to third-party air operators, commonly referred to as "dry leasing"; and
   2. Asset sales: RAL earns income from the sale of aircraft.

• STRATEGY

Chorus provides a comprehensive suite of regional and specialty aviation services to customers around the world by drawing on its deep expertise in all areas of regional aviation operations. Regional aircraft are a strong asset class that are well suited to variable demand environments, supported by core global operators, are generally built to order and generate returns that have historically outperformed larger classes of aircraft.

The Chorus team is highly experienced in all facets of the regional aviation industry and offers a range of flying operations, including special mission services, maintenance, repair and overhaul modifications, parts sales, and aircraft leasing and asset management. These capabilities differentiate Chorus from its competition.

The RAS segment generates strong and predictable earnings primarily from long-term contracts.

The RAL segment includes the Falko asset management platform and equity interests in aircraft owned or managed by Falko (refer to Section 2 - About Chorus).

Chorus intends to transition its regional aircraft leasing business to an asset light model utilizing third party equity to acquire and lease regional aircraft to airline customers globally and earn asset management fees and incentives from this managed capital. In addition, Chorus intends to make co-investments in Falko's funds to demonstrate alignment with fund investors and generate earnings for Chorus. In particular, Chorus' strategy for its leasing business is to:

1. Transition to a less capital intensive approach to growing the regional aircraft leasing business;
2. Generate higher quality cash flow streams in the form of asset management fees;
3. Reduce leverage and balance sheet risk, thereby improving cash flow generation; and
4. Enable Chorus to better serve the needs of its leasing customers by deploying larger tranches of equity capital alongside third-party fund investors.

As Chorus executes on its transition to an asset light leasing model, Chorus expects to generate significant cash flows that will enable the return of capital to Shareholders in the form of share buybacks and/or dividends and reinvestment in accretive regional and specialty aviation businesses.

• OUTLOOK

The discussion that follows includes forward-looking information. This outlook is provided for the purpose of providing information about current expectations for 2024. Forecast information has also been provided for 2025 and 2026 for Jazz. This information may not be appropriate for other purposes (refer to Section 25 - Caution Regarding Forward-Looking Information).

RAL

RAL continues to execute on its asset light leasing strategy which consists of monetizing select on-balance sheet aircraft while growing its contractual fund management business. Maximizing cash flow generation from existing aircraft through lease term extensions is also a key element of RAL's business model.

1. The forecast uses a foreign exchange rate of 1.3400 for 2024 to translate USD to CAD.
2. The forecast reflects: a) the expected sale of nine CRJ900 engines; b) the sale of two A220-300's; c) additional anticipated aircraft sales; and d) certain assumptions and estimates for future market lease rates related to new and extended leases. The forecast does not include end-of-lease compensation or maintenance reserve releases beyond first quarter actual 2024.
3. The depreciation excluding impairment and net interest expense forecast is based on the normal amortization of aircraft and long-term debt and the expected sale of assets in 2024.
4. The forecasted gain on fair value of the Fund II investment is based on expectations related to the trading and general financial condition of the investment to compute the value of the discounted cash flows.

Fund III is anticipated to close by the end of the 2024 year and is expected to have (i) a minimum of US $500.0 million in capital commitments and (ii) management fees and economic terms commensurate with those in Falko's existing investment funds.

Chorus intends to opportunistically trade RAL's wholly-owned or majority-owned aircraft including in connection with the windup of its 67.45% ownership in Ravelin Holdings LP by the tenth anniversary of the commencement of Fund I (2025). As of March 31, 2024, Ravelin Holdings LP held an interest in 38 aircraft with a net book value of US $374.5 million and secured debt of US $182.8 million. As asset sales occur, the related leasing revenues in RAL will decrease, which will be partially offset by lower depreciation and debt servicing costs and earnings from Falko managed funds.

RAL Receivables

Chorus participated in the Azul S.A. ("Azul") restructuring which was finalized on February 29, 2024. The transaction includes the settlement of certain accounts receivable with a carrying value of US $22.4 million at February 29, 2024 ("Existing AR"), held by RAL and the granting of certain modifications related to the operating leases with Azul ("Azul Restructuring").

In exchange for the Existing AR, RAL received new notes on February 29, 2024 with a carrying value of US $56.2 million ("New Notes"), inclusive of deferred revenue of US $33.8 million related to lease modifications, from Azul which are due at various dates beginning in March 2024 and ending in October 2027. In addition, certain of the New Notes may be settled, at Azul's option, in cash or through the issuance of Azul's publicly listed preferred shares.