Shares of Chorus Aviation surged 34% to C$3.18 ($2.41) on 23 October after the Canadian company confirmed an acquisition proposal from an unnamed third party.

The Halifax-based regional aviation company said it had received “a preliminary, non-binding acquisition proposal from a third party that is subject to a number of significant conditions".

Over the past year, two regional entities have been exploring the M&A market or being rumoured to offer aircraft portfolios.

London Stock Exchange-listed Avation said in January it was undertaking a comprehensive review of strategic options, including, but not limited to, a potential sale.

At the time Avation had a portfolio of 42 aircraft, comprising Airbus, ATR, Fokker and Boeing units.

In March, the lessor announced that it had engaged with multiple interested parties as part of the formal sale process but, as a result of market conditions owing to the Covid-19 pandemic, progress had been delayed.

In May it formally ended its sale process, saying it was “unlikely to produce an outcome that accurately reflects the long-term value of the company and at a value that is attractive to shareholders”.

Last November, Airfinance Journal revealed that private equity-backed Truenoord Regional Aircraft Leasing was in the M&A market.

The regional aircraft lessor received backing from Bregal Freshstream in 2016 and later added funding from Blackrock and Aberdeen Standard. The 39-aircraft portfolio consisted of 11 ATR72s, 25 Embraer 170/190/195s and three CRJ200/CRJ900s.

Talking to Airfinance Journal last month, chief executive officer Anne-Bart Tieleman said there were “always rumours in the market”, while also noting the company's ownership structure.

“Truenoord’s cornerstone investors are private equity investors and it has always been understood that at some point in time they will want to sell their investment resulting in Truenoord getting new shareholders,” he told Airfinance Journal.

“We have never considered selling our portfolio and that is still the case. Of course, we do sell aircraft. Last February we sold a CRJ200, for us a non-core asset, for a decent price. Truenoord will sell assets, as all lessors do. We might even sell a portfolio, but we are firmly on a growth path,” he added.

"In the present market I am not sure there would be ‘let’s sell’ deals for us to pursue. I expect there will be ‘let’s buy’ transactions.”

The lessor recently reached a 50-aircraft portfolio with the addition of two Embraer 195s on lease to Portugalia.

Unlike Avation and Truenoord, Chorus Aviation has a unique business model based on two segments: regional aviation services and regional aircraft leasing.

Its leasing platform, Chorus Aircraft Capital, has a portfolio of aircraft including De Havilland of Canada Dash 8-400s, ATR72-600s, Mitsubishi CRJ1000s, CRJ900s, Embraer E190s, E195s and Airbus A220-300s.

Chorus also provides contract flying operations through two of its wholly owned subsidiaries: Jazz Aviation and Voyageur Airways. Jazz operates its scheduled services under the capacity purchase agreement (CPA) on behalf of Air Canada and the Air Canada Express brand. Jazz also earns leasing revenue under the CPA from leasing Dash 8-400s, CRJ900s, Dash 8-300s and also spare engines.

Voyageur provides charter services and specialised contract flying, such as medical, logistical and humanitarian flights, to international and Canadian customers.

The company also provides maintenance, repair and overhaul (MRO), parts sales and technical services through its Jazz Technical Services division. Voyageur provides specialty, customised MRO service, technical advisory support as well as aircraft disassembly and parts provisioning and sales on Dash aircraft and CRJ aircraft products.

Airfinance Journal’s Fleet Tracker shows that Chorus has a fleet of 93 aircraft. A majority are Dash 8-400s, with 52 in the fleet; 22 are ATR72-600s. The company has a smaller number of CRJ900s, CRJ1000s and Embraer models.

One leasing source says Chorus may sell better in parts. “If you sold Chorus Aviation Capital and all the Jazz aircraft under the CPA agreement to Air Canada, it would fund the whole acquisition,” he comments.

In April, Chorus announced it had entered into a shareholder rights plan. One right attaches to each issued and outstanding share. Subject to the terms of the rights plan, the rights become exercisable in the event that any person (together with certain related parties) becomes a beneficial holder of 20% or more of the outstanding shares without complying with the ‘permitted bid’ provisions under the rights plan.

In such an event, holders of the rights (other than the acquiring person and its related parties) will be permitted to exercise their rights to purchase additional shares at a 50% discount to the then prevailing market price of the shares.

At the time Chorus said the rights plan was designed to ensure that all shareholders would be treated “fairly” in connection with any takeover bid and to protect against "creeping bids", which involve the accumulation of more than 20%, on an aggregate basis, of the Chorus' Class A variable voting shares and Class B voting Shares through purchases exempt from applicable takeover-bid rules.

Chorus said the plan was recently adopted by other Canadian companies and approved by their shareholders, and has not been implemented “in response to, or in anticipation of, any pending or threatened takeover bid”.

Foreign ownership restrictions may play into this potential sale. Under the Canada Transportation Act, ownership and control of voting interests held in a Canadian air carrier by non-Canadians may not exceed 25%. In particular, a Canadian air carrier must be controlled "in fact" by Canadians and at least 75% of the voting interests in an air carrier licensed to operate in Canada must be owned and controlled by Canadians.

Chorus does not plan to comment further unless there is a deal to announce. Its third-quarter 2020 financial results will be released on 11 November 2020.

Olivier Clark contributed to this article.