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Chorus Aviation stock soars on favorable rate ruling

Tuesday, 26 Nov 2013 | 10:13 AM ET

TORONTO, Nov 26 (Reuters) - Shares of Chorus Aviation Inc soared 27 percent in early trading on Tuesday after an arbitration panel agreed with the mark-up rate the company charges as a contract carrier for Air Canada.

Following more than a year of arbitration, Halifax, Nova Scotia-based Chorus said the panel on Tuesday confirmed there would be no change to its 12.5 percent mark-up, above the 7 percent to 9.5 percent proposed by Air Canada.

A majority of the panel found there was no reason to change the rate and that Chorus need not make retroactive payments to Air Canada, Chorus said.

The mark-up rate refers to the premium Chorus is paid for its controllable costs in operating flights for Air Canada.

Chorus operates aircraft for Air Canada, the country's largest airline, under the Jazz Aviation brand. It flies to smaller destinations and to large communities in off-peak hours throughout Canada and into the United States.

The decision is "a significant win for Chorus," RBC Capital Markets analyst Walter Spracklin said in a note to clients, adding that Chorus may now consider a dividend increase after halving its annual dividend due to concerns over the arbitration outcome.

"Chorus ... management is fully aware of the competitive pressures in the industry and is working hard at lowering unit costs," he wrote. "Following the resolution, we see Air Canada and Chorus engaging in a more constructive manner."

Chorus stock climbed 74 Canadian cents to C$3.47 on the Toronto Stock Exchange Tuesday morning, while Air Canada's more heavily traded Class B shares added 1 Canadian cent to C$6.90.

(Reporting by Susan Taylor; Editing by John Wallace)