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Discovery Air Inc. announces results for the quarter and year ended January 31, 2014

Toronto, ON, May 1, 2014 – Discovery Air Inc. (the “Corporation”) announced its financial and operating results for the year ended January 31, 2014.  The audited consolidated financial statements and management discussion and analysis (“MD&A”) will be available on SEDAR at and on the Corporation’s website at

Financial Highlights
On December 17, 2013, the Corporation, through a subsidiary of Defence Services, acquired Advanced Training Systems International, Inc. by way of a merger of that entity with and into Advanced Training Systems International Corp. (“ATSI”) for $7.2 million.  ATSI is a U.S. airborne training services company based in Mesa, Arizona.  It owns a fleet of ten Douglas A-4 Skyhawk aircraft and offers airborne training services, including, among other services, tactical “Red Air” services, fighter lead-in training, electronic warfare, radar theory and other combat tactics.  ATSI was acquired in order to facilitate the expansion of Defence Services’ airborne training services into the U.S. and other international markets.

Following the acquisition of ATSI, Defence Services entered into a five year contract to provide fast jet combat airborne training services to the German Armed Forces utilizing a fleet of seven Douglas A-4 aircraft owned by ATSI. The services will be provided from various locations in Europe, including Germany, France, the Netherlands, Belgium and Italy. Defence Services anticipates performing approximately 1,200 flight hours per year under this contract commencing in January 2015. Discovery Air attributes strategic importance to this contract as it establishes Defence Services in Europe, and provides a solid foundation for future expansion in that market.

In addition to the above transactions, the Corporation executed an agreement to acquire six F-16, six A-4N aircraft and related support packages for the expansion of Defence Services’ airborne training capabilities. The cost of acquiring these assets and deploying them into service is estimated to be between U.S. $40.0 to $50.0 million. The Corporation has placed a U.S. $2.5 million deposit for the acquisition of these assets which would be refundable should the purchase not be completed due to the inability to obtain third party transfer authorization from the U.S. Department of State.  In addition to the U.S. government approval, the Corporation would only complete the purchase of these assets upon securing the necessary financing for the purchase. During Fiscal 2014, the Corporation incurred approximately $3.6 million in business development costs related to this opportunity as well as acquisition expenses related to ATSI.

In an effort to streamline core businesses and shift aircraft fleet composition that will garner higher utilization, the Corporation divested of Hudson Bay Helicopters Ltd., based out of Churchill, Manitoba, in May 2013 for $1.2 million, disposed of two King Air 300s for proceeds of $2.1 million in January 2013 and closed a fixed wing facility in Calgary upon exiting the executive jet service market. The aggregate of these transaction resulted in a net gain of $0.1 million. With the cessation of the executive jet service program in late January 2014, the Corporation assessed the five 601 Challenger jets for impairment on the basis that there was no pending plan to redeploy these assets in the near term. As noted in “Recent Developments”, the Corporation received an offer to purchase these assets. The Corporation recognized an impairment charge of $5.2 million on these aircraft, reflecting the estimated amount of the carrying value net of proceeds and disposal costs.

For the year ended January 31, 2014 (“Fiscal 2014”) consolidated revenues decreased 7%, with the Aviation segment’s revenues and flight hours decreasing 9% compared to the prior year. The decline was primarily attributable to lower mining based activity and forest fire activity as well as lower airborne training activity. Corporate Support and Other segment’s revenue increased 7% relative to the comparative period due to increased contribution from Technical Services’ MRO and related activity. Quarterly revenues decreased 13% primarily attributable to lower airborne training activity and MRO activity relative to the comparative period.

Fiscal 2014 EBITDA decreased 40%, with an EBITDA margin of 12% compared to 18% in Fiscal 2013. The decline in EBITDA and EBITDA margin was largely attributable to lower than expected revenues for the operating support costs carried on during the year. The Corporation also incurred acquisition and business development costs related to Defence Services’ airborne training service expansion. Quarterly EBITDA loss was $9.5 million compared to $6.8 million in the comparative period stemming largely from lower revenues.

Fiscal 2014 loss was $18.0 million ($1.21 loss per Share) compared to $0.6 million ($0.04 per Share) in the prior year. The difference is comprised of lower EBITDA ($16.6 million), and non-cash net loss ($7.8 million) offset by an income tax recovery ($5.7 million). The non-cash net losses were primarily related to a, $7.0 million asset impairment charge offset by a $1.2 million gain on extinguishment of a contingent liability. Excluding these non-cash items produces an Adjusted loss of $12.4 million or $0.83 loss per Share in Fiscal 2014 compared to an Adjusted profit of nil in the prior year (see “Adjusted profit (loss)” under “Non-IFRS measures” below).

The Corporation recorded a loss of $21.4 million ($1.44 loss per Share – basic) in the fourth quarter of Fiscal 2014 compared to a loss of $10.9 million ($0.74 loss per Share – basic) in the fourth quarter of fiscal 2013. Excluding the tax effected non-cash gains and losses noted above, the Corporation had an adjusted loss of $14.8 million in current quarter ($1.00 loss per Share – basic) compared to an adjusted loss of $11.9 million ($0.80 loss per Share – basic) in the comparative period (see “Adjusted profit (loss)” below).

Recent Developments

On February 24, 2014, the Corporation announced its intention to complete a rights offering (the “Offering”) in order to raise up to $15.0 million of equity capital through the sale of the Corporation’s common shares. Under the Offering, the Corporation distributed a total of 14,555,661 rights to its shareholders of record on April 1, 2014 entitling them to subscribe for up to an aggregate of 17,441,860 Shares at a price of $0.86 per Share. Clairvest Group Inc. (“Clairvest”) agreed, in accordance with the terms of a standby purchase agreement with the Corporation dated February 24, 2014 (the “Standby Purchase Agreement”), to purchase from the Corporation such number of Shares that were available to be purchased, but not otherwise subscribed for under the Offering, up to a predetermined cap. Clairvest also agreed to provide the Corporation with a subordinated, secured loan in the event that Clairvest was unable (due to the cap) to backstop the entire Offering and the Corporation was unable to raise gross proceeds from the Offering in an amount of $15.0 million. With the Standby Purchase Agreement in place, the Corporation was able to use the anticipated proceeds from the Offering (including the standby commitment and the secured, subordinated loan from Clairvest) to obtain from its operating lender an immediate $10.0 million increase in the operating line of credit within the existing credit limit of its operating facility (by way of an increase in the Corporation’s borrowing base), and (ii) a commitment to increase the overall limit of the operating facility by $10.0 million, in each case until May 24, 2014 or the completion of the Offering (whichever is earlier). Copies of the short form prospectus for the Offering and the Standby Purchase Agreement can be found on SEDAR at

The Offering was completed on April 28, 2014. The Corporation raised approximately $1.7 million in gross proceeds from the issuance of 1,952,009 Shares. The Corporation expects to issue a further 15,489,851 Shares (at $0.86 per Share) to Clairvest and/or certain of its funds and co-investors (the “Standby Shares”) on or before May 5, 2014 pursuant to the Standby Purchase Agreement. As a result of the Offering and the issuance of the Standby Shares, the unsecured convertible debentures conversion price is expected to change to $6.53 per Share (formerly $7.30 per Share).

On March 31, 2014, the Corporation entered into a loan agreement with Element Financial Corporation in the principal amount of $21.5 million. The proceeds from the loan were used to refinance approximately $20.5 million in existing term indebtedness of the Corporation and provided the Corporation with approximately $0.9 million in cash (net of loan arrangement fees but before transaction costs). In connection with this refinancing, the Corporation’s obligation to restore the airworthiness of two aircraft or pay down $4.0 million in indebtedness was eliminated.

The Corporation undertook a number of initiatives in Fiscal 2014 (as noted above) to streamline core businesses and shift aircraft composition which resulted in a number of operational and asset divestitures. In late January 2014, the Corporation ceased its executive jet service program based in Calgary. In April 2014, the Corporation accepted an offer to purchase five 601 Challenger jets for approximately US $2.5 million. The transaction is expected to close during the second quarter of Fiscal 2015.

Commenting on the financial results, Jacob (Koby) Shavit, the Corporation’s President and Chief Executive Officer stated, “The continuing weakness in the resource based sector, an exceptionally weak forest fire season, unplanned government cutbacks curtailing our airborne training services and the need to optimize our fleet collectively, presented significant challenges for our operations. Despite these present setbacks, the Corporation is committed to execute its newly redefined strategy pursuing opportunities that in the long term are expected to place the Corporation in a leadership position in the growing international airborne training services market and in the helicopter market in North and South America. We are also expanding our offering in Fire Services into the environmental monitoring arena.

The investment in the assets of ATSI in Mesa, Arizona and the deployment of fighter planes to Germany are significant milestones for the Corporation’s airborne training operations as it makes tangible strides to expand its services outside the Canadian market. In parallel, the Corporation intends to continue making preparations to procure additional fighter jets to enhance our airborne training services to the Canadian military and seek to expand these services into the U.S. and international markets.

Our operations that service the mining-based markets showed resiliency this year by redeploying assets into new markets and geographies. Great Slave Helicopters were very active serving the Oil & Gas companies in British Columbia and flew counter-seasonal missions in Chile, Peru and in the U.S. This significantly curtailed the full impact of the revenue shortfall from the mining-based markets.  All our operations made great strides in streamlining their operations to focus on services that are core to the long term objective of the Corporation’s ‘Specialty Aviation’ mandate and placing emphasis on meeting the expected returns for the assets deployed. We will continue looking for efficiencies through ongoing review of asset utilization as we implement our growth engines based strategy.”
Forward Looking Statements

Forward-looking information and statements are included in this earnings release.  Please refer to the statement regarding forward-looking statements contained in the Corporation’s MD&A for the year ended January 31, 2014, which are incorporated herein by reference.  That statement provides an explanation as to what forward-looking statements are, and the specific factors, uncertainties and potential events that the Corporation has identified for the attention of readers.  When relying on forward-looking information and statements to make decisions, investors and others should carefully consider these factors and other uncertainties and potential events.

The Corporation’s audited consolidated financial statements and MD&A for the year ended January 31, 2014, have been filed concurrently and are available on the Corporation’s website at and on SEDAR at  The reader is encouraged to review the audited consolidated financial statements and MD&A for the year ended January 31, 2014 for more complete disclosure on the Corporation’s financial condition and results of operations.

The Corporation’s Class A common voting shares and unsecured convertible debentures trade on the Toronto Stock Exchange under the symbols DA.A and DA.DB.A, respectively.

Non-IFRS Measures

References to “EBITDA” are to net profit before finance costs, income taxes, depreciation of property and equipment and intangible assets, gains and losses on disposal of assets and extinguishment of debt, gains on acquisition and disposals, impairment losses, and gains and losses resulting from the change in fair value of financial liabilities. The EBITDA margin is EBITDA as a percentage of revenue.  Management believes EBITDA to be an important metric in measuring the performance of the Corporation’s day-to-day operations. This measurement is useful in assessing the Corporation’s ability to service debt and to meet other payment obligations, and as a basis for valuation.  “Adjusted profit (loss)” is net profit attributable to shareholders of Discovery Air Inc. excluding non-recurring gain on extinguishment of debt, gains and losses on disposal of property and equipment, gains on acquisitions and disposals, and gains and losses resulting from the change in fair value of financial liabilities and impairment loss, net of taxes.

For further information, please contact:

Sheila Venman



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