Jazz Air Income Fund rose on its first day of trading on the Toronto Stock Exchange, with investors betting yesterday that a charter relationship with Air Canada will protect the new trust from the ill effects of high fuel prices.
Yesterday morning, Jazz units rose as much as 4.5 per cent. They closed at $10.30, up 30 cents or 3 per cent on the day. Nearly 16.8 million units traded hands.
Independent trust analyst Harry Levant said the new issue went smoothly, despite some long-standing concerns about the volatility in the airline sector.
"This should send a positive signal to income trust issuers," he said. "Jazz did not leave much on the table in terms of pricing and yield, yet investors oversubscribed by four times. Prices of the units could have some upside as investors become more comfortable with ACE and the Jazz business model over the next several quarters."
Jazz, which filed its final prospectus this week, is a regional airline that operates aircraft between 37 and 75 seats.
During a recent road show, Jazz president Joseph Randell said the carrier is shielded from high fuel prices because it collects charter fees from Air Canada, which foots the fuel bills. But analysts stress that Halifax-based Jazz would still be hurt by any general downturn at ACE Aviation Holdings Inc., parent of Air Canada and majority owner of Jazz and Aeroplan Income Fund.
So far, ACE has raised $235-million in its Jazz initial public offering, sold at $10 a unit with a starting annual yield of 8.75 per cent. With the first tranche oversubscribed, analysts expect the overallotment option will be exercised next week. That would mean ACE likely will sell a 22-per-cent stake in Jazz, raising a total of $270-million.
A research report this month into Aeroplan by Veritas Investment Research Corp. said that even under bankruptcy protection, Air Canada continued its flights. In its separate report on Jazz, Veritas said: "The underlying business is perhaps the most volatile and unprofitable in the history of capitalism, as we pointed out in our report on ACE of June 9, 2005."
Veritas analyst Peter Holden ended his Jazz analysis by saying: "If your heart is set on investing in an Air Canada or ACE security, give both ACE and Aeroplan another look. But steer clear of all that Jazz."
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