Under the decision, the panel accepted Air Canada's (TSX:AC.B) contention that it was paying too much to Chorus under its capacity purchase agreement.
Both sides had agreed to compare or benchmark the growth of controllable costs at Chorus' operating subsidiary, Jazz Aviation, in 2009 and 2015 to those of a specified group of similar operators in the U.S.
It was sent to private arbitration after they disagreed on the methodology to ensure controllable costs, including salaries and wages, maintenance and overhead, are kept in check.
Although a majority on the arbitration panel ruled that the current 12.5 per cent markup is too high, it didn't agree to the 9.48 per cent that Air Canada was seeking. Air Canada pays 12.5 cents on top of every dollar it pays to Chorus for controllable costs.
The award is retroactive to 2010 and will require Chorus to repay millions of dollars in markups to Air Canada.
The amount owed wasn't clear but under the worse-case scenario, Chorus has estimated that it would be required to repay $24.4 million for 2010 and $24.7 million for 2011 and up to $20 million in 2012.
Chorus (TSX:CHR.B) said it will seek clarification on the panel's decision, which agreed that "certain controllable cost adjustments" are to be made in its favour.
"The benchmarking exercise and the subsequent award are very complicated. There are a number of issues within the decision that require clarity," spokeswoman Manon Stuart said in an email.
She said Chorus can't provide a comprehensive overview of the result because of the lack of clarity on these other issues.
"However, we can confirm that Air Canada will not receive its full claim in the arbitration. We will not speculate on the possible outcomes and will confirm our position once issues have been clarified."
The Halifax-based company's shares fell on news of the ruling, closing down 10.6 per cent, or 39 cents, to $3.29 in Wednesday trading on the Toronto Stock Exchange.
Cameron Doerksen of National Bank Financial said the ruling could force Chorus to cut its dividend by 25 to 35 per cent even though the decision isn't the worst of possible outcomes.
"(There) will be cash implications so expect a dividend cut," he said in a research note.
Doerksen had previously estimated the amount Chorus would have to pay to Air Canada in 2013 would range between $15 million and $20 million.
Chorus had $97.1 million in cash at the end of the second quarter, enough to pay Air Canada. But lower free cash flow stemming from a lower markup and capital requirements for new aircraft purchases could force the substantial dividend cut from its payout of 60 cents per share, Doerksen added.
Doerksen said a total loss by Chorus would have forced him to cut his current valuation of $3.50 per share by 30 per cent.
"Given that the financial impact will not be as severe as the worst-case, we do not expect to reduce our target by that magnitude.
"Nevertheless, our valuation will be reduced and we await further details from Chorus before fully assessing the financial impact," he wrote, adding that most, if not all, analysts assumed a positive outcome for Chorus in the arbitration.
Chorus is expected to announce its next dividend payout in December.
The ruling continues Air Canada's string of successful arbitration rulings. Earlier, it won separate arbitration rulings with its pilots, flight attendants and machinists to end months of labour disputes.